Is Is Is

Is a new policy panic on its way?

Equities 7 minutes to read
Peter Garnry

Head of Equity Strategy

Summary:  As sentiment slides amidst rising trade tensions, the focus is shifting to the Fed.

Sentiment in global equities is weaker today following yesterday's remarks from the editor-in-chief of the Global Times (a major outlet close to the Chinese government), who commented China is seriously considering weaponising its rare earth mineral production against the US.

Such a move would be a game-changer, and would strike a major blow against Washington.
Global Times
US technology stocks are lower and the 7,000 level in the NASDAQ 100 future is no longer a distant idea. There are many things happening across different markets, and they all signal that something is not right. Also, ArcelorMittal shares are down 4% in today’s session after the firm announced cutting its European steel output – a sign of weaker economic activity.

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.
NASDAQ 100 continuous future
NASDAQ 100 continuous future, source: Saxo Bank
South Korea flashing ‘red alert’

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.
KOSPI 200 index, source: Saxo Bank
KOSPI 200 index, source: Saxo Bank
Federal Reserve to make a panic cut in September?

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.
FFER vs. two-year US yield, source: Saxo Bank
EFFR vs. two-year US yield, source: Saxo Bank
As an aside, or perhaps continuing the discussion of poor forecasting, an announcement from the US Food and Drug Adminsitration yesterday raised the question of how highly we should value the ability to erase past excesses.

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.
Soliton, source: Saxo Bank

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 is not intended to and does not change or expand on this. 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 (
- Full disclaimer (

Saxo Capital Markets HK Limited
19th Floor
Shanghai Commercial Bank Tower
12 Queen’s Road Central
Hong Kong

Contact Saxo

Select region

Hong Kong S.A.R
Hong Kong S.A.R

Saxo Capital Markets HK is a company authorised and regulated by the Securities and Futures Commission of Hong Kong. Saxo Capital Markets HK Limited holds a Type 1 Regulated Activity (Dealing in securities); Type 2 Regulated Activity (Dealing in Futures Contract); Type 3 Regulated Activity (Leveraged foreign exchange trading); Type 4 Regulated Activity (Advising on securities) and Type 9 Regulated Activity (Asset Management) licenses (CE No. AVD061). Registered address: 19th Floor, Shanghai Commercial Bank Tower, 12 Queen’s Road Central, Hong Kong

By clicking on certain links on this site, you are aware and agree to leave the website of Saxo Capital Markets, proceed on to the linked site managed by Saxo Group and where you will be subject to the terms of that linked site.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the US and other countries. AppStore is a service mark of Apple Inc.

Please note that the information on this site and any product and services we offer are not targeted at investors residing in the United States and Japan, and are not intended for distribution to, or use by any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation. Please click here to view our full disclaimer.