Head of Macroeconomic Research
Summary: The People's Bank of China cut the yuan fixing by 42 pips to 6.7954 per USD today, which is the lowest level in the past three months
Click here to download this week's full edition of Macro Chartmania.
One day earlier, the yuan fixing was at 6.7912. The PBoC's move tells us a lot about the current state of the US-Chinese trade war. Since negotiations started, at Saxo, have considered that the yuan fixing is the right proxy to understand how short-term negotiations are going.
Things haven't gone very well lately and, as expected, Beijing’s first answer to the US tariff costs 25% increase was to depreciate its currency. In the short-term, coupled with a strong credit flow, it should bring some relief to the Chinese economy since it will limit the erosion of export price competitiveness.
China still has room to let the CNY depreciate further, in case there is no diplomatic improvement with the United States, but it is unlikely that we'ii reach the psychological threshold of 7.00 that is often discussed by investors. In our view, the bottom line is that China cannot allow too much FX weakness as this would hurt local firms that have profits in CNY and a huge amount of debt in USD to refinance in coming months (short-term external debt is about 1.3 trillion USD). Again, this is fine-tuning policy at best.
Bond. Long Bond(s)
With real rates being too positive, we see three scenarios: Opportunity to lock in rates at cycle high, government overreach to keep the economy afloat or a complete reset of the economy.
Steen Jakobsen,
Chief Investment Officer
Is a bond bull market ahead? Inflation still poses a risk for investors, but the moment for increasing duration to your portfolio may be approaching towards the end of the year, when central banks might be forced to cut interest rates.
Althea Spinozzi,
Senior Fixed Income Strategist
The furious rate hike cycle has brought gains in the US dollar, but with stagflation risks in Europe and the UK and weakness in the Chinese economy, USD may have more room to run. But a strong dollar could also have repercussions for US growth, emerging markets and commodity prices.
Charu Chanana,
Market Strategist
With the cost of capital rising painfully, stagflation fears are back, illuminating the fragile state of the green transformation, while giving a tailwind to nuclear power, and threatening the growth of AI-related stocks.
Peter Garnry,
Head of Equity Strategy
With supply tightness not only in energy but all commodities, the momentum in commodity prices may continue, pressuring central banks to lower real rates. That could be a good setup for precious metals, including gold, silver and potentially platinum as well.
Ole S. Hansen,
Head of Commodity Strategy
As the pandemic showed, even the US Treasury can experience seismic shifts. With the government increasing the pace of issuing bonds to support fiscal spending, the complex Treasury market and regulatory constraints could spark a liquidity event.
Redmond Wong,
Market Strategist
The tide has turned for bonds. Given the current yields, bonds have become an attractive investment, with added benefits including lower risk than stocks, increased diversification and a steady stream of income unaffected by economic changes.
Peter Siks,
Investment Coach
