Escalating trade tensions between the United States and China would continue to weigh on market sentiment, meaning that the sell-off in global equities would continue for another week.
US president Donald Trump said last week they were still pursuing a trade agreement with China, but he was not ready to make a deal, a few days after the US said it would impose taxes on $300 billion worth of Chinese goods from September 1. Analysts say rising trade tensions would impede growth that is already slowing.
The Dow Jones Industrial Average closed 0.34 per cent higher at 26,287.44, after losing 3.5 per cent in the past one month. The index has been on a downward spiral after it hit its all-time high of 27,398.68 seen in early December. The S&P 500 index also ended 0.66 per cent lower at 2,918.65. The index has shed 3.16 per cent in the past one month.
“Investors’ attention will return to global data, although the US-China trade situation will likely be the primary focus — especially if the People’s Bank of China continues to devalue the yuan,” Fawad Razaqzada, Technical Analyst, FOREX.com said.
“As there are no signs of US-China tensions easing anytime soon, Yuan rates could break further higher — and, in turn, cause more chaos elsewhere, such as the equity markets and commodity dollars.” he added.
Dollar may continue to remain weak as Trump is expected to pursue a weak dollar policy in the face of a currency war with China.
Last week, Chinese yuan fell after the People’s Bank of China (PBOC) set its daily reference rate for the currency at 6.92 against the dollar, the weakest rate since December.
“After the PBOC allowed the yuan to trade below the key 7-per-dollar level, Trump has evidently endorsed a weaker dollar policy,” Razaqzada said.
On Friday, Trump denied any plans to devalue the dollar. The dollar index fell 0.13 per cent to end at 97.4910. The index has gained 1.37 per cent so far in the year.
Gold prices may continue to surge beyond the keenly watched $1,500 an ounce mark.
“The gold uptrend remains intact with good buying on dips and solid orders reported coming in from wealth management types. The usual fast money sellers have been absent today, perhaps due to the weekend effect But in the absence of any unexpected news, spot volatility is low with the market trading in a relatively tight range. Provided we stay above the $1,480 there will be a preference to trade gold from the long side,” Stephen Innes, Managing Partner, VM Markets Pte Singapore said in a note to its clients. Gold futures ended at $1,508 an ounce on Friday, after gaining 3.5 per cent last week, the biggest such increase since June.