Seamlessly and almost imperceptibly, the dominant has changed on the world economic scene. Today, when trying to conduct fundamental analysis, whether it is for the currency, commodity, stock or cryptocurrency market, all the roads lead to China.
While it is still uncertain whether this phenomenon is temporary, it is important to note that it does not indicate a weakening of the United States or a shift of the economic centre to the East. As a matter of fact, Donald Trump has currently relegated foreign affairs to the background, completely focusing on internal problems. This, in turn, seems rather logical, as any changes for the better should start from within.
The internal changes have been long-needed in the US. Reducing the debt burden, getting rid of the budget deficit, cutting down the excessive spending on NATO funding, boosting exports, reforming the healthcare system and resolving the issue of Mexican illegal migration will help the country to avoid a looming recession and regain its title of the world’s economic leader for many years ahead.
In this article, we take a look at some of the world’s major markets that are currently under a high influence of the Middle Kingdom.
EUR/USD: the mammoth of the forex arena
In October, the US dollar was mainly in the red zone of fears, as escalating trade tensions with China were predicted to result in slowing GDP growth that could further mitigate monetary policy.
However, recently published GDP figures and employment data have returned the USD its strength, demonstrating the stability of the US economy. In addition, US exports to China fell to $9 billion, while imports dropped to $37 billion. As a result, the trade deficit with Beijing fell to $28 billion, the lowest level since 2016, which, in turn, also had a positive effect on the country’s GDP.
Given a possible reduction in EU rates, as well as increasing uncertainty over Brexit, it seems like the euro cannot compete with the dollar now. There is a possibility of the EUR to fall to the level of $1.09650, after which it may possibly take a new acceleration and try to break through the $1.11500 mark.
Brent crude oil: the rapidly fluctuating commodity
The dynamics of the price of the liquid ‘black gold’ directly depends on the negotiations between the US and China, with the latest rally caused by the Beijing statement on reaching certain agreements with Washington. However, in order to overcome the powerful historical resistance level of $62.5, Brent crude oil may require more than a verbal agreement between the globe’s two economic powerhouses. The deal must be sealed documentary with having much-needed legal force. Otherwise, the price of the commodity might go down once again.
Gold: investor’s favourite safe haven
The current situation around the US and China trade war sees both stock and precious metals markets behave quite unusually: while risky assets are growing in value, gold is also receiving a lot of attention from international investors as a hedge against political and economic turbulence. Why is this happening?
Once the US-China tensions took a breather after Beijing saw a positive signal in the partial easing of tariffs from Washington, the stock markets have gone on a rally, continuing to grow and renewing historical highs.
Meanwhile, gold’s price remains in the hands of the bulls, with some periodical, short-lived adjustments. It is expected that as long as uncertainty in the trade war and the Fed’s monetary policy continues in 2020, the precious commodity will be traded close to the levels of $1,485 – $1,500, protecting investors from potential risks. As soon as the situation on one of the issues becomes more clear, gold may roll back to the $1,400 mark or even lower.
Cryptocurrencies: unstoppable Bitcoin
The cryptocurrency market is no exception when it comes to the influence of China, which largely extends to Bitcoin. Unlike many other countries, China has decided not to include cryptocurrencies in the list of “undesirable industries.” Instead, the focus remains on the policy of the country to support blockchain technology and development of the digital economy.
The future of the price of this crypto major heavily depends on the developments in the risky assets, including both stock and emerging markets. If investors decide that the market situation is favourable and the Risk-On mode can continue, we may see a rise in BTC with a possible update of the historical maximum by the end of the year.
The bottom line
While the US is busy dealing with its internal problems, China is driving global markets. This shift of dominance is predicted to last until a clear and definite picture appears in the policies of the Fed and Donald Trump.