'And upside down in air were towers' 'And upside down in air were towers' '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.

Disclaimer

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 Inspiration Disclaimer and (v) Notices applying to Trade Inspiration, 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-sg/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 Markets 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 Markets or its affiliates.

Saxo Markets
88 Market Street
CapitaSpring #31-01
Singapore 048948

Contact Saxo

Select region

Singapore
Singapore

Saxo Capital Markets Pte Ltd ('Saxo Markets') is a company authorised and regulated by the Monetary Authority of Singapore (MAS) [Co. Reg. No.: 200601141M ] and is a wholly owned subsidiary of Saxo Bank A/S, headquartered in Denmark. Please refer to our General Business Terms & Risk Warning to consider whether acquiring or continuing to hold financial products is suitable for you, prior to opening an account and investing in a financial product.

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 such as Margin FX products may result in your losses exceeding your initial deposits. Saxo Markets does not provide financial advice, any information available on this website is ‘general’ in nature and for informational purposes only. Saxo Markets does not take into account an individual’s needs, objectives or financial situation.

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

The information or the products and services referred to on this website 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 intended for residents of the United States, Malaysia and Japan. Please click here to view our full disclaimer.

This advertisement has not been reviewed by the Monetary Authority of Singapore.

Apple and the Apple logo are trademarks of Apple Inc, registered in the US and other countries and regions. App Store is a service mark of Apple Inc. Google Play and the Google Play logo are trademarks of Google LLC.