US President Trump's weekend rampage across the geopolitical stage has caused widespread consternation but the market response is restrained thus far with most asset classes treading water and awaiting further developments.
The G7 meeting (which some are dubbing G6-plus-one) saw Trump demanding the readmission of Russia, refusing to endorse the joint statement and picking a fight with Canada's Justin Trudeau, says John J Hardy, Saxo's Head of Forex Strategy. "As Raoul Pal says we're basically seeing the unwinding of the post-WWII global order in geopolitical terms. This is a huge shift," Hardy says.
However, the immediate market takeaways are a bit minimal with the Canadian dollar opening a tad weaker on uncertainty.
As far as equities are concerned, the most important issues is that Trump is planning to impose tariffs on imported auto parts. "You should watch the German and the French manufacturers as these would be hit hardest by this" says Peter Garnry, Saxo's Head of Equity Strategy.
Elsewhere in market news, Italy's new finance minister says he wants Italy to stay in the euro and he also wants to reduce the country's debt. Hardy points out that these tasks seem at odds but nevertheless, Italy's 2-year yield is opening 40 basis lower, which is quite helpful for the euro ahead of this week's European Central Bank meeting. For rate expectations stateside, 85% to 90% of the market believes that this week will see the Fed raising interest rates.
On Brexit there's an important vote coming up which could become an existential flashpoint for Theresa May's Tory government should sufficient of her party colleagues vote against it.
Finally today, it'll be a busy week also for commodities with important data releases from Opec and the EIA and, as Ole Hansen, Saxo's Head of Commodity Strategy says, "a rise in political meddling, making it very difficult to gauge where crude oil is going next".
Gold remains glued to $1300/oz as a softer dollar and geopolitics offset nervousness ahead of the June 13 Fed rate hike. A break of either $1286 or $1308 would likely determine the near-term direction, Hansen concludes.
Quarterly Outlook Q2 2022: The End Game has arrived
- Shocks from covid and the war in Ukraine have forced the global financial and political world to change, but what will the end game be?
Productivity and innovation have never been more importantAs the world economy hits physical limits and central banks tighten their belts, could equities be facing a 10-15% downside?
The great EUR recovery and the difficulty of trading itIf the terrible fog of war hopefully lifts soon, the conditions are promising for the euro to reprice significantly higher.
Tight commodity markets – turbocharged by war and sanctionsWith supply already tight, commodities keep powering on. But will it last for yet another quarter?
Between a rock and a hard placeGeopolitical concerns will add upward price pressures and fears of slower growth, while volatility will remain elevated.
The Great ErosionInflation is everywhere and central banks try to combat it. But will they get it under control in time?
Australian investing: Six considerations amid triple Rs: rising rates, record inflation and likely recessionWhile global financial markets are struggling in an uncertain world, the commodity-heavy Australian ASX index is poised to keep a positive momentum.
Cybersecurity – the rush to catch up with realityWith the invasion of Ukraine, governments and private companies are rushing to reinforce their cyber defenses.
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