Threats of Global Trade War Continue To Rule The Markets
Fears of the global trade war continue to dominate the markets. Investors have sharply increased their use of hedging strategies, signaling concerns that the intensifying trade battle between the United States and China might hit economies from Germany to South Korea. While many investors are reducing their exposure to equities, most remain reluctant to completely move away from stocks. As a result, demand has risen for investment positions aimed at offsetting potential losses, according to money managers, market indicators and data.
Investors seem to be seeking more options market protection against currency losses, especially on trade-sensitive currencies such as the Australian dollar or the Chinese yuan, via purchasing put options on these currencies in the $5.1 trillion a day foreign exchange markets. A trade war would darken the overall outlook but some currencies, including the Australian dollar or from emerging markets, are expected to suffer more than others.
The euro declines at the beginning of trading on Monday after German Chancellor Angela Merkel received a new blow when her interior minister said he was ready to resign due to migration policy.
The US dollar increased its profit against the Japanese yen, reaching a new six-week high, as the latest survey of the Bank of Japan Tankan showed a slight drop in the mood of major Japanese producers. The activity index in the sector of major producers in the second quarter decreased to 21 from 24 in the first quarter, while the index of business activity in the services sector increased from 23 to 24.
The Australian dollar declined after the release of weaker data on the activity index in the manufacturing sector of Australia and China. The index of business activity of the manufacturing sector of Australia from AiG slightly decreased to 57.4 in June from 57.5 in May.
The manufacturing sector in China continued to expand in June, albeit at a slower pace, the last poll of Caixin showed. The index of business activity of China's manufacturing sector in June fell to 51.0 from 51.1 in May.