US-China thaw sparks relief rally

Clare MacCarthy

Senior Editor, Saxo Bank

Europe was largely offline yesterday for an extended weekend but there was much going on elsewhere, particularly US president Donald Trump’s announcement on Saturday that he was suspending his promised tariffs on Chinese aluminium and steel. This détente triggered a quite decent relief rally on Monday, with the Aussie dollar being a notable beneficiary, says John J Hardy, Saxo’s head of forex strategy. “The feeling is that they’re talking and negotiating rather than just trading barbs,” he adds.

But other dangers loom elsewhere, with what Hardy calls “the political revolution in Italy” (the planned new anti-establishment/populist coalition government) being particularly worrying. Yesterday, the unsettling prospect of a broadly anti-EU government at the helm of the Eurozone’s third-largest economy sparked a dramatic widening is peripheral spreads versus bunds, with Italian yields naturally spiking hardest. “I have a hard time seeing any euro rally here as long as German-Italian spreads are this wide,” Hardy says. 

For equities, the US-China thaw meant a one-day rally, says Peter Garnry, Saxo’s Head of Equity Strategy. “Obviously it’s positive for global growth but I don’t see it as a sufficiently positive catalyst to bring equities up to their January highs.”

“The political risk on equities is largely priced into Italian equities, but if you want to have a positive spin on this then stay away from Italian assets short-term but perhaps return later when things calm down. This government will hardly last very long and we’re likely to have new elections,” Garnry notes.

Oil, meanwhile, remains right up there around $80/barrel, thanks In part to the ongoing Iranian sanctions kerfuffle and a new threat of more stringent sanctions on Venezuela following its re-election of the hardline leftist Maduro at the weekend, says Ole Hansen, Saxo’s Head of Commodity Strategy. These twin themes will continue to affect oil in the days ahead.

Finally today, a few points from Kim Cramer-Larsson, Saxo technical analyst: “We’re in the final stage of an uptrend in the NSADAQ 100 and I think we’ll see another attempt to break the 7,000 level this week.” For the S&P500, Kim expects the 2,000 level to be tested in the next couple of days, while the DAX is struggling a little but remains in a rising channel with resistance around 13,000.

 

You can access both of our platforms from a single Saxo account.

Disclaimer

The Saxo Bank 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. This content is not intended to and does not change or expand on the execution-only service. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to 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 Bank 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 Bank 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 Bank 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 Bank 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 Bank 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/legal/disclaimer/saxo-disclaimer)