Macro Digest: Deficits matter... again Macro Digest: Deficits matter... again Macro Digest: Deficits matter... again

Macro Digest: Deficits matter... again

Steen Jakobsen

Chief Investment Officer

The current macro landscape sees China and its currency taking centre stage while developments in Japan and the JPY are also at an important juncture. We look for a lower CNY and a higher JPY.

The yuan, the yen, and the yardstick

CNY: Part of the current 'Chinese panic' has to do with the country's rising current account deficit. The key conclusion here? China needs a weaker yuan.

We see a test and a potential break of 7.0000 (USDCNY) inside the next year.

JPY: Across the East China Sea, Japan's currency also stands at a crucial turning point: USDJPY, in fact is close to being our highest-conviction trade; we remain short from the 112.10 level reached on August 1 with our stop-loss set at a daily close around 112.70.

A return to the '80s?

Macro-wise, the world is reverting to a theme not seen since the 1980s and '90s: debt and deficits matter. Rises in both the absolute and the marginal costs of money are shifting the global flow towards a home bias.

In the '80s and '90s, we sold deficit currencies and bought surplus FX. This game could be on its way back.

Chinese current account and Q4 SMA trend

Chinese current account and Q4 SMA trend
Source: Bloomberg

Observe how when China “needed” fiscal and monetary stimulus in 2008/09, it had plenty of room; now the opposite is true. One clear sidebar to the current Sino-US trade war is the countries' under-acknowledged co-dependence. Both the US and China how run deficits, meaning that the need for foreign direct investment as a funding tool for said deficits is growing. China has grown up, but now needs more interaction and opening up of capital accounts to share the burden of refinancing and rolling over its debt.

This in turn means that Europe and – more importantly – Japan need to fund this gap. Japan’s $2.4 trillion in overseas investments,  however, is now under some pressure to move home, but Japanese investors are now getting a better deal staying home as FX hedging costs eat the of excess yield.

JPY-based investor

Only Italy with its big tail-risk can compete in the five-year maturity while in the 10-year, France + Belgium + Spain and Italy are similar but not in excess on domestic return...

Generic notes/bonds
Source: Bloomberg

The big capital flows are starting to reverse and with US growth most likely having peaked and China restarting its growth engine, the rest of the world – including emerging markets and commodities – should receive some support.

For now, however, the focus is squarely on JPY and CNY (plus the ever-weaker TRY).

FX will lead and a signal could be forthcoming very soon.


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 (
Full 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


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

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.