Weak manufacturing data in Europe and from China set the markets off on the wrong foot at the start of the new year. It is a new year but there is nothing new about the issues concerning the markets. As traders returned to their desks, fears of a global economic slowdown wasted no time in showing up; risk off dominated and flows into safe havens increased
Chinese manufacturing activity contracting as the pmi fell to the lowest level in 19 months and weakness in European manufacturing data offered few reasons for investors to cheer. Data continues to show the negative impact of the US – Sino trade war on global manufacturing activity unnerving investors.
UK Manufacturing Rises on Stock Piling
Unlike weaker manufacturing data from Europe and China, UK manufacturing activity surprised to the upside. Manufacturing PMI jumped to 54.1, up from 53.1 in November and significantly ahead of the 52.5 forecast. However, the headline figure is somewhat deceptive. UK manufacturing activity hit a six-month high as firms ramped up stock piling amid growing concerns of a no deal Brexit.
With Brexit uncertainties dominating and traders seeing straight through the UK manufacturing pmi increase, the pound dived over 1% lower. The pound is finding some support at $1.26, however with the Brexit deal back in Parliament next week to be debated, it is doubtful how long $1.26 will hold for. With sentiment across the globe lower on global growth concerns and Brexit uncertainties lingering, there are few reasons to buy into the pound right now.
Flight to Safety
Whilst riskier assets suffered at the hands of investors, a move higher in gold and the Japanese yen indicated a broad flight to safety. The yen rallied to its highest level since early June versus the dollar rallying over 0.8%. Meanwhile gold continued its ascent.
Gold hit a six-month high in trade on Wednesday. It is up some 10% since August and has climbed $50 over the past week. As global growth fears increase, and the chances of further Fed hikes diminish, the appeal of non -interest bearing gold is growing. The markets are currently not pricing in any rate Fed hikes over the coming year, attention will now turn to Friday’s non-farm payroll data. A weaker than forecast reading could feed fears over growth concerns and give fresh legs to gold’s recent rally.