How to trade the trade war? In Saxo Bank Head of Equity Strategy Peter Garnry's view, it is fairly simple from a basket creation perspective, but headline risks remain very strong as the world's two largest economies jostle for trade supremacy.
"Chinese shares continue to make new lows at odds with the rest of Asia," says Garnry, adding that he expects the trade war narrative to remain in place for the short-term.
"My trade war basket looks like this: long US equities, short equities from the five countries with the highest trade deficits with the US. This means long US, short China, Mexico, Japan, Germany, and Canada, with the weightings calculated in proportion to the size of these countries' respective deficits."
In the forex space, Saxo Bank Head of FX Strategy John Hardy reports that the People's Bank of China's Friday announcement of a raise in reserve requirements on FX forward trading hasn't affected global risk appetite to any notable extent, although it did cause a rise in CNY ahead of the key 7.00 level in USDCNY.
"Beyond USDCNY, wee see a weak euro versus USD, JPY, and CHF, with the GBP at risk due to increasing discussions of a 'no-dea' Brexit," says Hardy.
The CNY is also in focus for gold traders, reports Saxo Bank Head of Commodities Strategy Ole Hansen, with crude oil and copper caught between trade war/demand slowdown fears and the risk of supply disruptions in both commodities.
Finally, Saxo bonds specialist Althea Spinozzi reports that JPMorgan Chase CEO Jamie Dimon is out calling for a US 10-year Treasury yield above 4%, with 5% or higher possible in the longer term. In Spinozzi's view, however, this is unlikely, with yields likely to be inhibited by both trade war rhetoric and soft inflation.
For more on bonds, equities, forex, and commodities, watch today's Morning Call in full.
Quarterly Outlook Q2 2022: The End Game has arrived
- Shocks from covid and the war in Ukraine have forced the global financial and political world to change, but what will the end game be?
Productivity and innovation have never been more importantAs the world economy hits physical limits and central banks tighten their belts, could equities be facing a 10-15% downside?
The great EUR recovery and the difficulty of trading itIf the terrible fog of war hopefully lifts soon, the conditions are promising for the euro to reprice significantly higher.
Tight commodity markets – turbocharged by war and sanctionsWith supply already tight, commodities keep powering on. But will it last for yet another quarter?
Between a rock and a hard placeGeopolitical concerns will add upward price pressures and fears of slower growth, while volatility will remain elevated.
The Great ErosionInflation is everywhere and central banks try to combat it. But will they get it under control in time?
Australian investing: Six considerations amid triple Rs: rising rates, record inflation and likely recessionWhile global financial markets are struggling in an uncertain world, the commodity-heavy Australian ASX index is poised to keep a positive momentum.
Cybersecurity – the rush to catch up with realityWith the invasion of Ukraine, governments and private companies are rushing to reinforce their cyber defenses.