Sales Trader
Summary: We may not have reached the inflection point where the marginal risk-reward favours bears more than bulls just yet, but we are getting ever so close to that moment of truth.
We are at a critical stage of the market cycle with multiple headline risks opening up a wide array of possibilities from here. Will US-China trade war escalate further or end in a sooner-than-anticipated truce? Will the Federal Reserve march ahead with its projected dot plot hikes into 2019 or pause after the December hike? How long will the likely EU-Italy collision on the Italian budget issue last? Will there be a Brexit deal before the close of the year or will both parties borrow more time for negotiation by extending the transition period by another year? Will Theresa May survive as PM through all these uncertainties? What is going on with Saudi Arabia? Is Trump going to penalise Riyadh for an extraordinary overreach of power or use it as a bargaining chip to get the Saudis to increase crude production and drive oil prices down? All these questions have massive implications depending which way the tide turns.
But underneath the headline agendas, there is a substantial risk floating slightly under the market’s radar which is following a structural trend with little hope of any dramatic correction – the big, booming US budget deficit.
2024: The wasted year
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.
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.
Amid AI and obesity drug excitement, equities see varied prospects: neutral on overvalued US stocks, negative on Japan due to JPY risks, positive on Europe. European defence stocks gain appeal.
With the economic slowdown, quality assets will gain favour, especially sovereign bonds up to 5 years. Central banks' potential rate cuts in Q2 suggest extending duration, despite policy and inflation concerns.
Commodities poised for rebound. The "Year of the Metal" boosts gold and silver, copper awaits rate cuts. Grains may recover, natural gas stabilises. Gold targets $2,300-$2,500/oz, copper's breakout could signal growth.
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.
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.
Amid AI and obesity drug excitement, equities see varied prospects: neutral on overvalued US stocks, negative on Japan due to JPY risks, positive on Europe. European defence stocks gain appeal.
With the economic slowdown, quality assets will gain favour, especially sovereign bonds up to 5 years. Central banks' potential rate cuts in Q2 suggest extending duration, despite policy and inflation concerns.
Commodities poised for rebound. The "Year of the Metal" boosts gold and silver, copper awaits rate cuts. Grains may recover, natural gas stabilises. Gold targets $2,300-$2,500/oz, copper's breakout could signal growth.
