While Chinese tech company Huawei files a motion in addition to its lawsuit against the US government claiming that it was acting against the constitution, gold prices recover on Wednesday by finding support from falling global markets and weak note yields. Moreover, worries that the trade war between the US and China could be long-lasting increased further as Chinese government’s official newspaper People’s Daily said China could be using its rare earth materials leverage against the US in the trade war. In the meantime, expectations of a possible recession increased due to inverting short and long term yield curves and Morgan Stanley said stock market and economic outlook in the US were deteriorating.
As trade tensions between the US and China escalated further due to Chinese tech company Huawei filing a motion in addition to its lawsuit against the US government following US President Donald Trump’s statement earlier saying the he was not ready to make a trade deal with China yet, gold prices increased due to falling global markets and weak note yields but the upside movement was limited by strong dollar.
As of 16:05 GMT+3, spot gold was trading at $1,282.95 an ounce while dollar index rose to 97.98. US 10-year Treasury yield weakened further to 2.231.
Phillip Futures said in a note today that interest rate difference between US dollar and G-6 currencies boosted dollar’s strength and weighed on non-yielding gold while adding yellow metal would trade in a range.
Chinese tech company Huawei, which was blacklisted by the US government and restricted to have access to US technology, issued a new motion in its lawsuit against the US government, asking for a removal of a law out of legislation that bans government agencies from buying Huawei technology. While the company claims that the law is against the constitution regarding that no individual or a group can be punished without due process, it also claims its rights were violated since there had been no evidence presented and no right to defend itself was given. Company hopes to start negotiations with the US government in case of success in its motion but it was stated that the process of coming to a conclusion regarding the request could take couple of months.
On the other hand in a commentary published on Chinese official newspaper People’s Daily on Wednesday, it was stated that US should not underestimate China’s ability to strike back and underlined the leverage regarding “rare earth materials”, which are used in many goods from high tech consumer products to military equipments, could be used as a weapon in the trade war against the US. Newspaper’s editor said on Tuesday that Chinese government was seriously considering restriction on rare earth materials exports to the US. It is known that China has used this leverage in its diplomatic disputes in the past.
In the meantime, Morgan Stanley said stock market and economic outlook in the US were deteriorating while pointing out escalating trade war and weak data released recently, namely retail sales and durable goods. Bank’s chief US equity strategist Michael Wilson underlined data deteriorated in April before re-escalation of trade tensions while adding economic risks were worse than anticipated.
Wilson also underlined that the weakness was also reflected in the bond market while adding US 10-year and 3-month curves inverted in November and it remained in negative territory ever since, according to Morgan Stanley’s adjusted yield curves. Inverted short and long term yield curves indicate expectations of economic growth deteriorates while it is also accepted as a sign of a possible recession in upcoming quarters. After J.P. Morgan cut its second quarter growth forecast to 1% from 2.25% last week, Morgan Stanley also forecasted a slowdown in the US economy and downgraded its second quarter forecast to 0.6% from 1%.