Head of Macroeconomic Research
Summary: In today's edition, we focus on the FX space and discuss the evolution of risk perception.
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Saxo Bank’s FX risk indicator is based on the evolution of Asian currencies (excluding Japanese yen) versus the US dollar. Since Q4 2021, we see a continued increase in risk aversion in the FX space. This is the first time since the first global lockdown in 2020. In our last update, our indicator is down minus 8.9 % in Q3. This is the biggest drop since Q3 2015 when China devalued the renminbi by surprise. There are several aspects behind the rise in risk aversion : the risk of a global recession, the European energy crisis, the consequences of the Ukraine war, ‘permanent’ inflation and, first and foremost, the drop in U.S. dollar liquidity. In our view, this is one of the most important and less commented drivers. Based on our own data, global U.S. dollar liquidity is in a contraction for the first time since early 2019 (at that time the Chinese-U.S. trade war was the main disruptive factor). We expect that the coming months will remain challenging for most of the risky assets (including emerging FX currencies) as the risks mentioned below further materialize. We remain in a U.S. dollar-centered FX market, with very little alternatives.
2024: The wasted year
Markets are driven by election optimism, overshadowing growing debt and liquidity concerns. The 2024 elections loom large, but economic fundamentals and debt issues warrant cautious investment.
As US economic slowdown hints at a shift away from exceptionalism, USD faces downside with looming Fed cuts. AUD and NZD set to outperform as their rate cuts lag. JPY gains on carry unwind bets and BOJ pivot.
Amid AI and obesity drug excitement, equities see varied prospects: neutral on overvalued US stocks, negative on Japan due to JPY risks, positive on Europe. European defence stocks gain appeal.
With the economic slowdown, quality assets will gain favour, especially sovereign bonds up to 5 years. Central banks' potential rate cuts in Q2 suggest extending duration, despite policy and inflation concerns.
Commodities poised for rebound. The "Year of the Metal" boosts gold and silver, copper awaits rate cuts. Grains may recover, natural gas stabilises. Gold targets $2,300-$2,500/oz, copper's breakout could signal growth.
Markets are driven by election optimism, overshadowing growing debt and liquidity concerns. The 2024 elections loom large, but economic fundamentals and debt issues warrant cautious investment.
As US economic slowdown hints at a shift away from exceptionalism, USD faces downside with looming Fed cuts. AUD and NZD set to outperform as their rate cuts lag. JPY gains on carry unwind bets and BOJ pivot.
Amid AI and obesity drug excitement, equities see varied prospects: neutral on overvalued US stocks, negative on Japan due to JPY risks, positive on Europe. European defence stocks gain appeal.
With the economic slowdown, quality assets will gain favour, especially sovereign bonds up to 5 years. Central banks' potential rate cuts in Q2 suggest extending duration, despite policy and inflation concerns.
Commodities poised for rebound. The "Year of the Metal" boosts gold and silver, copper awaits rate cuts. Grains may recover, natural gas stabilises. Gold targets $2,300-$2,500/oz, copper's breakout could signal growth.
