With global markets taking a role coaster ride, amid the escalating trade tensions between US and China, investors move towards gold, government bonds and even cryptocurrency. Though today the markets looks a little stable as compared to Monday when a huge sell-out almost crashed the market amid China pulling yuan to a ten-years low, sending investors into anxiety fit.
Tuesday brought some life back into the global stock market as People’s Bank of China fixed yuan at a higher rate than expected. But unfortunately worst is not over yet.
Investors fear that that latest bearish market would go from bad to worse with US’s new tariffs, to be imposed on remaining Chinese goods, coming in effect on September1. In a retaliatory blow Beijing instantly depreciated its currency below 7 against US dollar on Monday, but the following day yuan got stable and fixed at slightly over 7, which is also bare minimum.
The trade war graduating to currency manipulation is a scary scenario for global economy as it makes investors jittery leading to major capital outflow. The tragic Monday sell-out could be just a glimpse of the forthcoming disaster.
Daryl Jones, research director at Hedgeye, told CNN Business, “There is a high probability that we go into another December scenario, which was a black hole for almost all asset classes except Treasuries and gold,”
Larry Summers, former US Treasury Secretary, wrote onTwitter, “We may well be at the most dangerous financial moment since the 2009 Financial Crisis.”
Summers told Bloomberg, “There is a growing risk that this trade conflict between the United States and China will broaden and get out of control.”
A lot of researchers backed Summers viewpoint including Nomura strategist Masanari Takada, who said that fluctuating market sentiment, switching within hours from positive to negative, could lead to another ‘Lehman-like’ crisis.
It already is a lot like recession with fall in the Brent crude over 20%, iron ore and copper about 18% and government bond yields. The only two entities which went up amid the gloomy market scenario were gold and bitcoin.
Investors are looking towards Federal Reserve to mitigate the impact of upcoming financial tsunami, for it could help restore confidence among investors by accepting Trump’s call for more easy money.