How to trade the trade war? In Saxo Bank Head of Equity Strategy Peter Garnry's view, it is fairly simple from a basket creation perspective, but headline risks remain very strong as the world's two largest economies jostle for trade supremacy.

"Chinese shares continue to make new lows at odds with the rest of Asia," says Garnry, adding that he expects the trade war narrative to remain in place for the short-term.

"My trade war basket looks like this: long US equities, short equities from the five countries with the highest trade deficits with the US. This means long US, short China, Mexico, Japan, Germany, and Canada, with the weightings calculated in proportion to the size of these countries' respective deficits."

Source: Bloomberg, Saxo Bank

In the forex space, Saxo Bank Head of FX Strategy John Hardy reports that the People's Bank of China's Friday announcement of a raise in reserve requirements on FX forward trading hasn't affected global risk appetite to any notable extent, although it did cause a rise in CNY ahead of the key 7.00 level in USDCNY.

"Beyond USDCNY, wee see a weak euro versus USD, JPY, and CHF, with the GBP at risk due to increasing discussions of a 'no-dea' Brexit," says Hardy.

The CNY is also in focus for gold traders, reports Saxo Bank Head of Commodities Strategy Ole Hansen, with crude oil and copper caught between trade war/demand slowdown fears and the risk of supply disruptions in both commodities.

Finally, Saxo bonds specialist Althea Spinozzi reports that JPMorgan Chase CEO Jamie Dimon is out calling for a US 10-year Treasury yield above 4%, with 5% or higher possible in the longer term. In Spinozzi's view, however, this is unlikely, with yields likely to be inhibited by both trade war rhetoric and soft inflation.

For more on bonds, equities, forex, and commodities, watch today's Morning Call in full.

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