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.
Q4 Outlook 2022: Winter is coming
- Winter is coming to the financial markets as central banks are tightening their grip. How spring will look is still a question.
European energy crisis: it will get worse before it gets betterThe winter in Europe will be tough, but whether the result is political chaos or sustainable, innovative solutions is still undecided.
A difficult and volatile quarter awaitsAs the year draws to an end, commodities continue to be at centre stage of the world with growth pockets political uncertainty.
The bright side: crises drive innovationThe positive spin on crises is that they come with solutions. It is worrisome that deglobalisation may be a response to this crisis.
Green transformation in China: renewable energy and beyondGoing green, China needs to span numerous energy sources to ensure stability, as every source comes with a challenge.
Asia: Intermittent solutions, but a faster renewable adoption curveAsian energy supply is being squeezed. This and the adoption of renewables may change the investment sentiment in the region.
FX: A Fed thaw needed to deliver a sustained USD turn lowerThe US Dollar can keep momentum when the Federal Reserve continues to tighten, leaving the rest to play to their drum.
Autumn can become ugly for equities and bond holders. Comfort for Dollar longsTechnical analysis suggests that equities could face a tough Q4 as could fixed income. US Dollar positions could provide some upside.
The next stock market sector to watch, with stocks going nuclearAs the world scrambles to find affordable, sustainable energy, nuclear is getting attention from politicians and investors alike.
The crypto space is getting cold when the hype disappearsCryptocurrencies face a winter of their own as retail investors and governments are asking tough questions.