Head of Equity Strategy, Saxo Bank Group
Summary: As sentiment slides amidst rising trade tensions, the focus is shifting to the Fed.
Such a move would be a game-changer, and would strike a major blow against Washington.
There is so sign, meanwhile, of a Chinese rebound, hence our macro theme of "false stabilisation". It’s very likely that Q3 will see a new policy panic as policymakers realise that a global recession is drawing close.
Today’s session was brutal in South Korea, taking the country’s equities into negative territory for the year. This continues to be a clear confirmation of our our "South Korean canary in the coal mine" analysis first released two weeks ago.
Judging from the positive price action in the Chinese CSI 300 index, it is clear that traders expressing a negative view on the US-China trade war should steer away from China and instead use indirect methods (South Korea, JPY, bunds, oil, Asian currencies etc.) of gaining exposure.
We remain negative and defensive on equities and believe South Korea shows that global leading indicators will continue to decline. The probability of a global recession, meanwhile, continues to rise.
If anyone tells you that an 8.3% decline in South Korean equities this month is nothing to worry about, he or she is simply ignorant.
The US yield curve is flat as a pancake and the three-month/10-year inversion has worsened dramatically in recent weeks. The US two-year benchmark yield is now 32 basis points below the Effective Fed Funds Rate, or EFFR. The market is increasingly pricing in a Fed rate cut, with the probability now standing at 58% for the September meeting.
Given the current spread between the two-year and the EFFR, a 25 basis point move would be pointless. It will be 50 basis points at minimum, and could go as far as a 75 bps (an outrageous prediction, but not impossible) move to get ahead of the curve.
It's crucial to remember, though, that every time the Fed begins cutting the Fed Funds Rate it means trouble. It means that the US central bank is forecasting a recession. More importantly, the Fed is always late, so a cut means that recession is right around the corner.
Watch the US yield curve as guidance for where things will go next, and also note that the Japanese 10-year yield touched -0.1% in today’s session.
Is tattoo removal big business?
Yesterday saw medical equipment company Soliton receive FDA 501(k) clearance for its Acoustic Shockwave RAP (Rapid Acoustic Pulse) device. Recently, the company’s device was awarded "Best in Show" by the American Society for Laser Medicine and Surgery. Soliton shares gained momentum throughout yesterday’s session and into extended hours, ending the day 149% higher as of the New York bell and 243% at the close of extended hours.
There is scant research available on the global tattoo removal market, but one study by Technavio estimates it as having a value of around $2.85 billion in 2021. The key drivers are that it’s becoming easier and less intrusive to remove a tattoo. In addition, the trend of increased health consciousness could potentially lead to a decline in the popularity of tattoos if related concepts like purity or cleanliness climb at the expense of ones like adornment or self-expression.
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