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According to analysts at Nordea Markets, one of the reasons why the US has outperformed the rest of the world is the ongoing financial turmoil in China, Turkey and Italy.

Key Quotes

Erdogan has reached out to both Germany (an official German state visit is planned for September 28/29) and France in an attempt to secure some much-needed backing, but we are yet to see signs that credibility in the Turkish central bank will be restored. Until that happens the TRY remains fragile.”

“The European Union also holds relatively large incentives to try and calm down Turkish markets, given the direct and indirect European banking sector’s exposure towards Turkey. Within the Euro area, the spread between Italian and German government bond yields have regained focus,  as Matteo Salvini accused the EU’s budget rules for the collapse of the bridge in Genoa during the week.  Don’t expect a quiet process when the 2019 budgets will be discussed in both Italy and Spain, as the respective governments remain fragile. Especially Italy may look to compromise the spending rules, which could fuel internal Euro-area tension. This is an obvious downside risk to our view that EUR/USD will rebound before year-end.”

“While USD/CNY reached new 2018 highs during the last week, despite new signs that China and the US are negotiating again,  we quietly remind you of i) a weaker CNY, ii) much lower SHIBOR rates (3m SHIBOR rates have dropped more than 1.5% points since June) and iii) Chinese fiscal easing that could all re-ignite the Chinese momentum in 6-12 months from now.  So even though falling copper prices currently could be a sign of a further Chinese slowdown short term, we remain confident of a soft landing down the road.”