Risk in retreat Risk in retreat Risk in retreat

Risk in retreat

Macro 4 minutes to read
Michael O’Neill

FX Trader, Loonieviews.net

Summary:  Sentiment is running for cover into the early hours of today's New York session, with rare earth rumours and rising yields sparking enough discontent to break key support levels in the S&P 500.

Risk-aversion is rising as US Treasury yields, equity indices and oil prices fall. FX markets are nervous thanks to Brexit and UK political woes, uncertainty around the new European Parliament, Italian budget questions and the ongoing US/China trade war.

It all has a bit of a “Chicken Little” feel about it. But is the sky really falling? Is another 2008-style crisis just around the corner?

Probably not. The story that China may use exports of rare earth elements to the US as a weapon in trade negotiations has traders on edge and contributed to the drop in equity prices and gains in the Japanese yen and Swiss franc. A week ago, an RBC analyst pointed out that China tried to use its rare-earth clout against Japan in 2010.

It didn’t work out very well for them as they lost market share to other countries and as many corporations can attest, once market share erodes, it’s hard to get back.

The market reaction seems to be exaggerated due to the lack of top-tier economic data availability this week and a cone of silence around Federal Open Market Committee officials. That changes starting Thursday with the release of US March GDP followed by German inflation and US PCE data on Friday.

Wall Street indices took it on the chin at the opening bell. The Dow Jones Industrial Average, S&P 500 and Nasdaq shed around 0.80% in early trading on continued trade war jitters and recession fears sparked by the inverted yield curve.

The US dollar is marginally higher across the board in New York trading, underpinned by risk-off and gaining additional support from the weak equity market profile. The US dollar index (USDX) is almost fully recovered from Wednesday’s plunge. The uptrend is intact while prices are above 97.20.

The Bank of Canada did as universally expected and left interest rates unchanged. The accompanying statement was somewhat positive until the discussion on the global economy. The BoC said “the recent escalation of trade conflicts is heightening uncertainty about economic prospects".

In addition, trade restrictions introduced by China are having direct effects on Canadian exports. USDCAD soared an smashed through resistance at 1.3520, opening the door to further gains to 1.3580 and then 1.3670. However, failure to extend the rally would be considered a false break and the trading would revert back to the 1.3370-1.3520 band.
US Dollar Index (four-hour, source: Saxo Bank)
US dollar index (four-hour, source: Saxo Bank)

The Saxo 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 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 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 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 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 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-hk/legal/disclaimer/saxo-disclaimer)

None of the information contained here constitutes an offer to purchase or sell a financial instrument, or to make any investments. Saxo does not take into account your personal investment objectives or financial situation and makes no representation and assumes no liability as to the accuracy or completeness of the information nor for any loss arising from any investment made in reliance of this presentation. Any opinions made are subject to change and may be personal to the author. These may not necessarily reflect the opinion of Saxo or its affiliates.

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 Limited (“Saxo”) is a company authorised and regulated by the Securities and Futures Commission of Hong Kong. Saxo 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.

Trading in financial instruments carries various risks, and is not suitable for all investors. Please seek expert advice, and always ensure that you fully understand these risks before trading. Trading in leveraged products may result in your losses exceeding your initial deposits. Saxo does not provide financial advice, any information available on this website is ‘general’ in nature and for informational purposes only. Saxo does not take into account an individual’s needs, objectives or financial situation. Please click here to view the relevant risk disclosure statements.

The Saxo trading platform has received numerous awards and recognition. For details of these awards and information on awards visit www.home.saxo/en-hk/about-us/awards.

The information or the products and services referred to on this site may be accessed worldwide, however is only intended for distribution to and use by recipients located in countries where such use does not constitute a violation of applicable legislation or regulations. Products and services offered on this website are not directed at, or intended for distribution to or use by, any person or entity residing in the United States and Japan. Please click here to view our full disclaimer.

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