Thursday, August 11, 2022
Forex Broker News
  • Home
  • Forex Broker Reviews
    • All
    • Preferred Brokers
    • Regulated Brokers
    • Unregulated Brokers

    Fibinex.io Review

    Homefx-Plus Review

    Duvaro Review

    Cupiro Review

    StockHome.io Review

    LegacyFX Review

    Crypto Dock Review

    City Index Review

    Forex.com Review

  • Broker Types
  • Forex & Fintech Jobs
  • News
No Result
View All Result
  • Home
  • Forex Broker Reviews
    • All
    • Preferred Brokers
    • Regulated Brokers
    • Unregulated Brokers

    Fibinex.io Review

    Homefx-Plus Review

    Duvaro Review

    Cupiro Review

    StockHome.io Review

    LegacyFX Review

    Crypto Dock Review

    City Index Review

    Forex.com Review

  • Broker Types
  • Forex & Fintech Jobs
  • News
No Result
View All Result
Forex Broker News
No Result
View All Result
Home News Sources saxo all

Macro Digest: The new dynamic duo

The twin circumstances of an incoming recession and a massive, trade war-related breakdown in the global supply chain have joined forces to lean heavily on risk sentiment. Credit facilitation is still falling, and the charts point to a key inflection point around October of this year. How will policymakers respond?
Our macro view

A new, negative double-whammy is impacting markets and risk. First we have the dawning realisation that the breakdown in US-China trade talks already points to a a massive disruption of the global supply chain and a halt in “technology transfer”. Second, and due only partly to the trade war, the world is heading full-tilt into ‘recession-light’, if not a full-blown recession.

Why it matters

The Federal Reserve and its global peers are increasingly behind the curve and will move to do what they can (non-NIRP banks, at least) to aggressively cut policy rates.  We see the Fed cutting by at least 50 basis points by October.

Taking action

Remain long overweight US fixed income and unhedged (i.e. accepting currency risk), and add to overweight at a break of 129.50 in the TLT (US Long Treasury ETF) as measured by the daily close. Remain defensive in stocks and position for a shift from monetary to fiscal policy by Q4 2019 (infrastructure spending and early inflation).

Concerning credit

After the initial risk-on impact that followed the Global Policy Panic, we moved to our False Stabilisation theme in April, arguing that lowering both guidance and the future price of money wouldn’t be enough when the real issue is that credit facilitation is still falling.

Using our dependable credit impulse metric, we feel justified in insisting that the trough in economic activity lies ahead of us, not behind. The chart below plots Chinese manufacturing PMI against credit impulse and suggests a low in the August/September timeframe.

If the credit impulse correctly predicts the timing of this low, the next policy action is likely to arrive around the same time: still-lower global policy rates led mainly by China and the US.

It’s important to realise that we don’t really have a business cycle any more, only a credit cycle – and credit leads and predicts nearly everything. The barrier for a cut appears high at the moment as the Fed seems to be engaged in a misinformation campaign. I asked my Bloomberg terminal for the top Fed news headlines in recent days to get a feel for where the US central bank stands.

This was the result:

Two things are surprising there, and the first is how neutral/hawkish the Fed still sounds. Second, and probably more relevant, is the question of why two top people – one a real contender for New York Fed President and both with over 25 years at the Fed – are leaving on such short notice? But let’s get back to the point: the Fed is either clueless or faking it to avoid a new, destabilising melt-up in equities, as both domestic and global economic data point to a steep deceleration.

Here is the Chicago Fed National Activity Index, the broadest measure of US economic activity. It has moved into negative territory (forget the chart headline – the data are updated, but not the headline).

Furthermore, the market is not only calling the Fed’s bluff but it’s even raising the stakes and betting that the Fed will not only cut once, but at least twice this year.
Look at the state of play in the bond market versus the likelihood of a Fed cut on the chart below:
The chart shows that although TLT is returning to strength, it needs to break 129.50 to start the final climb to its 2016 high of 143.60 (which I expect it could eventually exceed). 

Finally, we at Saxo Bank have always said that the world-leading gauge of economic activity is Australia, and AUDJPY in the currency space. That exchange rate is making new lows at 75.50 and looks as if it will soon test the 72.50 low of 2016. What’s more interesting, though, is that the Reserve Banks of Australia and New Zealand have always been at the forefront of cutting rates as global growth comes under pressure.

This was notably true in 2008 (we are excluding the Fed here, and looking at non-US central banks) as illustrated by this morning’s excellent piece from Bloomberg’s David Flickling.

The RBA, by the way is expected to cut rates next Tuesday for the first time since 2016.

Note that the 10-year Australian government yield is really Down Under as well, having collapsed to an all-time low below 1.50% over the course of last week, and below the RBA’s current short policy rate before next week’s cut!
This new double-whammy for markets – an already recessionary tilt that is only being aggravated by trade war – has yet to be fully priced in. I continue to receive research hailing the resilient US economy, but the reality is that both the Fed and Wall Street are behind in terms of adjusting to a global scenario where the engines of credit growth – lower rates, cheap energy and globalisation – can either no longer prevail (globalisation and arguably energy) or have reached the point of diminishing returns (low rates).

Next up is an attempt to trot out the same old policy recipe: a lowering of policy rates, resulting (if we are lucky) in a brief “sugar high” in asset markets. But ultimately this just extends the False Stabilisation narrative until around October, which coincides with the US federal budget season.

The next policy pivot, which looks likely to dawn on the market around that time despite plenty of chatter over the last few quarters, will be massive fiscal spending built on a modern monetary theory framework. This means overt stimulus not sterilised by the issuance of US Treasuries.

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 is not intended to and does not change or expand on this. 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)

Steen Jakobsen
Chief Economist & CIO
Saxo Bank
Topics: Macro United States China Government Bonds Bonds Equities AUDJPY Central Banks Federal Reserve

ADVERTISEMENT
Share197Tweet123ShareSend

Related Posts

saxo all

EM FX Carry Trade Update – September 13 2019

August 10, 2022
saxo all

Equities enter an inflection point

August 10, 2022
saxo all

Equities are holding the line after FOMC

August 10, 2022
saxo all

Digital Wealth Management: Generating returns without lifting a finger

August 10, 2022
saxo all

COT: Dollar long jumped on false euro breakout

August 9, 2022
saxo all

August Jobs Seals the Deal on RBA Cut

August 8, 2022

Select one of the Best Forex Brokers for your Trading  |  Read the Reviews

Fibinex.io Review

Homefx-Plus Review

Duvaro Review

Cupiro Review

StockHome.io Review

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. Between 65-89% of retail investor accounts lose money when trading CFDs. You should consider whether you can afford to take the high risk of losing your money. forexbroker.news is an affiliated partner with various Forex brokers and may be compensated for referred Forex traders.

Risk Disclosure: Forexbroker.news assumes no liability for loss or damage as a result of reliance on the information contained within this website including data, quotes, charts and forex signals. Operations in the international foreign exchange market contain high levels of risk. Forex trading may not be suitable for all investors. speculating only the money you can afford to lose. Forexbroker.news remind you that the data contained in this website is not necessarily real-time and may not be accurate. All stock prices, indexes, futures are indicative and not appropriate for trading. Thus, Forexbroker.news assumes no responsibility for any trading losses you might incur as a result of using this data.You should be aware of all the risks associated with foreign exchange trading and seek advice from an independent financial advisor if you have any doubts.

Disclaimer: It is our organization's primary mission to provide reviews, commentary, and analysis that are unbiased and objective. While ForexBroker.News has some data verified by industry participants, it can vary from time to time. Operating as an online business, this site may be compensated through third party advertisers. Our receipt of such compensation shall not be construed as an endorsement or recommendation by ForexBroker.News, nor shall it bias our reviews, analysis, and opinions.

  • Privacy Policy
  • Contact US
  • Terms of use,

Copyright © 2020 forexbroker.news

No Result
View All Result
  • Home
  • Forex Broker Reviews
  • Broker Types
  • Forex & Fintech Jobs
  • News

© 2020 https://forexbroker.news - Forex Broker news & magazine