British Prime Minister Theresa May announced on April 18 that Britain will conduct a snap general election on June 8. As a result, the Sterling recovered significantly and the European stock market hit a new low in three week. The U.S. stock market also plunged. Hedge gold continues to be favored by investors. During the trading session in Asia-Pacific and Europe on April 19, the market adjusted slightly with slight recovery in risk assets. Insiders believe that the tight global geopolitical tensions upset investors. The stock market is difficult to maintain growth and the confidence on the commodity market may reduce.
The unexpected announcement of British PM triggered fluctuation in the global financial market. Theresa May announced on April 18 that Britain will conduct a snap general election on June 8.
Analysts believe that the move will help the Conservative party win more seats in the parliament and smoothen the negotiation on Brexit. However, with the election in France and Germany, the European political situation remains unclear. The negotiation on Brexit still faces uncertainties. In addition, the geopolitical tension in the Korean Peninsula also contributed to the fluctuation of the financial market.
The Sterling recovered significantly on April 18 and the European stock market hit a new low in three week. The U.S. stock market also plunged. Hedge gold continues to be favored by investors. During the trading session in Asia-Pacific and Europe on April 19, the market adjusted slightly with slight recovery in risk assets. Insiders believe that the tight global geopolitical tensions upset investors. The stock market is difficult to maintain growth and the confidence on the commodity market may reduce.
Various risks scared the market
Theresa May announced on April 18 at the door of 10 Downing Street that the snap general election is to better safeguard the interests of Britain. Based on the survey released by YouGov last week, May’s Conservative party leads other main opponents. British public opinion believes that the Conservative party is very likely to win the general election and May will continue to be the British PM. Meanwhile, an interim agreement on the negotiation on Brexit is likely to be reached.
Boosted by the news, the exchange rate of the British pound surged over 2 percent against U.S. dollars and even hit 1.2847 U.S. dollars, a new high in six months.
However, it does not mean that the negotiation on Brexit will be smooth. Analysts believe that the election in France and Germany will bring uncertainties to the negotiation.
Out of Europe, the U.S. policies pending implementation are also concerned by people. It is still unknown whether U.S. President Trump will perform his commitments on fiscal stimulus and taxation reform. The radical trade policies of the Trump administration are also concerned by the public.
The International Monetary Fund (IMF) released the World Economic Outlook on April 18. It forecasted that the global economic growth will be 3.5 percent, 0.1 percentage point higher than the estimation in January. It warned that despite that the short-term growth may beat the expectation, it still faces significant downward pressure in the medium term and such risks have been intensified actually. One of the prominent threats is the trend of protectionism, which may trigger trade war.
In Asia, the geopolitical tension in the Korean Peninsula is also one of recent risks.
For investors, they are concerned about such risks, which directly resulted in the plunge of the global market on April 18. The STOXX Europe 600 Index closed 1 percent lower, the biggest decrease in a single day in ten weeks. The VSTOXX Volatility Index hit a new high since last December and the three major U.S. stock indexes plunged 0.12 to 0.55 percent.
The Asia-Pacific market performances diversified during the trading session on April 19. The South Korean and Australian stock markets declined while the Japanese stock market increased less than 0.1 percent. The European stock market recorded slight recovery in the morning session. The global geopolitical tensions upset investors and the stock market is difficult to maintain hikes, indicated Lukman Otunuga, a research analyst at FXTM. Most stocks markets in Asia also plunged with limited market turnovers. The lack of risks preference also brings risks of plunge on European stock markets. The U.S. stock market surged on Monday. Market participants paid more attention to the first quarterly reports. As a result of the recovery of hedge sentiment, the surging of the stock market may be limited. Investors are less confident about the implementation of significant taxation reform and the promotion of infrastructure expenses by the Trump administration and the “Trump conditions” may also be under testing.
Hedge gold outperformed
However, with more geopolitical tensions, the performance of gold is stronger. The COMEX gold contracts hit 1,297.4 U.S. dollars per ounce this week, a new high in five months. It has hiked nearly 12 percent this year. The positions in U.S. SPDR gold ETF also surged. As at April 18, the position hit 848.92 tonnes, a new high since last mid-December.
Many securities companies believe that the hedge demand is driving the gold price to 1,300 U.S. dollars per ounce with the bullish forces enjoying advantages.
However, driven by the hedge sentiment, the prices of metal and other risk assets dropped. As at 17:00 April 19, the LME March-month copper futures, zinc futures and nickel futures plunged 3.6 percent, 8.3 percent and 6.1 percent, respectively. In addition, the prices of black commodities also plummeted. The prices of domestic thread and iron mines were down nearly 10 percent and 13 percent, respectively. The Platts IODEX decreased from 90 U.S. dollars per tonne at the beginning of the year to the current 63.8 U.S. dollars per tonne.
The bullish confidence continued decreasing. The latest statistics released by the U.S. Commodity Futures Trading Commission (CFTC) show that as at the week of April 11, hedge funds and fund managers reduced the positions in COMEX copper futures and options by 1,023 lots to 284,852 lots, the biggest decrease since February.
Besides the geopolitical instabilities, the market realized that the Chinese demand is not as high as expected. The downstream demands for metals are mainly from infrastructure and real estate industries. The development of the properties in China slowed down this year while the infrastructure will depend on the specific progress. The highest price may have appeared in the first quarter,” indicated Zhu Yi, an analyst with Bloomberg on the metal and mining industries in Asia-Pacific.
Besides, agricultural products and other sectors also remained weak with the CFTC holding more short positions. The CBOT corn, bean and soybean meal plunged over 2.5 percent, 0.7 percent and 1.4 percent during the week, respectively. In terms of energy, the NYMEX natural gas contracts plunged over 2.8 percent this week. The crude price fluctuated around 50 U.S. dollars per barrel.
Translated by Star