Trade War, Hawkish Fed To Weigh On Global Equities, Gold May Shine

Dubai:Global equities may still face uncertainty this week despite the Dow Jones index snapped a nine quarter winning streak.

Vagueness over a potential trade war between the US and China interest rate hikes from the US Federal Reserve are likely to weigh on investors going forward, with no sign of recovery in sight.

The Dow Jones Industrial Average closed the quarter on a weak note, ending 3 per cent lower, snapping its nine-quarter win streak, the longest in 20 years.

The Dow Jones Industrial Average, which struck a record high of 26,600 in late January, witnessed record volatility amid fears that faster than expected rise in inflation could trigger higher rates.

“Markets will remain jittery, as the focus will be on trade wars and policy actions. The upcoming non-farm payrolls, and that will be major denominator for markets, and that will decide the direction,” Naeem Aslam, chief market analyst with Think Markets told Gulf News.

The S&P 500 index on the other hand closed 1.38 per cent higher to 2,640.87, after registering 1.22 per cent loss so far in the year.

“If S&P 500 index breaches the 200 day moving average, we may see a leg down,” Aslam said.

UBS said the presence of uncertainty over trade means investors need to manage against tail risks.

“This is challenging in a time of strong global growth, because the very positions that can be expected to perform well (Canadian dollar, emerging market and Eurozone equities), are also those that could be vulnerable in the event of a trade war,” Mark Haefele, global chief investment officer at UBS said in a monthly note.

UBS plans to overcome this uncertainty by keeping its pro-risk stance, but also hold counter-cyclical positions, which may benefit from a market downturn,

“These include an overweight position in US 10-year Treasuries relative to cash, an overweight in the Japanese yen relative to the New Zealand dollar, and a put option on the S&P 500,” Haefele said.

Gold:

Gold may stand to benefit from the uncertain economic environment.

“I’m still bullish on gold due to geopolitical uncertainty. For me to be completely confident we need to close above $1,350.My year-end target $1,450,” Aslam from Think Markets said.

Gold in the international spot market was at 1,325.50 an ounce, after gaining 14.8 per cent in the first quarter, registering its third straight quarterly rise.