Michael McKenna
Head of Editorial Content, Saxo Bank
The People's Bank of China cut the amount of cash that some banks must hold as reserves by 50 basis points, releasing $108 billion in liquidity as the trade war threats from Washington continue to intensify.
Saxo bank Head of FX Strategy John Hardy notes that while the PBoC's stated objective was to aid small-to-medium-sized enterprises, the sharp decline in CNY may well be a response to the threat of trade war.
Elsewhere in FX, Hardy notes that TRY has gained on Erdogan's election win while the Japanese yen is in focus – particularly versus a euro weighed down by migration-driven uncertainty on German chancellor Merkel's political future – as risk-aversion spreads.
Saxo Head of Equity Strategy Peter Garnry cautions investors to remain defensive equities overall and underweight emerging markets, noting that the major indices could see a drop to long-term support as the trade war plays out.
One other factor to watch is the 10-year Treasury yield, which Saxo bonds specialist Althea Spinozzi says might have hit a cycle peak, adding that only a resolution to the trade crisis looks likely to boost it further.
Finally, Garnry reports that European carmakers are in focus on trade war fears with Fed chair Jerome Powell out noting that the current spate of tit-for-tat threats have not yet entered the major macro data releases.
For more on equities, forex, and bonds, watch today's Morning Call in full.
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.