The Chinese yuan continues its precipitous decline against the greenback with USDCNY climbing past 6.70. While some analysts are asking whether this represents a trade war-linked 'weaponisation' of the renminbi, Saxo Bank Head of FX Strategy John Hardy says that the more interesting question is whether the move is fact aimed at Federal reserve chief Jerome Powell.
"If we look back to early 2016, we can find a key instance of the Fed backing away from its forward guidance on a pronounced upward move in the dollar," says Hardy.
Chinese shares, meanwhile, continue to fall with the CSI 300 index declining by 1% overnight; the index is now down 25% for the year.
"We are now seeing sell-side analysts questioning whether this represents a buying opportunity," says Saxo Head of Equity Strategy Peter Garnry, "but we think that investors looking to go long could still be in a 'catch the falling knife'-type scenario... we would look to the CNY's finding a floor before broadly turning to Chinese shares."
Despite the note of caution, however, Garnry notes that several Chinese stocks are rising within Saxo's Equity radar model with five shares now in the top 20, including names like Kweichow Moutai and ANTA Sports.
Looking at equities in the US, Saxo Bank technical analyst Kim Cramer Larsson says that the Nasdaq 100 looks primed to recapture last week's gap while the S&P 500 is trading above a very key support level at 2,700 with sentiment tilted bearish.
In Europe, Larsson sees the Dax index primed for a potential bounce from support towards the 12,500-600 area.
Finally, John Hardy notes the euro's limited bounce after Germany's CSU and CDU parties reached a migration deal; in USD, he points to a near-record 60.2 showing from the ISM manufacturing reading as another sign that the US economy continues to perform robustly.
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.