The latter half of the week sees a bunch of global trade data, which could set the context for the market’s reaction to key data sets before the holidays. Markets are likely to be looking for signs of growth that will support the recent surge in risk appetite. But a slowing economy means less money is available for investment, and that could lead to a shift toward safe havens.
The main issue is that sluggish growth in two of the world’s three largest economies is expected to be reflected in less buying and selling across borders. On the one hand, that would likely affect demand for foreign exchange flows. On the other, it would also likely guide monetary policy. With the central banks that control most of the world’s economy in a race to the bottom, economic growth might be the ultimate arbiter of which currency wins out. And trade data could be the first sign of things to come.
Pricing in the Moves
Global trade is already facing headwinds, which are expected to intensify next year. Both the US and the EU are putting trade restrictions on China, targeting cars as well as advanced chips. Slow economic growth in the Asian giant is seen as one of the factors dragging on Germany’s economic growth, as it exports a substantial amount of machinery to China.
Going into next year, there is additional uncertainty due to the application of tariffs. Europe is threatening retaliatory tariffs even before Trump has announced specific tariffs for the continent. Reportedly, many businesses have bought up products from China and other locations in an effort to stock up ahead of sanctions. All of that could provide additional uncertainty in the trade data, and therefore, the market reaction. However, a general theme of slower imports and exports could leave the market generally worried about global economic growth, and turn towards safe havens once again.
The Leaders and the Laggards
The relative strong growth in the US, however, could be marred by a slowdown in trade. Coupled with expected increased inflation, that could leave gold, with its propensity to not lose value, a preferred safe haven play. After all, rates are still expected to go down, just not as fast.
First to report is Australia, where both imports and exports are expected to keep falling, a theme for pretty much most of the trade data forecast this week. However, with imports seen falling faster than exports, the trade surplus is expected to expand.
Next up is Canada, which is expected to see its trade deficit shrink to -$0.7 billion from -$1.16 billion. The country is seen as an exception, with exports expected to rise while a slowing domestic economy weighs on imports. Demand for crude from the US going into the winter is expected to help support exports.
The US is also expected to see its trade deficit shrink to $83.0 billion from $84.4 billion prior. Both imports and exports are expected to shrink, but the strengthening in the dollar during the period could explain some of the shift. Both goods going in and going out are expected to be less than in the prior month, with imports falling faster than exports. All of this is seen as an indication that global trade – and therefore the economy – is slowing down going into the final stretch of the year.