Head of Saxo Strats
Last month’s Equity Monthly focused on China setting up the premise of its own centrality to world affairs. But while China is destined to become the world’s largest economy, the country is currently experiencing a slowdown due the US-imposed tariffs and a general weakening of the massive, post-2015 impulse that has swept the Chinese economy forward for more than two years.
Among the latest fragments of evidence for a weaker China was the worse-than-expected Q2 technology earnings season, which saw many of the country's tech giants expand heavily into new businesses to secure top line growth at the expense of profit margins. Today, Chinese carmakers tumbled around 5% as Great Wall Motor announced an aggressive pricing campaign to maintain market share as the Chinese auto market has retreated to its slowest rate of expansion since early 2012. Growth has barely been above zero over the past 12 months and competition is increasing. This will likely hurt operating margins, and it could be the story that clings to Chinese equities over the coming quarters.
The current regime is a puzzling one. The Federal Reserve’s policy normalisation and Trump’s trade war is a benefit, at least in financial markets, to US equities at the expense of everyone else (see the trade war ETF basket chart below). Looking at economic forecasts for the G10 countries, only the US' has been raised while all others have headed lower. Our view is that US outperformance can continue for a bit longer, but a major swing is getting closer.
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.
