Michael McKenna
Head of Editorial Content, Saxo Bank
The People's Bank of China cut the amount of cash that some banks must hold as reserves by 50 basis points, releasing $108 billion in liquidity as the trade war threats from Washington continue to intensify.
Saxo bank Head of FX Strategy John Hardy notes that while the PBoC's stated objective was to aid small-to-medium-sized enterprises, the sharp decline in CNY may well be a response to the threat of trade war.
Elsewhere in FX, Hardy notes that TRY has gained on Erdogan's election win while the Japanese yen is in focus – particularly versus a euro weighed down by migration-driven uncertainty on German chancellor Merkel's political future – as risk-aversion spreads.
Saxo Head of Equity Strategy Peter Garnry cautions investors to remain defensive equities overall and underweight emerging markets, noting that the major indices could see a drop to long-term support as the trade war plays out.
One other factor to watch is the 10-year Treasury yield, which Saxo bonds specialist Althea Spinozzi says might have hit a cycle peak, adding that only a resolution to the trade crisis looks likely to boost it further.
Finally, Garnry reports that European carmakers are in focus on trade war fears with Fed chair Jerome Powell out noting that the current spate of tit-for-tat threats have not yet entered the major macro data releases.
For more on equities, forex, and bonds, watch today's Morning Call in full.
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