Something for your Espresso: Struggles and Geopolitical Tensions Shape the Outlook
Good morning from Copenhagen!
Not much on the calendar today besides new U.S. home sales and DOE inventories.
Overnight, we saw a continuation in price action on the back of the China/PBoC story, with metals (led by iron ore and copper) and the Hang Seng up around 2%.
However, based on our latest “China Watch” this is yet another false flag from China, and we expect the stimulus to be insubstantial in size relative to the problem at hand. Rather than reversing the trend, they seem more focused on controlling the speed of the decline.
But as we have seen around earlier announcements, that does not exclude a short-term 3-4 squeezy rally in Chinese assets and related proxies. The “safest bet” is probably to continue to lean short in USDCNH, which our model package also likes.
A lower USDCNH reading is typically good news for global assets (see chart 1b).
Chart 1a: Commodity moves over night
Chart 1b: USDCNH falling is typically good news 
In the U.S, rising unemployment and faltering consumer confidence could push the Federal Reserve toward larger interest rate cuts. Over in China, despite temporary rallies, the country’s stimulus efforts seem insufficient, with many investors turning to cryptocurrencies amid a struggling economy. Meanwhile, geopolitical tensions between Israel and Lebanon, alongside Iran’s cautious positioning, add further uncertainty, but Iran’s weakened economy may push them toward diplomacy with the West.
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