Michael McKenna
Head of Editorial Content, Saxo Bank
Federal Reserve chair Jerome Powell's testimony to a US House Committee is the key risk event today and USD pairs have largely entered into "holding patterns" ahead of the release, says Saxo Bank head of forex strategy John Hardy.
"The markets expect a focus on stimulus effects, financial stability, and inflation, and if Powell plots a stay-the-course path regarding these factors, the USD could be impacted," says Hardy.
"I suspect, however, that Powell expects a bit more leeway to conduct policy than was seen in the Bernanke/Yellen era, and a departure from this sort of hand-holding forward guidance could prove dollar-positive and risk sentiment-negative," adds Saxo's FX chief.
The risk barometer, of course, is crucial for equities which remain in recovery mode following the early February volatility shock. In Saxo Bank technical analyst Kim Cramer Larsson's view, the charts indicate that new highs are likely over the next for days for the Nasdaq Composite while 2,800 is the key level to watch for the S&P 500.
"The S&P 500 has broken resistance and the next key level is 2,800 — we remain in bullish territory above 2,700," says Larsson, adding that the Relative Strength Index is testing 60 and a close above that level would likely be bullish for the benchmark US index.
In single shares, Saxo Bank head of equity strategy Peter Garnry recommends keeping an eye on Sky post- the London open as US media giant Comcast has upped its bid for the company to £12.50/share, 16% up from rival Fox's current bid.
Also noting the broad market pause ahead of Powell's testimony, Garnry reports that the Nikkei 225 pulled ahead overnight led by technology firms and automakers, adding that retail shares have been the best performing sector over the past month.
"Despite this we recommend and underweight or short stance on retail as valuations remain very expensive," says Saxo's equities head.
Looking at the macro data, Garnry says that the US releases have grown increasingly mixed of late with the most recent Dallas Fed manufacturing release coming in ahead of expectations while new home sales disappointed.
For more on equities and technical analysis of some key forex pairs, 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