Head of Commodity Strategy
The global rout in emerging market currencies continues apace with the USDTRY again attacking its all-time highs first reached overnight in a low-liquidity Asian session.
The Turkish lira is not the only EM currency showing notable weakness today, however, with the ZAR already having flash-crashed to over 15.50 versus USD overnight and the Chinese yuan sitting just shy of the crucial 7.00 USDCNY level as well.
These developments have seen the MSCI EM currency index fall to a one-year low and a continued decline will begin to pose a major challenge to global oil demand. A barrel of crude priced in TRY has now almost doubled since the beginning of the year while other countries increasingly also feel the heat despite the recent decline in the spot price of crude oil from its 3-1/2-year high.
For now the price of Brent crude oil continues to hover above key support with the expected slump in supply from Iran once US sanctions kick in being offset by the aforementioned risk to demand from trade wars, dollar strength, and EM weakness.
Funds were sellers of crude oil again last week with the 27,000-lot reduction in the combined Brent and WTI taking the net-long down to 732,000 lots, the lowest since October. Traders, however, remain unprepared for a continued drop with the combined gross-short in Brent and WTI at just 71,000 lots being close to the lowest seen during the past five years.
Brent crude oil has settled into a relative tight range between $71 and $75/barrel. Continued focus on Turkey and EM contagion raises the short term risk of further weakness, something the market is currently unprepared for.
AI: The good, the bad, and the bubble
While a deep recession may not be iminent thanks to central bank policy, interest rates will have to stay high for longer, and this will be accompanied by volatility risk from the unwinding of bubbles, especially within AI.
Steen Jakobsen,
Chief Investment Officer
The emergence of advanced AI systems is by far the most surprising event this year, turning everything upside down, while risks and benefits are debated. AI will also become an arms race between the US and China.
Peter Garnry,
Head of Equity Strategy
As China navigates global fragmentation, its cycle of technology application, productivity enhancement, and growth is threatened by US breakthroughs in generative AI, limited computing power, and geopolitical tensions.
Redmond Wong,
Market Strategist
Japan’s expertise in semiconductors and robotic integration could be the foundation of AI dominance. Combining two of this year's themes, Japanese equities and artificial intelligence, brings a wave of opportunities.
Charu Chanana,
Market Strategist
The AI fever has turned the technology into a darling, pushing crypto further into no-man’s-land. There are striking similarities between AI and crypto, and if these are to come full circle, AI won't be spared for bubbles.
Mads Eberhardt,
Cryptocurrency Analyst
Stocks related to artificial intelligence (AI) have appeared on investors' radars. Expectations are high, but it may be necessary to consider how to get exposure to AI in a diversified way.
Hans Oudshoorn,
Trainer Academy
The USD is on its back foot as markets celebrate an eventual Fed rate peak and steady long US yields. The stakes are even higher for the Japanese yen if longer major sovereign yield curves have to price in economic acceleration.
John J. Hardy,
Head of FX Strategy
While commodities, broadly speaking, have faced some tough months, a partial reversal during June could signal that the asset class is getting back on its feet with energy holding up and precious metals with upside potential.
Ole S. Hansen,
Head of Commodity Strategy
As inflation remains high central banks face hard decisions about whether they should keep hiking interest rates or stop. Meanwhile, the rise of AI creates bubble-like conditions that only make the decision harder.
Althea Spinozzi,
Senior Fixed Income Strategist
