The political unrest in Italy went global yesterday as markets moved into a broad risk-off climate, with news that the country's interim prime minister was unable to form a cabinet only strengthening this stance.
"EURJPY went below 124 and EURCHF headed below 1.14 Tuesday," says Saxo Bank head of FX strategy John Hardy, who adds that the global contagion surrounding the situation may lead to some sort of official response from European Union leaders or the European Central Bank.
"Investors should also watch the Italian bond auctions at 09:00 GMT today as we have €5 billion worth of five, seven-, and 10-year paper up for sale," Hardy says.
In equities, markets felt the sting of the Italian situation yesterday with indices tracking lower around the globe. In Saxo Bank head of equity strategy Peter Garnry's view, it's too soon to start making contrarian moves; "European assets are already oversold in the shorter term," he says, "but we are still waiting for the maximum liquidation point".
One sector to watch is European banks, which Garnry reports are down 22% in what is officially a bear market.
In bonds, Saxo fixed income specialist Althea Spinozzi points to some interesting action yesterday in Italian two-year yields, which closed up 184 bps to 2.70%. In Spinozzi's view, this marks a potential opportunity for investors to sell two-year maturities and buy the 10-year on the broad-based selling of the shorter part of the curve.
Finally, Saxo Bank head of commodity strategy Ole Hansen reports that gold prices are relatively inhibited given the instability with a break of $1,308/oz needed to confirm a rally.
"Gold's relative weakness comes mainly down to a stronger USD," says Hansen.
For more on commodities, equities, and bonds, listen to today's Morning Call in full.
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.