Central banks, tech pressure, and the Chinese panic Central banks, tech pressure, and the Chinese panic Central banks, tech pressure, and the Chinese panic

Central banks, tech pressure, and the Chinese panic

Steen Jakobsen

Chief Investment Officer

Welcome back to the madhouse, where we are in for an extremely active week...

   • The Bank of Japan, the Federal Reserve and the Bank of England all meet this week.
   • Technology shares are trading nervously (and the FAANGS have become 'MAGA').
   • China is near-desperately activating both easier monetary policy and more fiscal spending to counter the deleveraging process hailed by President Xi.
   • Did USD peak with the GDP number last week? We think so.

Tomorrow's Bank of Japan meeting could be the most important central bank meeting of the year. The consensus holds that the BoJ may tweak its yield curve control policy to accept a higher 10-year Japanese government bond yield of 10 basis points (versus a narrow band around 0% at present) and fix five-year yields at 0% from tomorrow.

The problem is that a flat yield (and negative short yield) hurts financial sector earnings and banks' ability to lend.

See my recent tweet for more on this, as well as a chart.

Inflation numbers continue to erode despite the Japanese central bank's best efforts. The risk here is that the bank will weight the short-term negative of banking sector losses higher than the elusive long-term goal of >2% inflation. If so, USDJPY could come off dramatically, a move that would likely signal a top for the overall dollar trade as last Friday's US GDP number was probably a cycle high based on tax credits from April and agricultural exports ahead of the trade war.

The BoE, meanwhile, is 90% likely to hike interest rates on August 2 while the Federal Open Market Committee is “in between meetings”.

In a similar fashion to what we saw in 2007, China has started an aggressive countercyclical loosening of monetary policy along with increased fiscal spending. This will change the dynamics of global growth and dollar direction – don’t forget that USD is the global reserve currency so its direction will be driven by the ever-changing dynamics between growth in the US and growth in the rest of the world. More on this later...

In equities, the technology sector has taken centre stage of late led by misses at Facebook and Twitter. Is this a buy opportunity, or is the world of engagement moving away from “in your face” marketing ploys and data selection? It's possible that the recent acronym shift from FAANGS to MAGA (no, not President Trump's 'Make America Great Again', but Microsoft, Apple, Google, and Amazon) reflects a peak in investor appetite for “user-driven technology”.

This week's central bank calendar:

Central banks
Source: Bloomberg
Investor sentiment in the tech sector is showing signs of nervousness...
Tech shares
Source: WSJ via The Daily Shot
Meanwhile, a clear sign that China is ramping up capacity across the board...
Steel rebar futures
Source: The Daily Shot
Is China going to save the commodities sector... again?
Global consumption (commodities)
Source: Macquarie Bank via The Daily Shot
If you have any doubts that China is easing, look at the three-month SHIBOR...
Three-month SHIBOR
Source: The Daily Shot

Finally, a list of key reading from over this past weekend:

   • Select group of hedge funds doing so well they don’t take customers (WSJ)
   • Iran about to implode? Rial reaches 111.500 to the dollar! (Jerusalem Post)
   • Turkish-US relationship strained over case of US pastor (Arab News)
   • US mid-terms: more and more likely that Democrats take the House? (The Cook Political Report)
   • Why Washington insiders think Democrats will take back the house (Washington Post, paywall)
   • Four takeaways from the long-term GDP revision (New York Times)
   • US considers military options to keep Strait of Hormuz open (Jerusalem Post)
   • Wall Street seizes on another front to bet against Tesla (Financial Times, paywall)

Looking towards Germany, this article is an absolute must-read (Financial Times, paywall) as the country's increasingly bold nationalists spark a new culture war. This article is key to understanding how the dynamics of democracy and populism are changing both German and other European societies away from pluralism and towards a "with us or against us"-type vision.

As far as the increasingly jittery tech sector goes, this article on the US chip industry (Financial Times, paywall) is another incredibly important analysis; chip power sits at the root of every technological step forward, and falling returns on research and development will significantly slow AI and technological progress.

Finally, expect Saxo Bank Head of Commodity Strategy Ole Hansen to come out with a new report on the grains sector and the impact of the current hot weather, while Saxo Bank Head of Equity Strategy Peter Garnry will be out with a note on FAANGS versus MAGA. Saxo bank Head of Forex Strategy John Hardy will touch on the BoJ as well as the falling CNY (and why isn’t yet impacting risk).


The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website. This content is not intended to and does not change or expand on the execution-only service. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research 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. To the extent that any content is construed as investment research, you must note and accept that the 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 under relevant laws.

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

Saxo Markets
40 Bank Street, 26th floor
E14 5DA
United Kingdom

Contact Saxo

Select region

United Kingdom
United Kingdom

Trade Responsibly
All trading carries risk. To help you understand the risks involved we have put together a series of Key Information Documents (KIDs) highlighting the risks and rewards related to each product. Read more
Additional Key Information Documents are available in our trading platform.

Saxo Markets is a registered Trading Name of Saxo Capital Markets UK Ltd (‘SCML’). SCML is authorised and regulated by the Financial Conduct Authority, Firm Reference Number 551422. Registered address: 26th Floor, 40 Bank Street, Canary Wharf, London E14 5DA. Company number 7413871. Registered in England & Wales.

This website, including the information and materials contained in it, are not directed at, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in the United States, Belgium or any other jurisdiction where such distribution, publication, availability or use would be contrary to applicable law or regulation.

It is important that you understand that with investments, your capital is at risk. Past performance is not a guide to future performance. It is your responsibility to ensure that you make an informed decision about whether or not to invest with us. If you are still unsure if investing is right for you, please seek independent advice. Saxo Markets assumes no liability for any loss sustained from trading in accordance with a recommendation.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the U.S. and other countries. App Store is a service mark of Apple Inc. Android is a trademark of Google Inc.