Macro Digest: The art of making no sense

Macro Digest: The art of making no sense

Macro 7 minutes to read

Steen Jakobsen

Chief Investment Officer

Summary: It took markets months to price in a China-US trade deal. It took President Trump two tweets to throw them into chaos.

President Trump's decision to reignite the China-US trade war with new tariff threats is a game-changer. Something shifted over the weekend, and we doubt that it can be healed again overnight; as such, we see some risk of a downside correction in financial markets.

Beijing slashed its reserve requirement ratio ahead of today's opening bell, but mainland equities still plunged by more than 7% in Shenzhen. At the moment, there is precious little information being offered to Chinese investors, but we believe that the authorities will step in with support one way or the other. The A-shares rally, after all, has corrected 50% since April and there is an old rule of thumb among Chinese market watchers: the faster it falls, the better it is ("better" meaning "more likely to attract significant intervention, of course).

Trump's fanning of the trade war flames not only derails some of the premium built into the expected conclusion of the deal, but also makes the upcoming G20 summit in Japan that much more crucial given this latest injury to "high globalisation"-era pratices.

(We hear that Washington is preparing a massive broadside against the World Trade Organization, with globalisation itself set to bear the brunt of the impact.)

In terms of our own macro view, we're holding the line: it's all about The False Stabilisation.

In terms of action, we are moving into capital preservation mode – long volatility with reduced exposure to globalisation-sensitive equities.

For more on Saxo's Equity Outlook, be sure to check out Peter Garnry's latest update.

This is politics in 2019: Trump tweets, and media (read: Bloomberg, the Wall Street Journal and the Financial Times) rush in to measure the carnage.

As noted in the linked FT article, the president's latest tweets "marked a big shift in rhetoric" concerning the trade dispute.

Beijing's decision to cut the RRR before market open (and before the 7% plunge in Shenzhen) was also a key shift in signal value terms...

The A-shares market has "corrected" 50% of its upward move in eight – eight! – sessions...

Despite the mayhem seen in markets, however, Chinese media were notably silent on the situation.

A look at the front pages of two major mainland portals shows a curious lack of one Donald J. Trump, while the Global Times' stocks section states that "investors need not panic".

The landscape is volatile, but the conclusions drawn in our April 23 "False Stabilisation" outlook remain firmly in place:

• Reduce overweight in China.
• Expect rising USD and US yields from here… DXY @ 97.39 and 2-year @2.39 and 10-year @2.59.
• Equity market should go flat over summer – real risk starts in late July/August when both policy actions and actual data will show none to little overall improvement in economic growth.
• The coming month will be called: The False Stabilisation which most likely will lead to eventually stagflation, driving MMT in Q4 when national government will boost spending, tax cuts to “replace European Central Bank lack of transmission” after a decade of zero interest rates.
• Volatility should start rising from here – higher US dollar, less liquidity (vis-à-vis Q4 and Q1), higher personal tax payments in the US plus huge increases in EM-consumption and the cost of energy makes the market very predictable in our view.

Quarterly Outlook 2024 Q2

2024: The wasted year

Macro: It’s all about elections and keeping status quo

Markets are driven by election optimism, overshadowing growing debt and liquidity concerns. The 2024 elections loom large, but economic fundamentals and debt issues warrant cautious investment.

FX: The rate cut race shifts into high gear

As US economic slowdown hints at a shift away from exceptionalism, USD faces downside with looming Fed cuts. AUD and NZD set to outperform as their rate cuts lag. JPY gains on carry unwind bets and BOJ pivot.

FX: High yielding currencies will start losing their appeal

Uncover the shifting focus in 2024's FX markets towards growth resilience and relativity, away from bond yields and inflation stories.

Commodities: Year of the metals

Embrace the metal revolution on the commodity market in the coming year, with a focus on gold, silver, platinum, copper, and aluminum.

Macro: What happened to the future?

The gloominess of geopolitical conflicts and the repetitive nature of political agendas. What else does 2024 hold in store for us?

The rise of populism: Far-right parties will influence the future

The disheartening cycle of unresolved geopolitical conflicts, the rise of polarizing political parties, and the stagnation of productivity.

Investing in China: Navigating Q1 amid economic challenges

Understand China's political landscape in Q4 2023 and the impact on counter-cyclical initiatives, with a focus on the pivotal Q1 2024.

Macro: It’s all about elections and keeping status quo
Markets are driven by election optimism, overshadowing growing debt and liquidity concerns. The 2024 elections loom large, but economic fundamentals and debt issues warrant cautious investment.
FX: The rate cut race shifts into high gear
As US economic slowdown hints at a shift away from exceptionalism, USD faces downside with looming Fed cuts. AUD and NZD set to outperform as their rate cuts lag. JPY gains on carry unwind bets and BOJ pivot.
FX: High yielding currencies will start losing their appeal
Uncover the shifting focus in 2024's FX markets towards growth resilience and relativity, away from bond yields and inflation stories.
Commodities: Year of the metals
Embrace the metal revolution on the commodity market in the coming year, with a focus on gold, silver, platinum, copper, and aluminum.
Macro: What happened to the future?
The gloominess of geopolitical conflicts and the repetitive nature of political agendas. What else does 2024 hold in store for us?
The rise of populism: Far-right parties will influence the future
The disheartening cycle of unresolved geopolitical conflicts, the rise of polarizing political parties, and the stagnation of productivity.
Investing in China: Navigating Q1 amid economic challenges
Understand China's political landscape in Q4 2023 and the impact on counter-cyclical initiatives, with a focus on the pivotal Q1 2024.

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Macro Digest: The art of making no sense

Steen Jakobsen

Latest Market Insights

Quarterly Outlook 2024 Q2

01 / 07

Macro: It’s all about elections and keeping status quo

FX: The rate cut race shifts into high gear

FX: High yielding currencies will start losing their appeal

Commodities: Year of the metals

Macro: What happened to the future?

The rise of populism: Far-right parties will influence the future

Investing in China: Navigating Q1 amid economic challenges

Macro: It’s all about elections and keeping status quo

FX: The rate cut race shifts into high gear

FX: High yielding currencies will start losing their appeal

Commodities: Year of the metals

Macro: What happened to the future?

The rise of populism: Far-right parties will influence the future

Investing in China: Navigating Q1 amid economic challenges

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Macro Digest: The art of making no sense

Steen Jakobsen

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Latest Market Insights

Quarterly Outlook 2024 Q2

01 / 07

Macro: It’s all about elections and keeping status quo

FX: The rate cut race shifts into high gear

FX: High yielding currencies will start losing their appeal

Commodities: Year of the metals

Macro: What happened to the future?

The rise of populism: Far-right parties will influence the future

Investing in China: Navigating Q1 amid economic challenges

Macro: It’s all about elections and keeping status quo

FX: The rate cut race shifts into high gear

FX: High yielding currencies will start losing their appeal

Commodities: Year of the metals

Macro: What happened to the future?

The rise of populism: Far-right parties will influence the future

Investing in China: Navigating Q1 amid economic challenges

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