Global Macro Strategist
Summary: Morning APAC Global Macro & Cross-Asset Snapshot
Happy Macro Tue 8 Oct 2019
APAC Global Macro Morning Brief – China, back in from Golden Week
China finally back in after Golden Week & post the 70th Anniversary celebrations. Key focus will be next steps on US/CH trade front, as well as if strategy in HK changes with protestors.
KVP continues to believe that Trump is likely going to run a 2020 Re-Election campaign on Tariffs, so highly sceptical of any real deal happening - with that said, Trump did sign trade pacts with Japan yesterday.
Going back to China, bear in mind that second round of tariffs from the US on Chinese goods hits on Oct 15. A delay or cancellation of that would be viewed quite positively by the markets.
At the same time, a break up in talks – now that we are on the other side of the 70yr anniversary – could see decent -3% to -5% pullback in the S&P 500.
At the end of the day, based on the economic data out of the US last wk (with its slew of key misses), that pillar of US consumer strength is now coming under question.
The (o/n) also had Fed Chair Powell speaking, whilst nothing was publicly said in regards to the economy or markets, he did wave the flag in regards to the independence of the Federal Reserve – no doubt a counter, to the constant barrage that has come from the White House on the need for the Fed to do more.
So far Powell has been reserved, respectful & eloquent in discussing Trump’s reach – perhaps not surprising given that Powell is a lawyer by training & earlier by profession. Still you cannot help but wonder what he’d love to say after a whiskey sour or three.
Cross-Assets Snapshot:
Reversal in Dollar Weakness that saw the likes of USDJPY 107.26 pop by +0.30% & the likes of the Aussie 0.6733 & Kiwi 0.6289 pull back by -0.56% & -0.49% respectively. The DXY closed at 98.9670 up +0.16% for the session. The Swedish kroner was the worst G10 performer with USDSEK up +0.78% to close at 9.9163
YTD the Swedish kronor is by far the worst G10 performer vs. the USD with a total return of -10.76%. The CAD & JPY continue to be the outliers on outperformance vs. the greenback at +3.92% & +2.10% in total returns.
On the emerging currencies front, the dollar steam rolled against Brazil & Turkey, with USDBRL 4.1074 +1.25% & USDTRY 5.8407 +2.34%. The latter had a lot of noise around Trumps lack of clarity on what the US 7 Turkey are doing around Northern Syria, and the implications for the Kurds (US allies)
US bond yields have quite a move o/n, after dropping lower & hitting a low of 1.5034% they closed close to the highs of 1.5648%, resulting in s a -0.30% pullback in US 10yr bond futures. Its worth noting the 2/10 yr curve has gone from c. -6bp a few weeks back, to steepening to these c. +9-10bp
This move up in yields saw a text book pullback in Gold 1493 -0.74% & silver 17.42 -0.62%
US equities closed lower with the S&P 2939 -0.45%, despite a positive green session across the European equities for the longs. The VIX continues to be bid, with a c. +5% uplift to just under the 18 handle.
Focus today will be where do China equities go? The S&P is down c. -1.3% since China went off-line for Golden Week holidays
This early morning Tuesday, we have US equity futures flattish & Asia equity futures looking strong on the open.
Today:
4th Quarter Outlook is out: Taking Down The Killer Dollar
Other:
AI: The good, the bad, and the bubble
While a deep recession may not be iminent thanks to central bank policy, interest rates will have to stay high for longer, and this will be accompanied by volatility risk from the unwinding of bubbles, especially within AI.
Steen Jakobsen,
Chief Investment Officer
The emergence of advanced AI systems is by far the most surprising event this year, turning everything upside down, while risks and benefits are debated. AI will also become an arms race between the US and China.
Peter Garnry,
Head of Equity Strategy
As China navigates global fragmentation, its cycle of technology application, productivity enhancement, and growth is threatened by US breakthroughs in generative AI, limited computing power, and geopolitical tensions.
Redmond Wong,
Market Strategist
Japan’s expertise in semiconductors and robotic integration could be the foundation of AI dominance. Combining two of this year's themes, Japanese equities and artificial intelligence, brings a wave of opportunities.
Charu Chanana,
Market Strategist
The AI fever has turned the technology into a darling, pushing crypto further into no-man’s-land. There are striking similarities between AI and crypto, and if these are to come full circle, AI won't be spared for bubbles.
Mads Eberhardt,
Cryptocurrency Analyst
Stocks related to artificial intelligence (AI) have appeared on investors' radars. Expectations are high, but it may be necessary to consider how to get exposure to AI in a diversified way.
Hans Oudshoorn,
Trainer Academy
The USD is on its back foot as markets celebrate an eventual Fed rate peak and steady long US yields. The stakes are even higher for the Japanese yen if longer major sovereign yield curves have to price in economic acceleration.
John J. Hardy,
Head of FX Strategy
While commodities, broadly speaking, have faced some tough months, a partial reversal during June could signal that the asset class is getting back on its feet with energy holding up and precious metals with upside potential.
Ole S. Hansen,
Head of Commodity Strategy
As inflation remains high central banks face hard decisions about whether they should keep hiking interest rates or stop. Meanwhile, the rise of AI creates bubble-like conditions that only make the decision harder.
Althea Spinozzi,
Senior Fixed Income Strategist
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