Clare MacCarthy
Senior Editor, Saxo Bank
News that the European Union and the UK had agreed on a 21-month Brexit transition deal propelled sterling higher yesterday but some gains were subsequently lost as doubts crept in. Sterling faces a difficult week between today's CPI, tomorrow's Bank of England meeting, and the EU summit in Brussels on Thursday and Friday.
"Expect a weak Swiss franc and strong sterling if the pound survives the next few days," says John Hardy, Saxo's head of FX strategy.
Meanwhile, the US dollar has edged back lower ahead of tomorrow's Federal Open Market Committee meeting, with markets almost 100% certain that a rate hike will be announced. "I'm not sure what the driver is here, of course we don't know what Powell is going to say, but my general stance is that he's not going to want to be very specific on guidance. So while the market is discussing whether we'll see two, three or four hikes [this year] I think Powell won't want to be tied down to too explicit a forward guidance. The takeaway will be on intangibles – his demeanour, his stance and his answers in the Q&A," Hardy says.
In equities, meanwhile, the story of the week (and probably longer) is the technology shakedown which saw the Nasdaq 100 fall 2.2% yesterday, driven by Facebook, which is under scrutiny because of the Cambridge Analytics data misuse allegations. "Facebook shares fell 7% and the hashtag #deletefacbook is spreading rapidly on the internet. This has the potential to have a severe impact on engagement numbers," warns Peter Garnry, Saxo's head of equity strategy.
In commodities, "we're seeing a bit of a two-way market with crude oil trying to break to the upside and industrial metals looking heavy to the downside," says Ole Hansen, Saxo's head of commodity strategy. Crude’s breakout attempt is supported by high Opec compliance on tumbling Venezuelan production and Middle East security concerns (Saudi Arabia vs Iran and US sanctions return). Against it is the rising risk of a demand growth-killing trade war, weaker stocks and rising US stocks, Hansen says.
Finally today, in precious metals, the tech rout has paused the gold and silver selling we've seen the past few days in the run-up to the Fed meeting. But there's no end yet to the problems of grains and soybeans which remain troubled after their recent protracted buying spree.
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.