Is a new policy panic on its way? Is a new policy panic on its way? Is a new policy panic on its way?

Is a new policy panic on its way?

Equities 7 minutes to read
Peter Garnry

Head of Equity Strategy

Summary:  As sentiment slides amidst rising trade tensions, the focus is shifting to the Fed.

Sentiment in global equities is weaker today following yesterday's remarks from the editor-in-chief of the Global Times (a major outlet close to the Chinese government), who commented China is seriously considering weaponising its rare earth mineral production against the US.

Such a move would be a game-changer, and would strike a major blow against Washington.
Global Times
US technology stocks are lower and the 7,000 level in the NASDAQ 100 future is no longer a distant idea. There are many things happening across different markets, and they all signal that something is not right. Also, ArcelorMittal shares are down 4% in today’s session after the firm announced cutting its European steel output – a sign of weaker economic activity.

There is so sign, meanwhile, of a Chinese rebound, hence our macro theme of "false stabilisation". It’s very likely that Q3 will see a new policy panic as policymakers realise that a global recession is drawing close.
NASDAQ 100 continuous future
NASDAQ 100 continuous future, source: Saxo Bank
South Korea flashing ‘red alert’

Today’s session was brutal in South Korea, taking the country’s equities into negative territory for the year. This continues to be a clear confirmation of our our "South Korean canary in the coal mine" analysis first released two weeks ago.

Judging from the positive price action in the Chinese CSI 300 index, it is clear that traders expressing a negative view on the US-China trade war should steer away from China and instead use indirect methods (South Korea, JPY, bunds, oil, Asian currencies etc.) of gaining exposure.

We remain negative and defensive on equities and believe South Korea shows that global leading indicators will continue to decline. The probability of a global recession, meanwhile, continues to rise.

If anyone tells you that an 8.3% decline in South Korean equities this month is nothing to worry about, he or she is simply ignorant.
KOSPI 200 index, source: Saxo Bank
KOSPI 200 index, source: Saxo Bank
Federal Reserve to make a panic cut in September?

The US yield curve is flat as a pancake and the three-month/10-year inversion has worsened dramatically in recent weeks. The US two-year benchmark yield is now 32 basis points below the Effective Fed Funds Rate, or EFFR. The market is increasingly pricing in a Fed rate cut, with the probability now standing at 58% for the September meeting.

Given the current spread between the two-year and the EFFR, a 25 basis point move would be pointless. It will be 50 basis points at minimum, and could go as far as a 75 bps (an outrageous prediction, but not impossible) move to get ahead of the curve.

It's crucial to remember, though, that every time the Fed begins cutting the Fed Funds Rate it means trouble. It means that the US central bank is forecasting a recession. More importantly, the Fed is always late, so a cut means that recession is right around the corner.

Watch the US yield curve as guidance for where things will go next, and also note that the Japanese 10-year yield touched -0.1% in today’s session.
FFER vs. two-year US yield, source: Saxo Bank
EFFR vs. two-year US yield, source: Saxo Bank
As an aside, or perhaps continuing the discussion of poor forecasting, an announcement from the US Food and Drug Adminsitration yesterday raised the question of how highly we should value the ability to erase past excesses.

Is tattoo removal big business?

Yesterday saw medical equipment company Soliton receive FDA 501(k) clearance for its Acoustic Shockwave RAP (Rapid Acoustic Pulse) device. Recently, the company’s device was awarded "Best in Show" by the American Society for Laser Medicine and Surgery. Soliton shares gained momentum throughout yesterday’s session and into extended hours, ending the day 149% higher as of the New York bell and 243% at the close of extended hours.

There is scant research available on the global tattoo removal market, but one study by Technavio estimates it as having a value of around $2.85 billion in 2021. The key drivers are that it’s becoming easier and less intrusive to remove a tattoo. In addition, the trend of increased health consciousness could potentially lead to a decline in the popularity of tattoos if related concepts like purity or cleanliness climb at the expense of ones like adornment or self-expression.
Soliton, source: Saxo Bank

Saxo Capital Markets (Australia) Limited prepares and distributes information/research produced within the Saxo Bank Group for informational purposes only. In addition to the disclaimer below, if any general advice is provided, such advice does not take into account your individual objectives, financial situation or needs. You should consider the appropriateness of trading any financial instrument as trading can result in losses that exceed your initial investment. Please refer to our Analysis Disclaimer, and our Financial Services Guide and Product Disclosure Statement. All legal documentation and disclaimers can be found at

The Saxo Bank Group entities each provide execution-only service. Access and use of Saxo News & Research and any Saxo Bank Group website are subject to (i) the Terms of Use; (ii) the full Disclaimer; and (iii) the Risk Warning in addition (where relevant) to the terms governing the use of the website of a member of the Saxo Bank Group.

Saxo News & Research is provided for informational purposes, does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. No representation or warranty is given as to the accuracy or completeness of this information. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. No Saxo Bank Group entity shall be liable for any losses that you may sustain as a result of any investment decision made in reliance on information on Saxo News & Research.

To the extent that any content is construed as investment research, such content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication.

None of the information contained here constitutes an offer to purchase or sell a financial instrument, or to make any investments.Saxo Capital Markets does not take into account your personal investment objectives or financial situation and makes no representation and assumes no liability as to the accuracy or completeness of the information nor for any loss arising from any investment made in reliance of this presentation. Any opinions made are subject to change and may be personal to the author. These may not necessarily reflect the opinion of Saxo Capital Markets or its affiliates.

Please read our disclaimers:
- Full Disclaimer (
- Analysis Disclaimer (
- Notification on Non-Independent Investment Research (

Saxo Capital Markets (Australia) Limited
Suite 1, Level 14, 9 Castlereagh St
Sydney NSW 2000

Contact Saxo

Select region


The Saxo trading platform has received numerous awards and recognition. For details of these awards and information on awards visit

Saxo Capital Markets (Australia) Limited ABN 32 110 128 286 AFSL 280372 (‘Saxo’ or ‘Saxo Capital Markets’) is a wholly owned subsidiary of Saxo Bank A/S, headquartered in Denmark. Please refer to our General Business Terms, Financial Services Guide, Product Disclosure Statement and Target Market Determination to consider whether acquiring or continuing to hold financial products is suitable for you, prior to opening an account and investing in a financial product.

Trading in financial instruments carries various risks, and is not suitable for all investors. Please seek expert advice, and always ensure that you fully understand these risks before trading. Saxo Capital Markets does not provide ‘personal’ financial product advice, any information available on this website is ‘general’ in nature and for informational purposes only. Saxo Capital Markets does not take into account an individual’s needs, objectives or financial situation. The Target Market Determination should assist you in determining whether any of the products or services we offer are likely to be consistent with your objectives, financial situation and needs.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the US and other countries. AppStore is a service mark of Apple Inc.

The information or the products and services referred to on this website may be accessed worldwide, however is only intended for distribution to and use by recipients located in countries where such use does not constitute a violation of applicable legislation or regulations. Products and Services offered on this website is not intended for residents of the United States and Japan.

Please click here to view our full disclaimer.