Head of FX Strategy
The G-10 rundown
USD – rather firm and could firm further if the attention on EM woes picks back up. Also interesting whether the July US PCE inflation up today surprises either way and how much the market chooses to react after Powell dismissed the risk of accelerating inflation at his recent Jackson Hole speech.
EUR – good news on the trade front as the EU as Politico runs a story suggesting the EU is willing to lower car tariffs. Have a hard time seeing what takes EURUSD beyond recent highs for any sustained period of time without euro-positive news.
JPY – the yen weaker still yesterday, but to sustain a real sell-off we need to see global bond yields come to life and they have been so moribund for so long that confidence is low that anything beyond a poke at the limits of the longer-term ranges is afoot.
GBP – an enormous bounce yesterday from new cycle lows versus the euro and Swiss franc – looks very technically promising and further signs of hope that UK is inching toward a deal could shift sentiment, with plenty of speculative positioning fuel to drive short-covering.
CHF – EURCHF likely bottled up in a range until or unless the Italian sovereign yield situation either improves or deteriorates. Somewhat surprising we didn’t get any isolated CHF downside on the positive Brexit headlines. USDCHF beginning to look technically oversold.
AUD – not usually data that is closely tracked, but the private capital expenditures and building approvals releases overnight brought no joy. AUD looks rather heavy given the reasonably supportive backdrop of the last few sessions.
CAD – market awaits Canadian GDP data tomorrow and CAD longs are hoping for positive trade headlines as Canada seeks to get in on the trade deal terms set between the US and Mexico, effectively replacing NAFTA. The US side is pressuring for a deal ahead of the weekend, so the last session for the week looks pivotal for USDCAD.
NZD – the ANZ Business Confidence and Activity Outlook survey shows both gauges plumbing new post-global financial depths. It appears businesses have concerns on the government’s policy roadmap, including the risk of a higher minimum wage and the inability to pass costs along to customers.
SEK – finally, cracks appear in the EURSEK rally after the one-way traffic of the last couple of weeks. We still like the idea that that the market is over fearful of the September 9 election outcome and the pair could trade back in the range toward 9.25 in the weeks ahead if the centre holds and SD manages a sub-20% result at the upcoming election. Still, extreme volatility risk remains if that proves too complacent a view and the huge disagreements in the polls are driving the recent uncertainty.
NOK – a bit stronger, perhaps in sympathy with the SEK bounce, but also as oil prices are nearing the cycle highs again. EURNOK rally looks overdone.
Bond. Long Bond(s)
With real rates being too positive, we see three scenarios: Opportunity to lock in rates at cycle high, government overreach to keep the economy afloat or a complete reset of the economy.
Steen Jakobsen,
Chief Investment Officer
Is a bond bull market ahead? Inflation still poses a risk for investors, but the moment for increasing duration to your portfolio may be approaching towards the end of the year, when central banks might be forced to cut interest rates.
Althea Spinozzi,
Senior Fixed Income Strategist
The furious rate hike cycle has brought gains in the US dollar, but with stagflation risks in Europe and the UK and weakness in the Chinese economy, USD may have more room to run. But a strong dollar could also have repercussions for US growth, emerging markets and commodity prices.
Charu Chanana,
Market Strategist
With the cost of capital rising painfully, stagflation fears are back, illuminating the fragile state of the green transformation, while giving a tailwind to nuclear power, and threatening the growth of AI-related stocks.
Peter Garnry,
Head of Equity Strategy
With supply tightness not only in energy but all commodities, the momentum in commodity prices may continue, pressuring central banks to lower real rates. That could be a good setup for precious metals, including gold, silver and potentially platinum as well.
Ole S. Hansen,
Head of Commodity Strategy
As the pandemic showed, even the US Treasury can experience seismic shifts. With the government increasing the pace of issuing bonds to support fiscal spending, the complex Treasury market and regulatory constraints could spark a liquidity event.
Redmond Wong,
Market Strategist
The tide has turned for bonds. Given the current yields, bonds have become an attractive investment, with added benefits including lower risk than stocks, increased diversification and a steady stream of income unaffected by economic changes.
Peter Siks,
Investment Coach
