Global markets are reeling this morning after the US president trumped his previously announced tariffs on $50bn worth of Chinese imports with the threat of another $200bn worth should the Chinese retaliate with penalties of their own on his initial levies. The heightened fear of a full-blown trade war has slammed into equities and EM currencies with the usual safe-haven assets – gold, core bonds and the yen and the Swiss franc – gaining.
"So finally this trade war theme is showing a more significant spike in volatility but the general market response [to the initial tranche of tariffs] has been somewhat muted if we look at equities and the forex space though we've seen some signs of stress in corporate credit and emerging markets," says John J Hardy, Saxo's Head of FX Strategy. Overnight, though, it's become far more serious: "This is going a little bit more across the board and it's hard to see how we can back down easily from this situation and the positions that both China and Trump have staked out." The Japanese yen has reverted to its traditional behaviour of spiking when risk aversion sweeps over markets and is well ahead against the dollar.
Asian equities were one of the severest casualties of the carnage with the Shanghai Composite plunging over 4%, the Hang Seng losing over 3% and big losses virtually everywhere in the region. "We remain negative on emerging markets and obviously China is part of that category," says Peter Garnry, Saxo's Head of Equity Strategy.
Elsewhere in the equity space and regarding what further fallout we may face from Trump's trade war, Garnry points to US semiconductors as this extremely globalised industry would face disruption to its supply chain, and hence its production capacity.
Gold is making good progress but it's not a one-way stream here, as Ole Hansen, Saxo's Head of Commodity Strategy, points out. "It's a battle between geopolitics and poor technicals for gold though gold has risen from the ashes from Friday's washout. "The continued focus on trade protectionism trumps a weak technical outlook and worries about a stronger dollar, he explains. "A rise above $1288/oz would likely signal renewed risk appetite."
As regards the technical analysis picture, "Euro-Swiss is selling off nicely so we have a could have a new low and possibly even a test of the support level going back to August of last year," says Kim Cramer Larsson, a Saxo technical analyst.
The market is trying to get back to the pre-Covid and pre-war times, but that model is broken. A new dawn is here and the financial world needs to adapt.
Steen Jakobsen,
Chief Investment Officer
A political switch in China towards less tough control of its people and companies may kick things back into gear.
Redmond Wong,
Market Strategist
While the economic situation in Europe may not be as bad as feared, there's still a plethora of things to fix.
Chris Dembik,
Head of Macroeconomic Research
As the world turns increasingly bipolar, equity markets face harsh times as they transition into the new reality.
Peter Garnry,
Head of Equity Strategy
New alliances and collaborations outside of China may lead to prosperous times in Asia.
Charu Chanana,
Market Strategist
For years, it was thought that the balanced portfolio was a thing of the past. But recent developments may have changed that.
Peter Siks,
Investment Coach
Following a dramatic and volatile 2022 with good returns, a lot of this year's commodity performance may be driven by Chinese politics.
Ole S. Hansen,
Head of Commodity Strategy
2023 could be a tough year for currencies but EUR and JPY may have some upside.
John J. Hardy,
Head of FX Strategy
The commodity-heavy Australian market may have a good start to 2023, as the Chinese focus on growth signals demand for Aussie resources.
Jessica Amir,
Market Strategist
From a near-perfect environment for speculative assets before 2022 to the opposite, crypto faces fundamental challenges.
Mads Eberhardt,
Cryptocurrency Analyst
Disclaimer
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)