Investors worry about growing risks of high securities market turbulence and the US economic recession
Markets are staying still ahead Jerome Powell’s speech before the Congress, and, in general, seem to be rather reckless, ignoring trade wars. The volatility of $15-bn Treasuries market, according to BofA Merrill Lynch, is down to 48 bps. The record low of 44 bps, reached in November, is very close. In addition, the world’s largest asset manager BlackRock warns that the tariffs on Chinese imports worth $200 billion can draw the US stock indexes 10%-15% down.
Dynamics of the US debt market volatility
The IMF has again expressed its concerns about trade wars. It has retained its forecast for 3.8% 2020, but has stated that massive tariffs will slow global GDP growth 0.5 bps down. The expected pace of global economy expansion in 2018 hasn’t been changed (+3.9%). But the expected GDP growth in European countries and Japan has been lower due to their weak start. The International Monetary Fund still believes the USA can feature almost 3% increase due to the massive fiscal stimulus.
The IMF forecasts
Different pace of GDP growth in the USA and the Euro-area became the main reason for EUR/USD price drop by over 5% in the second quarter. Therefore, investors are extremely curious about the further dynamics of indexes. The greenback couldn’t get use of the strong statistics on retail sales in June. Although the positive report allowed Macroeconomic Advisers increase the forecast for the US economic expansion in the period of April-June from 4.9% to 5.1%, everybody understands that his factor is mostly included in dollar pairs quotes.
The EUR/USD trend will greatly depend on the central banks’ policies. Jerome Powell will try to clarify the Fed’s position. And if his opinion about trade wars is known, then a soon inversion of the yield curve (according to Financial Times experts, it may happen already this year) makes the markets worry. According to the Minneapolis Fed’s president Neel Kashkari, over the last 50 years, this indicator has signaled recessions quite accurately; so, the Fed should make a pause in the monetary normalization cycle. Even if the critics claim that its dynamics was corrected by massive asset buyouts within the US QE, the main FOMC dove announces it to be just an assumption.
In the meanwhile, the USA is not going to just watch. In response to numerous complaints to the WTO about the US tariffs on steel and aluminum imports, Washington filed a counterclaim. It charges China, the EU, Canada, Mexico and Turkey with illegal retaliatory tariffs worth $28.5 billion. The best defense is an attack, isn’t it?
Amid the anticipating of Jerome Powell’s speech and regular news about trade wars, EUR/USD bulls are trying to drive euro price to the upper border of the consolidation range at 1.1515-1.1815.
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Price chart of EURUSD in real time mode
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