Investors once again flocked to safe haven assets on Monday, as global markets fell and oil struggled to climb past the $35 per barrel mark. With so much uncertainty, investors are growing more cautious, pushing the yen and Treasuries ahead.
Why are safe havens so attractive right now? Here are three reasons:
1. Global Growth is Sluggish
China’s economic slowdown has created a ripple effect, stretching out to other nations and slowing global economic growth. There isn’t a whole lot of good economic news coming out of most countries.
This week, economic data out of Germany and the U.S. was worse than expected. The job market is in the U.S. is holding steady, but manufacturing activity has been weak for the better part of the last 12 months, and the trade deficit reached a six-month high of $47.1 billion in February.
Comments from Christina Lagarde, IMF (International Monetary Fund) head, also highlighted concerns of a slowing global economy.
2. Global Markets are Unpredictable
Global markets are incredibly volatile at the start of 2016. And while things have settled slightly, markets are still unpredictable.
After six weeks of gains, the S&P 500 has been on a losing streak this week. Today, the index slipped another 0.8%. In fact, stocks fell across the globe, and stocks in the United States were headed for their worst two-day decline in two months.
In Germany, an unexpected drop in factory orders sent all but two members of the DAX Index tumbling.
“We’re stalling out,” says Michael Block of Rhino Trading Partners LLC. “Pain is being felt everywhere.”
3. Oil is Still Struggling
Oil has staged a spectacular comeback after falling to 12-year lows in February. But it’s still not out of the woods. The supply glut is far from over.
On Tuesday, WTI struggled to climb above $35.50 a barrel. Inventories are expected to have increased by 2.85 million barrels last week.
The appetite for risk is poor, so investors are turning to the yen, bonds and gold. Not surprisingly, gold advanced 1.1% to $1,228.55 an ounce on Tuesday, while the yen soared to a 17-month high.
Anthony Young
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