Quarterly Outlook
Q3 Investor Outlook: Beyond American shores – why diversification is your strongest ally
Jacob Falkencrone
Global Head of Investment Strategy
You can access both of our platforms from a single Saxo account.
Market-friendly Xi speech boosts risk appetite
John J. Hardy
Global Head of Macro Strategy
Chinese president Xi Jinping's speech at the Bo’ao Forum is being read by markets as signalling a desire to deflate the simmering trade tensions with the US and a consequent relief rally sees equities, crude oil, and smaller G10 currencies all trading higher as the European session opens.
But it's not as simple as that, notwithstanding Xi's promises to cut tariffs on imported cars and "open up" the economy. "This is simply the platform message we have got used to from Xi. Equities seem almost too eager to grab any slightly positive news , says Peter Garnry, Saxo' s head of equity strategy. "We remain negative on equities as rates (budget deficit) and the trade war will continue to be negative for sentiment," Garnry adds.
But however transient this latest resurgence in risk appetite proves to be, it is making its mark on everything from FX to commodities. The G10 smalls, including the commodity currencies, have rallied strongly and the Japanese yen has taken a hit, reports John J Hardy, Saxo's head of FX strategy. Unrelated to these moves, the Russian ruble lost over 4% yesterday in a very severe one-day slide and it could be in for a further battering should even more sanctions be placed on Russia because of the Syrian attacks.
Crude oil , meanwhile, is testing the higher end of its current tight range on Xi’s conciliatory tone on trade. "Raised geopolitical tension is adding an additional layer of support with the focus on Syria, Yemen and US sanctions against Russia," says Ole Hansen, Saxo's head of commodity strategy. Gold remains stuck between $1,310 and $1,355/oz with the dollar, stocks, and yields in focus, he adds.
The G-10 rundown
USD – the USD is wilting as risk appetite returns and the market perhaps gets back to pondering the US fiscal outlook. Next status check on the greenback up with tomorrow’s US CPI release and FOMC minutes.
EUR – the euro is gaining the upper hand against the weak JPY and USD at the moment, but not much else. Implied and realized volatility continues to collapse as traders are at a loss for a near-term policy catalyst for the single currency.
JPY – the JPY is at the bottom of the heap at the moment and may stay that way if the mood can stay positive across global markets for a few sessions. Next pivotal test over the Bank of Japan meeting on April 27.
GBP – sterling mulling the cycle lows in EURGBP – not sure what it will take to push the pair over the edge, but the technicals look promising. Interesting profile in Bloomberg, by the way, of the new UK-friendly German finance minister Scholz.
CHF – EURCHF looking at those cycle highs above 1.1800 soon and could taken them out if we can put together a few days of positive sentiment and rising bond yields.
AUD – the Aussie trying to get something going with its best rally day in some time overnight, likely driven by the response to Xi’s speech. If AUDUSD can work back above 0.7800 again, the rally may turn into something bigger than all previous bounce attempts and confound our bearish expectations for the currency for now.
CAD – USDCAD has dropped back toward its 200-day moving average on the USD weakness and resurgence in crude prices
NZD – the kiwi pulling toward the high end of the range versus the greenback again – are we really going to challenge the highs for the cycle again. Would expect increasingly stern Reserve Bank of New Zealand observations on the currency as soon as the May 10 RBNZ meeting as we await an impression of new governor Orr’s style.
SEK – the krona going nowhere at the moment near cycle lows and waiting for whether the Thursday CPI throws the currency a lifeline. The weak Norwegian CPI print this morning has thrown at least a temporary spanner in the works for NOKSEK bulls.
NOK – an ugly miss on the March CPI data weighs against the NOK and may cap its ambitions at the moment, as the core CPI print stumbled to 1.2% year-on-year and saps anticipation for Norges Bank rate hikes.
Upcoming Economic Calendar Highlights (all times GMT)
• 0930 – UK BoE’s Haldane to speak
• 1000 – US Mar. NFIB Small Business Optimism
• 1215 – Canada Mar Housing Starts
• 1230 – Canada Mar. Building Permits
• 1230 – US Mar. PPI
• 2230 – US Fed’s Bostic (Voter) to speak
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