“Find A Parachute, Impact Is Close” – Saxo Q4 Outlook: A New Easing Cycle Based On Ugly Realities
Via mondovisione.com,
ZeroHedge.com
Wed, 10/17/2018
Saxo Bank, the online trading and investment specialist, has today published its Q4 2018 Quarterly Outlook for global markets, including trading ideas covering equities, FX, currencies, commodities, and bonds, as well as a range of macro themes impacting client portfolios.
“We are clearly at a crossroads on many fronts: globalisation, geopolitics and economics”, says Steen Jakobsen, Chief Economist and CIO, Saxo Bank.
“The next quarter will either see dampening of volatility by a less aggressive Fed, more active easing in China, and a compromise on the European Union budget… or a further escalation in tensions between all three areas. I would not bet against the latter into Q4, but I remain confident that we stand only a few months away from the beginning of a new easing cycle based on ugly realities, not the hope expressed by politicians and often market consensus.
”For now, we estimate that the US economy has peaked – the powerful expansionary cocktail of unfinanced tax cuts, repatriation of capital, and fiscal spending ramped up growth in the US, but these one-off effects will peter out as the year ends. Already the US housing market is showing signs of strain as the higher marginal cost of capital (the higher yield on mortgages, more specifically) is starting to have a material impact on future growth.
”As certain as we are about the US having peaked, we are less certain as to how soon China will reach the bottom of its deleveraging process and begin to expand more forcefully again.”
Against this uncertain backdrop, Saxo’s main trading ideas for Q4 include:
Equities – Setting the stage for a comeback in value stocks
Throughout 2018, Saxo has constantly said that investors should be defensive on equities and avoid the semiconductor and automobile industries due to the escalating trade war between the US and China. Valuations – especially in US equities, which are half of the global equities index – have reached levels where the risk-reward ratio is too low.
Meanwhile, the Federal Reserve continues to normalise the Fed funds rate, communicating that rates are far from neutral. As the most important discount rate is lifted, it changes the dynamics, making growth stocks vulnerable and maybe setting the stage for a comeback in value stocks.
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