'It's too soon to get contrarian'

Michael McKenna

Head of Editorial Content, Saxo Bank

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.

Source: Saxo Bank

You can access both of our platforms from a single Saxo account.

Disclaimer

Saxo Capital Markets (Australia) Pty Ltd 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 Combined Financial Services Guide and Product Disclosure Statement. All legal documentation and disclaimers can be found at https://www.home.saxo/en-au/legal/.

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.

Please read our disclaimers:
- Full Disclaimer (https://www.home.saxo/en-au/legal/disclaimer/saxo-disclaimer)
- Analysis Disclaimer (https://www.home.saxo/en-au/legal/analysis-disclaimer/saxo-analysis-disclaimer)
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)