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Saxo Q2 Outlook: The end of a cycle like no other



Saxo Q2 Outlook: The end of a cycle like no other

Saxo Bank, the leading Fintech specialist focused on multi-asset trading and investment, has today published its quarterly outlook for global markets and key trading ideas for Q2 2018. The focus of the report is how we are nearing the end of the largest monetary policy experiment of all time in a backdrop of ascendant nationalism, staggering inequality and a widespread loss of hope among the younger generation.

In its Q1 report, Saxo Bank highlighted bubbles in financial markets and now wants to alert investors to the fact that we are at the end of a cycle like no other. Central banks have replaced politicians as decision-makers and their maintaining of low and negative interest rate policies and quantitative easing – for far longer than the normal business cycle would dictate – was necessary and kept markets in a good mood, but with the unfortunate side effects.

Today’s capital markets are in a zombie-like state, with low volatility and extreme valuations in all assets with no net increase in growth and productivity, and a massive increase in inequality.

Saxo Bank’s Q2 Outlook covers the bank’s main asset classes: FX, equities, commodities and bonds as well as a range of central macro themes and tactical asset allocation models.

Commenting on this quarter’s outlook, Steen Jakobsen, Chief Economist and CIO, Saxo Bank, said:

”The benefits from the globalised system and particularly from the central banks’ asset-pumping response accrued near-entirely to the already wealthy, while the average economic participant lost out. This is the process that drove the advent of Brexit and Trump. So now we have our first great new showdown since the Cold War, which saw the victory of capitalism over communism. Now comes the fight between nationalism and globalism. Nationalism is winning big, as country by country the outlook is turning inwards, with an increase in placing the blame on external forces from immigrants to the real and imagined misbehaviour of trade partners. Talk of trade policy and protectionism is now labelled ‘trade wars’.”

”In our view, the implications of a global trade war and the world possibly having reached peak globalism have super-cycle implications. On the interest rate front and due to the excess of central bank policy, we are likely about to see the end of the 35-year downward trend in interest rates, the price of money. This has enormous implications, as the world has amassed $237 trillion of debt with little growth to show for it. At the same time, we have seen an information technology revolution in which technology companies have become monopolies of a size not seen since the 19th century, with their dominance of the market and downright scary data-gathering capacity more powerful than that of governments.“

”This is now changing with the European initiative to both enforce GDPR, the General Data Protection Regulation, and the 4% turnover tax applied to technology companies.  This will reprice technology, as (at a bare minimum) growth is now taxed higher with more spending needed on data protection, which is not ‘sales’ but costs.”

 Tactical asset allocation in economic cycles 

As this current economic cycle draws towards its close, preserving capital becomes an increasingly important metric. But how to achieve this? One method is tactical asset allocation and the key to success here is to identify the asset classes which relatively outperform during the different periods of an economic cycle. One strategy is to construct a framework in which portfolio weights deviate from the asset allocation policy throughout the economic cycle, also called tactical asset allocation. The key to success in tactical asset allocation is to identify the asset classes which relatively outperform during the different periods of an economic cycle.

Anders Nysteen, Quantitative Analyst, said:

”It is important in this environment to have a portfolio not just with “soft” assets but to be prepared for sudden market changes with a more diversified portfolio including some of the “hard” assets such as commodities, real estate, and emerging market exposure. With the current slightly negative credit impulse and highly indebted financial system, minor events could trigger increased uncertainty in the market, leading to a further expansion of the corporate spreads. A potential trade war between the US and China could increase the risk premium in credit markets. This would trigger a slowdown in the economy as companies would face higher financing costs.

”Saxo Bank’s forecast is that credit spreads will widen and the yearly change in gold prices will stay positive. However, the consensus is looking for credit spreads to remain low and not expanding much while inflation will pick up.”

Macro – Credit impulse is heading south

As we enter the second quarter of 2018, the hopes of synchronised growth are vanishing quickly as the global economy suffers a loss of momentum (global PMI has plunged to a 16-month low) and warning signs of an imminent slowdown are popping up in the US. Economic indicators ranging from Saxo Bank’s proprietary credit impulse to the yield curve and credit card delinquencies all point in a single direction – the US is heading for recession.

Christopher Dembik, Head of Macroeconomic Analysis, said: ”Based on up-to-date domestic nonfinancial loans data, such as C&I loans in the US, there is every reason to believe that the sluggish momentum will remain in place in both China and the US on the back of deleveraging and monetary policy normalisation. In a highly leveraged economy like the US, credit is a key determinant of growth. The main risk for investors is the increasing mismatch between the optimistic view of the market that considers the risk of recession as being less than 10% and what recession indicators are saying about the economy. These indicators suggest that the US is at the end of the business cycle – which is not much of a surprise – and hint that recession is just around the corner and Trump’s economic policy does not seem able to avert it.

FX – The US dollar is a time bomb

Ten years after the start of the global financial crisis, President Trump has turbocharged the search for a replacement for the US dollar as the world’s chief reserve currency with his total abandonment of fiscal discipline at what could prove the tail end of the US recovery. The USD is destined for pronounced weakness in purchasing power as reserve status begins to slip away – now sooner than before. But the real devil is in the detail of how we get there.

John Hardy, Head of FX Strategy, said: “As we look to the rest of 2018 and beyond, we suspect we are nearing the beginning of the endgame for the USD’s role in the global economy. The financial world risks another liquidity crisis linked to the US dollar if we see another financial panic or turn in the global credit cycle. Some new reserve asset will have to be at the centre of that new system – some have argued for a Special Drawing Right, a gold-backed SDR or similar. Otherwise, a new USD crisis could overwhelm the financial system without a coordinated response, risking a mass of defaults, unprecedented exchange rate volatility and a Balkanisation of the global financial system with no single reserve asset and division of the world into spheres of influence.

“The question is whether global elites can move to short circuit the inevitable USD crisis in launching such a monumental reconfiguring of the global financial system without the permission/consent/direction of political authorities in countries with democratic leaders.”

Equities – The battleground in Q2 will be that of fundamentals against the outlook

Equities are under pressure on many fronts, ranging from a potential trade war to disappointing macro numbers and technology regulation. Caution is critical in such an environment and portfolio diversification and defensive choices therefore make sense. Saxo Bank believes that the battleground in Q2 will be fundamentals against outlook.

Peter Garnry, Head of Equity Strategy, said: “Our dynamic asset allocation has gone moderately defensive in February and as a result we remain negative on equities as the risk-reward ratio seems low at this point.We recommend investors to be overweight defensive sectors such as health care and consumer staples, as well as interest rate-sensitive sectors including utilities and telecoms as rate expectations could take a hit in Q2 while markets digest the changing landscape. Portfolios should be more balanced and tilted towards defensive industries in the portfolio’s equity exposure.”

Commodities – Investors will continue to see safety in gold 

The turbulent turn that geopolitics took in recent weeks has had a severe impact on commodities. But while crude oil and gold benefitted from these tensions, industrial metals suffered on the outlook to lower economic growth. The agriculture sector, meanwhile, was ruled by the weather.

Ole Hansen, Head of Commodity Strategy, said;

”Commodities got off to a strong start in 2018 but have since come under heavy pressure as rising trade tensions threatened to further undermine already slowing economic growth momentum. The focus on a commodity-supportive rise in inflation has also faded with current and forward projections not showing much sign of a pickup in global price pressure.”

”Against these developments we are facing multiple sources of geopolitical risk including Russia and the West on opposing sides in Syria, as well as Iran against Saudi Arabia and the US. While increasing the level of uncertainty, these simmering tensions have also been providing some underlying support for crude oil and, to a certain extent, gold. For this reason, these two commodities are among the very few cyclical commodities currently showing a plus on the year.  Given our worries about the outlook for global growth and inflation potentially not meeting expectations, we are turning our attention to the non-cyclical agriculture sector, which has underperformed almost against all other asset classes for several years.”

 Bonds – Time for bonds to join the volatility party

The economy is witnessing a gradual degradation of corporate credits, and an increase in bond market volatility appears likely over the coming months. With the Congressional Budget Office now saying that the US deficit will rise above $1 trillion by 2020 and warning of dangerous implications such as a sudden increase in interest rates, reduced policy flexibility and ultimately even a financial crisis, Saxo Bank cannot help but stay cautious. It believes that Q2 will see intensifying signs of distress in the corporate space which may provoke confined periods of volatility, but a more severe sell-off will not happen until the end of the year.

 Althea Spinozzi, Fixed Income Specialist, said:

”We believe that investors’ focus will remain on inflation and the supply/demand of Treasuries, and any surprise in this data may cause volatility within the sovereign space. However, this will most likely not cause a sell-off in the corporate space until the 10-year Treasury yield hits the 3% psychological level or there is a more significant sell-off within the equity market. In Q2 we will see increased, yet limited, episodes of volatility which will provide investors with a window of opportunity in which to carefully select risk ahead of the stormier waters to come.”

Currency – A regime change lower in AUD

In the long term, Asia’s enviable demographics see the APAC region enjoying some of the best returns across asset classes compared to its global peers. Not only does the populous region have more economic “chips on the table” in weighted terms, but it also has more time to place those chips, employ its strategies, and – perhaps most importantly – make mistakes.

Kay Van-Petersen, Global Macro Strategist, said:

”For the first time in nearly 20 years, we see a yield differential between the Reserve Bank of Australia and the Federal Reserve that actually favours the Fed. At present, the Federal Funds rate sits at 1.75% versus the RBA’s 1.50% – a 25 basis point premium towards the Fed, USD, and US assets versus their Australian counterparts.”

”Policy divergence between the Fed and other central banks is projected to increase as well, particularly given the likelihood of another Fed rate hike on June 13. The RBA, by contrast, has been in neutral-to-dovish mode for well over 18 months and this is unlikely to change. After all, Australia is an economy flush with high levels of consumer debt, a fragile and over-extended property market, stretched bank balance sheets, and the risk that comes with not having endured recession in more than 25 years.” 

Are cryptocurrencies entering a new cycle?

Cryptocurrencies fell back to earth with a bang in the first months of this year, having enjoyed exponential growth in 2017. The situation remains fragile, given the outlook to increased regulation and social media advertising bans. That said, we can’t rule out the possibility of a comeback.

Jacob Pouncey, Cryptocurrency Analyst, said:

“If there is a significant pullback in the equity markets, there will be an inflow of money into uncorrelated assets, or assets that lie outside the reach of the traditional financial system in which cryptocurrencies are a potential alternative. The inflow of institutional capital to the cryptocurrency market due to the increase in regulation and investor protection could lead cryptocurrencies to a positive quarter.”

To access Saxo Bank’s full Q2 2018 outlook, with more in-depth pieces and videos from our analysts and strategists, please go to


Factors That Affect the Direction of the Stock Market



Factors That Affect the Direction of the Stock Market 1

A stock price represents the value of a particular stock of a particular entity, asset or another financial instrument. It is calculated by calculating the price per share of the stock at a particular price and period in time.

There are various factors that affect the direction of the stock market. These factors include interest rates and inflation rates as well as the state of the economy. If one of these factors is not in the favor of the stock market, then it could bring about a downfall of its value.

The stock prices are also affected by various stock indexes, which provide information on a particular company or industry. It helps to analyze the trends of the stock market and makes better decisions when buying and selling.

However, there are some major factors that can influence the performance of the stock market. One such factor is the state of the economy. The state of the economy refers to how well the economy is doing economically. If there is an economic decline in a particular country, then the state of the economy would be affected and the stock market would also take a hit.

Economic conditions can also affect the performance of the stock markets. For example, if the state of the economy is poor and the population is experiencing unemployment, then the economy will suffer and the stock prices will definitely take a hit.

Political turmoil can also bring about a negative effect on the stock markets because it affects the economic conditions and the way people relate to the government. When there is a lack of confidence in the state of the economy and people tend to sell off their stock at cheaper prices, the stocks of the company would suffer.

Another important factor that influences the direction of the stock market is the change in the global economy. It has been proven that the changes in the global economy are very large and it can affect the direction of the stock market in a major way. For example, during the global recession in 2020, the stock prices of many companies suffered a great deal and so did the profits of the company.

The most important thing that determines the direction of the stock market is the state of the economy and the state of the country in which the stock market is based. It is therefore, very important to invest in the stock market as a company that is in good condition. This is because it will help in ensuring the stability in the economy.

The price of the stock market is also affected by the political stability of the country in which the stock market is based. If there is a rise in the political instability, then the price of the stocks would surely go up. However, when the political stability improves, the prices of the stocks will definitely fall.

The factors that affect the direction of the stock market include the conditions in which the economy is doing. It is therefore, very important to have a good understanding of how the economic conditions in a certain country are progressing. This will help in making better investments.

There are certain countries that are very stable and these countries have a very high demand for the stocks of other countries. This means that people from those countries will invest in stocks of countries that are in good condition, and these investments will yield profits for them.

There are also certain countries that have very bad economic conditions and these countries have a very low demand for the stocks of other countries. These countries are also in need of investments and these investments will yield huge losses for them. Therefore, investing in these countries is not advised because these stocks will yield zero returns.

The stock markets are not stable unless there are good economic conditions prevailing in a country. This means that one has to know the economic condition of the country in order to make investments. Investing in the stock market is the best way to do this because investing will always yield returns, as long as the country in which one is investing is stable.

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How has the online trading landscape changed in 2020?



How has the online trading landscape changed in 2020? 2

By Dáire Ferguson, CEO, AvaTrade 

This year has been all about change following the outbreak of coronavirus and the subsequent global economic downturn which has impacted nearly every aspect of personal and business life. The online trading world has been no exception to this change as volatility in the financial markets has soared.

Although the global markets have been on a rollercoaster for some time with various geopolitical tensions, the market swings that we have witnessed since March have undoubtedly been unlike anything seen before. While these are indeed challenging times, for the online trading community, the increased volatility has proven tempting for those looking to profit handsomely.

However, with the opportunity to make greater profits also comes the possibility to make a loss, so how has 2020 changed the online trading landscape and how can retail investors stay safe?

Lockdown boost

Interest rates offered by banks and other traditional forms of consumer investments have been uninspiring for some time, but with the current economic frailty, the Bank of England cut interest rates to an all-time low. This has left many people in search of more exciting and rewarding ways to grow their savings which is indeed something online trading can provide.

When the pandemic hit earlier this year, it was widely reported that user numbers for online trading rocketed due to disappointing savings rates but also because the enforced lockdown gave more people the time to learn a new skill and educate themselves on online trading.

Dáire Ferguson

Dáire Ferguson

A volatile market certainly offers great scope for profit and new sources of revenue for those that are savvy enough to put their convictions to the test. However, where people stand the chance to profit greatly from market volatility, there is also the possibility to make a loss, particularly for those that are new to online trading or who are still developing their understanding of the market.

The sharp rise in online trading over lockdown paired with this year’s unpredictable global economy has led to some financial losses, but with a number of risk management tools now available this does not necessarily have to be the case.

Protect your assets

Although not yet widely available across the retail market, risk management tools are slowly becoming more prevalent and being offered by online traders as an extra layer of security for those seeking to trade in riskier climates.

There are a range of options available for traders, but amongst the common tools are “take profit” orders in conjunction with “stop loss” orders. A take profit order is a type of limit order that specifies the exact price for traders to close out an open position for a profit, and if the price of the security does not reach the limit price, the take profit order will not be fulfilled. A stop loss order can limit the trader’s loss on a security position by buying or selling a stock when it reaches a certain price.

Take profit and stop loss orders are good for mitigating risk, but for those that are new to the game or who would prefer extra support, there are even some risk management tools, such as AvaProtect, that provide total protection against loss for a defined period. This means that if the market moves in the wrong direction than originally anticipated, traders can recoup their losses, minus the cost of taking out the protection.

Not a day has gone by this year without the news prompting a change in the financial markets. Until a cure for the coronavirus is discovered, we are unlikely to return to ‘normal’ and the global markets will continue to remain highly volatile. In addition, later this year we will witness one of the most critical US presidential elections in history and the UK’s transition period for Brexit will come to an end. The outcome of these events may well trigger further volatility.

Of course, this may also encourage more people to dip their toes into online trading for a chance to profit. As more people take an interest and sign up to online trading platforms, providers will certainly look to increase or improve the risk management tools on offer to try and keep new users on board, and this could spell a new era for the online trading world.

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Trading Strategies



Trading Strategies 3

By Paddy Osborn, Academic Dean, London Academy of Trading

Whether you’re negotiating a business deal, playing a sport or trading financial markets, it’s vital that you have a plan. Top golfers will have a strategy to get around the course in the fewest number of shots possible, and without this plan, their score will undoubtedly be worse. It’s the same with trading. You can’t just open a trading account and trade off hunches and hopes. You need to create a structured and robust plan of attack. This will not only improve your profitability, but will also significantly reduce your stress levels during the decision-making process.

In my opinion, there are four stages to any trading strategy.

S – Set-up

T – Trigger

E – Execution

M – Management

Good trading performance STEMs from a structured trading process, so you should have one or more specific rules for each stage of this process.

Before executing any trades, you need to decide on your criteria for making your trading decisions. Should you base your trades off fundamental analysis, or maybe political news or macroeconomic data? If so, then you need to understand these subjects and how markets react to specific news events.

Alternatively, of course, there’s technical analysis, whereby you base your decisions off charts and previous price action, but again, you need a set of specific rules to enable you to trade with a consistent strategy. Many traders combine both fundamental and technical analysis to initiate their positions, which, I believe, has merit.


What needs to happen for you to say “Ah, this looks interesting! Here’s a potential trade.”? It may be a news event, a major macro data announcement (such as interest rates, employment data or inflation), or a chart level breakout. The key ingredient throughout is to fix specific and measurable rules (not rough guidelines that can be over-ridden on a whim with an emotional decision). For me, I may take a view on the potential direction of an asset (i.e. whether to be long or short) through fundamental analysis, but the actual execution of the trade is always technical, based off a very specific set of rules.

To take a simple example, let’s assume an asset has been trending higher, but has stopped at a certain price, let’s say 150. The chart is telling us that, although buyers are in long-term control, sellers are dominant at 150, willing to sell each time the price touches this level. However, the uptrend may still be in place, since each time the price pulls back from the 150 level, the selling is weaker and the price makes a higher short-term low. This clearly suggests that upward pressure remains, and there’s potential to profit from the uptrend if the price breaks higher.


Once you’ve found a potential new trade set-up, the next step is to decide when to pull the trigger on the trade. However, there are two steps to this process… finger on trigger, then pull the trigger to execute.

Paddy Osborn

Paddy Osborn

Continuing the example above, the trigger would be to buy if the price breaks above the resistance level at 150. This would indicate that the sellers at 150 have been exhausted, and the buyers have re-established control of the uptrend.  Also, it is often the case that after pause in a trend such as this, the pent-up buying returns and the price surges higher. So the trigger for this trade is a breakout above 150.


We have a finger on the trigger, but now we need to decide when to squeeze it. What if the price touches 150.10 for 10 seconds only? Has our resistance level broken sufficiently to execute the trade? I’d say not, so you need to set rules to define exactly how far the price needs to break above 150 – or for how long it needs to stay above 150 – for you to execute the trade. You’re basically looking for sufficient evidence that the uptrend is continuing. Of course, the higher the price goes (or the longer it stays above 150), the more confident you can be that the breakout is valid, but the higher price you will need to pay. There’s no perfect solution to this decision, and it depends on many things, such as the amount of other supporting evidence that you have, your levels of aggression, and so on. The critical point here is to fix a set of specific rules and stick to those rules every time.


Good trade management can save a bad trade, while poor trade management can turn an excellent trade entry into a loser. I could talk for days about in-trade management, since there are many different methods you can use, but the essential ingredient for every trade is a stop loss. This is an order to exit your position for a loss if the market doesn’t perform as expected. By setting a stop loss, you can fix your maximum risk on a trade, which is essential to preserving your capital and managing your overall risk limits. Some traders set their stop loss and target levels and let the trade run to its conclusion, while others manage their trades more actively, trailing stop losses, taking interim profits, or even adding to winning positions. No matter how you decide to manage each trade, it must be the same every time, following a structured and robust process.


The final step in the process is to review every trade to see if you can learn anything, particularly from your losing trades. Are you sticking to your trading rules? Could you have done better? Should you have done the trade in the first place? Only by doing these reviews will you discover any patterns of errors in your trading, and hence be able to put them right. In this way, it’s possible to monitor the success of your strategy. If your trades are random and emotional, with lots of manual intervention, then there’s no fixed process for you to review. You also need to be honest with yourself, and face up to your bad decisions in order to learn from them.

In this way, using a structured and robust trading strategy, you’ll be able to develop your trading skills – and your profits – without the stress of a more random approach.

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