Is a global synchronised slowdown on its way? Safe haven assets in focus for Q2 amid global growth concerns.   


09 April 2019 : An inversion of the US Treasury Yield curve has correctly predicted in advance historic recessions in the United States. The Treasury Yield curve inverted for the first time since 2007 at the end of March, sparking an initial selloff in US and European stock markets and a fresh round of fears that another global economic downturn could be upon us.  

  The second quarter will likely continue to be a hectic one, with many uncertainties persisting – the prolonged US-China trade negotiations, uncertainty over Brexit, a prominent slowdown in the Eurozone economy and a downbeat Federal Reserve joining other major central banks with their dovish tone. While investors traditionally flock to safe haven assets such as the Japanese Yen and Gold amid market uncertainties, one of the leading questions into the new quarter will be whether the USD will be able to hold onto its reign as the asset of choice for investors.  “Whether this inversion is going to be an exception to previous ones that led to an economic recession remains unknown, but it is certainly a warning signal”, said Hussein Sayed, Chief Market Strategist at FXTM.

 

“Past yield curve inversions have tended to precede economic recessions in about 6 - 18 months. However, investors begin to sell risk assets well before a recession occurs. They don’t wait for a recession to hit. That’s why economic data releases in the first few weeks of the second quarter will play a significant role in determining whether to hold onto risk assets or begin liquidating positions”, adds Sayed.

 

“It is not only the United States that is facing headwinds, as growth in Europe shows risks of crumbling, China is resuming a gradual slowdown while the pace of UK economic expansion remains lacklustre. The fact that global macroeocnomic conditions are painting a gloomy picture will likely encourage the flight to safety - presenting a compelling argument for investors to monitor the Gold price.”, remarked Lukman Otunuga, Research Analyst at FXTM.

 

Global Head of Currency Strategy and Market Research, Jameel Ahmad, shares the sentiment that safe haven assets will be keenly watched by investors over the coming quarter: “Away from global economic concerns that will remain in the conversation for a long time to come, what can also be looked upon for potential support in the Yen and other safe havens are the number of election risks about to take place in emerging markets. Elections are scheduled throughout a wide range of developing markets this year, but the next couple of months will see markets like the Philippines, Indonesia and South Africa go to the polls. Elections in both developed and developing markets in recent times have concluded with unexpected outcomes and when you consider how much foreign investor capital is kept in emerging markets, investors might adopt a more conservative tone towards their investments until the outcome of these event risks become clear.”


Source: FXTM Research Analysts


Reporting for EasyKobo on Monday , 08 April 2019 in Lagos, Nigeria


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