News Home » World » Global markets are in panic mode — sparking a wave of investment into gold, bonds and currencies

Around the World

Global markets are in panic mode — sparking a wave of investment into gold, bonds and currencies

Lisa Micheal 5 Aug 5
At times of market turbulence, investors tend to flee to assets expected to either retain or increase in value — such as gold, the Japanese yen and government bonds.

Global growth worries and an intensifying trade war between the world's two largest economies sparked a stampede into perceived 'safe-haven' assets on Monday.

Gold prices jumped more than 1% to hit their highest level in over six years on Monday, while the Japanese yen and core government bonds also rallied.

It comes at a time of heightened volatility in financial markets, with the pan-European Stoxx 600 falling almost 2%. That's on top of the 2.5% it lost on Friday — its worst day so far in 2019.

The panic is seen spreading across to Wall Street too, with the Dow Jones Industrial Average expected to fall more than 380 points lower at the open.

Meanwhile, China let the yuan breach the key 7-per-dollar level for the first time in more than a decade on Monday. It appeared to indicate Beijing would be prepared to tolerate more currency weakness that could further exacerbate the trade conflict with Washington.

"The nervousness in financial markets over the falling renminbi (yuan) in recent weeks has reached panic levels, " Tom Elliott, international investment strategist at deVere Group, said in a research note published Monday.

"Just as in July and August 2015, when China engineered a small devaluation to support growth, global stock markets have panicked," Elliott said.

The CBOE volatility index — known commonly as the VIX or Wall Street's "fear gauge" — climbed to its highest level since mid-May, while Europe's equivalent reached its highest since early January.

At times of market turbulence, investors tend to flee to assets expected to either retain or increase in value — such as gold, the Japanese yen and government bonds.

These safe-haven assets are typically sought to limit one's exposure to losses in the event of a sharp market downturn.

Markets have been spooked since President Donald Trump announced a plan to impose a 10% tariff on $300 billion worth in Chinese imports late last week, ending a month-long trade truce.

On Friday, China vowed to fight back.

Spot gold rose 1.4% to trade at $1,460.11 per ounce at around 8:15 a.m. ET. It marked the yellow metal's highest level since May 2013.

"I think we are in a sustained bull market now for gold and I think it can go way higher," Philippe Gijsels, chief strategy officer at BNP Paribas Fortis, told CNBC's "Squawk Box Europe" on Monday.

When asked whether he had a preference among the perceived safe-haven assets, Gijsels replied: "I prefer gold."

"It is hard to argue that in the bond market you get a very nice price at the moment so, therefore, I think gold and silver look more compelling," he added.

The onshore Chinese yuan changed hands at 7.0304 against the dollar on Monday, while the offshore yuan traded at 7.0807 against the greenback.

The Chinese currency last breached the 7 level against the dollar during the global financial crisis in 2008, according to Reuters.

The sharp weakening in the Chinese currency came after Trump unexpectedly announced fresh tariffs on Beijing last week. The new charges are set to take effect from Sept. 1.

"I think in this environment, right now, today, it would be foolhardy to go into risky assets," Duncan Wrigley, chief strategist at Everbright Sun Hung Kai, told CNBC's "Squawk Box Europe" on Monday.

"I think there is going to be a little bit more of a market adjustment, and probably an over-adjustment, in response to the trade action and the yuan," he added.

Foreign exchange currencies.

Japan's yen, which investors often buy during times of risk aversion, rose 0.7% to its highest since a January flash crash. The currency was last up 0.5% at 106.04, after hitting 105.78 earlier in the session.

Meanwhile, the Swiss franc — another safe-haven currency — climbed 0.4% to 1.0864 francs against the euro. That marked a fresh 25-month high.

At around 8:15 a.m. ET, the yield on the benchmark 10-year Treasury note, which moves inversely to price, was lower at around 1.7616%, while the yield on the 30-year Treasury bond was also lower at around 2.3034%.

The U.S. 10-year Treasury yield, which influences mortgages and other loans, fell almost 10 basis points on Monday, hovering close to a nearly three-year low.

Some government bonds are viewed as safer assets by investors. The bond yields hitting multi-year lows shows there is a rising demand for the 10-year paper due to the ongoing uncertainty in the global economy.

Trump's latest tariff threat on the roughly $300 billion of Chinese goods not currently targeted by American levies may force the U.S. central bank to cut interest rates more than it hoped was necessary to protect the economy from trade policy risks.

— Reuters contributed to this report.