Clare MacCarthy
Senior Editor, Saxo Bank
Please note: Saxo's Morning Call is taking a summer break. We'll be back on July 30th.
The US dollar is down, EM and smaller G-10 currencies have rebounded and risk appetite is healthily ahead, despite the fact that Trump's tariffs on $34 billion worth of Chinese goods come into force today and China has announced additional retaliatory levies on the US.
"There was very little reaction to the FOMC minutes overnight, the market seems distracted by the trade wars. Trump has been out campaigning for various republican mid-term candidates so the rhetoric is not backing down but the market is in very complacent mood," says John J Hardy, Saxo's Head of Forex Strategy.
Some element of this complacency may be ascribed to the market's perception that fear of the tariffs might dissuade the Fed from hiking interest rates as much as was feared, Hardy adds. "Regardless, we have strong risk appetite, and the dollar is weakening as the correlation seems to be negative to risk for the dollar. We also have yen weakness."
The big ticket item on today's economic calendar is the monthly US employment report. "We're reaching levels coming into today's jobs report that are very interesting in a number of dollar pairs, including Aussie-dollar, euro-dollar and kiwi-dollar. This report looks important for setting up whether we're going to see the dollar spill over and extend its weakness for quite some time here or whether it's going to make a stand, Hardy concludes.
2024: The wasted year
Markets are driven by election optimism, overshadowing growing debt and liquidity concerns. The 2024 elections loom large, but economic fundamentals and debt issues warrant cautious investment.
As US economic slowdown hints at a shift away from exceptionalism, USD faces downside with looming Fed cuts. AUD and NZD set to outperform as their rate cuts lag. JPY gains on carry unwind bets and BOJ pivot.
Amid AI and obesity drug excitement, equities see varied prospects: neutral on overvalued US stocks, negative on Japan due to JPY risks, positive on Europe. European defence stocks gain appeal.
With the economic slowdown, quality assets will gain favour, especially sovereign bonds up to 5 years. Central banks' potential rate cuts in Q2 suggest extending duration, despite policy and inflation concerns.
Commodities poised for rebound. The "Year of the Metal" boosts gold and silver, copper awaits rate cuts. Grains may recover, natural gas stabilises. Gold targets $2,300-$2,500/oz, copper's breakout could signal growth.
Markets are driven by election optimism, overshadowing growing debt and liquidity concerns. The 2024 elections loom large, but economic fundamentals and debt issues warrant cautious investment.
As US economic slowdown hints at a shift away from exceptionalism, USD faces downside with looming Fed cuts. AUD and NZD set to outperform as their rate cuts lag. JPY gains on carry unwind bets and BOJ pivot.
Amid AI and obesity drug excitement, equities see varied prospects: neutral on overvalued US stocks, negative on Japan due to JPY risks, positive on Europe. European defence stocks gain appeal.
With the economic slowdown, quality assets will gain favour, especially sovereign bonds up to 5 years. Central banks' potential rate cuts in Q2 suggest extending duration, despite policy and inflation concerns.
Commodities poised for rebound. The "Year of the Metal" boosts gold and silver, copper awaits rate cuts. Grains may recover, natural gas stabilises. Gold targets $2,300-$2,500/oz, copper's breakout could signal growth.