Europe was largely offline yesterday for an extended weekend but there was much going on elsewhere, particularly US president Donald Trump’s announcement on Saturday that he was suspending his promised tariffs on Chinese aluminium and steel. This détente triggered a quite decent relief rally on Monday, with the Aussie dollar being a notable beneficiary, says John J Hardy, Saxo’s head of forex strategy. “The feeling is that they’re talking and negotiating rather than just trading barbs,” he adds.
But other dangers loom elsewhere, with what Hardy calls “the political revolution in Italy” (the planned new anti-establishment/populist coalition government) being particularly worrying. Yesterday, the unsettling prospect of a broadly anti-EU government at the helm of the Eurozone’s third-largest economy sparked a dramatic widening is peripheral spreads versus bunds, with Italian yields naturally spiking hardest. “I have a hard time seeing any euro rally here as long as German-Italian spreads are this wide,” Hardy says.
For equities, the US-China thaw meant a one-day rally, says Peter Garnry, Saxo’s Head of Equity Strategy. “Obviously it’s positive for global growth but I don’t see it as a sufficiently positive catalyst to bring equities up to their January highs.”
“The political risk on equities is largely priced into Italian equities, but if you want to have a positive spin on this then stay away from Italian assets short-term but perhaps return later when things calm down. This government will hardly last very long and we’re likely to have new elections,” Garnry notes.
Oil, meanwhile, remains right up there around $80/barrel, thanks In part to the ongoing Iranian sanctions kerfuffle and a new threat of more stringent sanctions on Venezuela following its re-election of the hardline leftist Maduro at the weekend, says Ole Hansen, Saxo’s Head of Commodity Strategy. These twin themes will continue to affect oil in the days ahead.
Finally today, a few points from Kim Cramer-Larsson, Saxo technical analyst: “We’re in the final stage of an uptrend in the NSADAQ 100 and I think we’ll see another attempt to break the 7,000 level this week.” For the S&P500, Kim expects the 2,000 level to be tested in the next couple of days, while the DAX is struggling a little but remains in a rising channel with resistance around 13,000.
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.