'And upside down in air were towers'

'And upside down in air were towers'

Macro 3 minutes to read
Steen Jakobsen

Chief Investment Officer

Summary:  Valuations are overextended and the outlook is dim. As such, I'm fairly confident markets will be supported.


"And upside down in air were towers
Tolling reminiscent bells, that kept the hours
"
— T.S. Eliot, The Waste Land

The trading game is ultimately about figuring out the next policy move. This was the common thread that ran through our 'Four Horsemen' and 'Policy Panic' macro themes, and it continues into our present 'False Stabilisation' theme as well.

The nervousness that we are seeing this week in the wake of President Trump's latest trade war ripostes falls into the False Stabilisation scenario. After all, everything had been priced to perfection on a narrative of falling policy rates, which of course cannot fuel any real uptick in economic activity beyond a rise in 'feel-good' sentiment.

The risk this week is that the market is figuring out that any deal between China and the US will exist on paper only.

Look around the world: the tension between China and the US continues to ratchet higher. Looking ahead to June's World Trade Organisation summit in Japan, where many observers expect an anti-WTO broadside from Washington, and the horizon is cloudy at best.
US Navy carrier USS Carl Vinson transits the South China Sea
The US Navy carrier USS Carl Vinson transits the disputed South China Sea near Taiwan (source: Getty)
The main question, however, is what the policy response will be. For China, my take is: massive, endless monetary easing.

In the US, yes, Trump is playing to his domestic base, but this can be effective. He is currently enjoying his strongest approval numbers in years, with Gallup showing the president at 46%, exceeding even President Obama's approval rate at this point in his first term. That said, the position leaves Trump vulnerable as well; with the 2020 vote drawing closer, he cannot and will not continue his aggressive path on this front if the market continues to tank.

The Federal reserve, in our view, will move the rate cut forward/up. We know from the past few years that every time the market corrects by 7-10%, the Fed changes tone and direction.

I don't like current valuations. I don't like the current outlook. 

And I'm pretty confident that the market will be supported/bought no matter what the outcome of Friday's trade talks.

The worse the headlines, the larger the policy response.

I suggest buying Nasdaq calls.

Quarterly Outlook

01 /

  • Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges

    Quarterly Outlook

    Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges

    Althea Spinozzi

    Head of Fixed Income Strategy

  • Equity Outlook: Will lower rates lift all boats in equities?

    Quarterly Outlook

    Equity Outlook: Will lower rates lift all boats in equities?

    Peter Garnry

    Chief Investment Strategist

    After a period of historically high equity index concentration driven by the 'Magnificent Seven' sto...
  • FX Outlook: USD in limbo amid political and policy jitters

    Quarterly Outlook

    FX Outlook: USD in limbo amid political and policy jitters

    Charu Chanana

    Chief Investment Strategist

    As we enter the final quarter of 2024, currency markets are set for heightened turbulence due to US ...
  • Macro Outlook: The US rate cut cycle has begun

    Quarterly Outlook

    Macro Outlook: The US rate cut cycle has begun

    Peter Garnry

    Chief Investment Strategist

    The Fed started the US rate cut cycle in Q3 and in this macro outlook we will explore how the rate c...
  • Commodity Outlook: Gold and silver continue to shine bright

    Quarterly Outlook

    Commodity Outlook: Gold and silver continue to shine bright

    Ole Hansen

    Head of Commodity Strategy

  • FX: Risk-on currencies to surge against havens

    Quarterly Outlook

    FX: Risk-on currencies to surge against havens

    Charu Chanana

    Chief Investment Strategist

    Explore the outlook for USD, AUD, NZD, and EM carry trades as risk-on currencies are set to outperfo...
  • Equities: Are we blowing bubbles again

    Quarterly Outlook

    Equities: Are we blowing bubbles again

    Peter Garnry

    Chief Investment Strategist

    Explore key trends and opportunities in European equities and electrification theme as market dynami...
  • Macro: Sandcastle economics

    Quarterly Outlook

    Macro: Sandcastle economics

    Peter Garnry

    Chief Investment Strategist

    Explore the "two-lane economy," European equities, energy commodities, and the impact of US fiscal p...
  • Bonds: What to do until inflation stabilises

    Quarterly Outlook

    Bonds: What to do until inflation stabilises

    Althea Spinozzi

    Head of Fixed Income Strategy

    Discover strategies for managing bonds as US and European yields remain rangebound due to uncertain ...
  • Commodities: Energy and grains in focus as metals pause

    Quarterly Outlook

    Commodities: Energy and grains in focus as metals pause

    Ole Hansen

    Head of Commodity Strategy

    Energy and grains to shine as metals pause. Discover key trends and market drivers for commodities i...


Business Hills Park – Building 4,
4th Floor, office 401, Dubai Hills Estate, P.O. Box 33641, Dubai, UAE

Contact Saxo

Select region

UAE
UAE

Trade responsibly
All trading carries risk. Read more. To help you understand the risks involved we have put together a series of Key Information Documents (KIDs) highlighting the risks and rewards related to each product. Read more

Saxo Bank A/S is licensed by the Danish Financial Supervisory Authority and operates in the UAE under a representative office license issued by the Central bank of the UAE.

The content and material made available on this website and the linked sites are provided by Saxo Bank A/S. It is the sole responsibility of the recipient to ascertain the terms of and comply with any local laws or regulation to which they are subject.

The UAE Representative Office of Saxo Bank A/S markets the Saxo Bank A/S trading platform and the products offered by Saxo Bank A/S.