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From the Floor: G20 in focus as global tensions spike — #SaxoStrats

   • FOMC minutes out today at 1800 GMT, inflation outlook in focus
   • Geopolitics in the spotlight ahead of weekend G20 summit
   • Sino-US tensions elevated on North Korea, US arms sales to Taiwan
   • Riksbank gives tepid confirmation of global hawkish turn
   • Gold remains above support on world tensions despite soft JPY, bonds
   • 10-year German yields stall below critical 50 bps level

By Michael McKenna

From a financial perspective, the key narrative animating markets remains the global central bank shift away from accommodative policy. This is taking place, however, against a remarkably tense geopolitical backdrop that continues to provide instability, supporting gold prices despite weaker bonds and a soft Japanese yen.

"We have the Federal Open Market Committee [minutes] out today," says Saxo Bank head of forex strategy John J Hardy, "although this weekend's G20 summit is probably the highlight given global tensions".

One major point of focus is North Korea, where Hardy says that the isolated Communist state's ICBM launch Tuesday is driving tensions toward the point where a military confrontation might prove inevitable. "We see US president Trump and China's Xi Jinping on worse terms due to both Korea and the US' sale of arms to Taiwan," notes Hardy, adding that he does not feel the weekend's summit will see the relationship between the world's two largest economies grow any more productive.

Beyond the US and China, Trump's meeting with Putin will doubtlessly provide a raft of headlines over the weekend as Syria's future remains an open question with US secretary of state Rex Tillerson having recently moved back to the "it's Russia's issue" stance that he maintained before the April US attack on a Syrian airbase.

On the central bank side, Hardy says that he expect's today's FOMC minutes and Thursday's European Central Bank minutes to provide little in terms of major shifts but adds that he expects EURUSD to break out of its current channel soon.

In stocks, Saxo head of equities strategy Peter Garnry reiterates his buy recommendation on Portuguese shares, adding that he expects the Iberian nation to gain some share of market/news focus following the Italian and Spanish bank bailouts.


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Source: Saxo Bank 

Following yesterday's US closure for the July 4 holiday, Garnry reports that US tech shares will again be a key point of focus today, with Nasdaq 100 futures declining on Tuesday despite the closure of cash markets.

In single shares, Garnry points to Worldpay, whose stock gained 28% yesterday on buyout speculation concerning Vantiv and JPMorgan. Garnry says that he expects the trend of consolidation within the payment processing industry to continue, with Worldpay peer Wirecard shares up 7% and interest seen in Denmark's Nets as well.

Crude oil prices have paused following an eight-session, 11% rally in Brent crude, which Saxo head of commodities strategy Ole Hansen calls a "quite natural" development ahead of the psychologically important $50/barrel level. With Nigerian and Libyan production on the rise, Thursday's inventories report from the US Energy Information Administration will likely again prove crucial for crude.

As noted above, Hansen points to geopolitical fears as supporting gold despite a falling yen and bonds, stating that he sees support at $1,215/oz and resistance at $1,234 and $1,239/oz.

Bonds will be in focus today, with Saxo fixed income trader Michael Boye reporting that 10-year German bund yields are stalled below the critical 50 basis point level as the ECB "continues to preach patience".

This evening's FOMC statement, and particularly the Fed's inflation guidance, could be key for bond yields, says Boye.

North Korea
 Tanks parade through the North Korean capital of Pyongyang. Saxo's John Hardy says the region is a key point of tension as military escalation looms. Photo: Shutterstock

Michael McKenna is an editor at Saxo Bank


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