Credit Impulse Update: Italy
Investors are perhaps overly concerned by the upcoming presentation of the Italian budget, but a look at our credit impulse indicator shows that the country still faces very real economic risks.
The People's Bank of China cut the amount of cash that some banks must hold as reserves by 50 basis points, releasing $108 billion in liquidity as the trade war threats from Washington continue to intensify.
Saxo bank Head of FX Strategy John Hardy notes that while the PBoC's stated objective was to aid small-to-medium-sized enterprises, the sharp decline in CNY may well be a response to the threat of trade war.
Elsewhere in FX, Hardy notes that TRY has gained on Erdogan's election win while the Japanese yen is in focus – particularly versus a euro weighed down by migration-driven uncertainty on German chancellor Merkel's political future – as risk-aversion spreads.
Saxo Head of Equity Strategy Peter Garnry cautions investors to remain defensive equities overall and underweight emerging markets, noting that the major indices could see a drop to long-term support as the trade war plays out.
One other factor to watch is the 10-year Treasury yield, which Saxo bonds specialist Althea Spinozzi says might have hit a cycle peak, adding that only a resolution to the trade crisis looks likely to boost it further.
Finally, Garnry reports that European carmakers are in focus on trade war fears with Fed chair Jerome Powell out noting that the current spate of tit-for-tat threats have not yet entered the major macro data releases.
For more on equities, forex, and bonds, watch today's Morning Call in full.