Global equity markets are on the rise following a trade deal revelation between the US and Japan. The agreement proposes US tariffs on Japanese goods at 15%, as opposed to the over 25% previously suggested.<\/p>\n
Japan’s commitments include purchasing US planes and rice, and the potential creation of a substantial sovereign wealth fund for US investment. Concurrently, industrial metals are witnessing a rally, enhancing terms of trade for currencies such as the Australian dollar, Brazilian real, and South African rand.<\/p>\n
The US dollar experiences poor price action, with recent losses potentially linked to a shift in asset allocation towards Europe and Emerging Markets. There is anticipation surrounding the June existing home sales release, suggesting potential positive developments in the housing sector.<\/p>\n
Commodity currencies may act as hedges, should there be any unforeseen changes in US financial policy. The dynamics within the currency market remain complex, emphasising the multifaceted nature of financial activities currently unfolding across the globe.<\/p>\n
We see the revealed trade agreement as a direct catalyst for further risk-on sentiment in the markets. We are positioning for this by purchasing call options on broad equity indices that have a high correlation with global growth. The S&P 500, for example, has already climbed over 4% in the last month, and we expect this positive momentum to continue.<\/p>\n
The rally in industrial materials, with copper recently trading above $4.50 per pound, provides a clear signal of strengthening economic activity. This underpins our strategy to go long commodity-linked currencies through derivatives on the Australian dollar. Historically, the AUD\/USD exchange rate has shown a strong positive correlation of over 0.7 with base metal prices during periods of global expansion.<\/p>\n
Given the poor price action for the greenback, we are looking at put options on the U.S. Dollar Index (DXY) as it tests key support levels. The index has recently hovered near the 104 mark, and a decisive break lower could accelerate the asset allocation shift mentioned. Recent data from the Institute of International Finance showed emerging markets received over $30 billion in portfolio inflows last month, confirming capital is moving away from dollar assets.<\/p>\n
We are also positioning for the anticipated strength in the housing sector mentioned in the report. The most recent data from the National Association of Realtors, while showing a slight dip, indicated that median existing-home prices rose year-over-year, suggesting underlying demand remains firm. Consequently, call options on homebuilder ETFs could capture upside from any positive surprises in the June sales figures.<\/p>\n
For those with significant domestic exposure, we believe using options on the noted commodity currencies serves as an effective hedge. An unexpected tightening of U.S. financial policy could pressure local equities and bonds. However, a long position in the Brazilian real or South African rand would likely perform well in that scenario due to their connection to the global materials rally.<\/p>\n
Create your live VT Markets account<\/a>\u00a0and\u00a0start trading<\/a>\u00a0now. <\/b><\/p>\n","protected":false},"excerpt":{"rendered":" Global markets surge on US-Japan trade deal; commodity currencies strengthen amid shifting asset allocations globally.<\/p>\n","protected":false},"author":62,"featured_media":16989,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[59],"tags":[],"class_list":["post-27054","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-live-updates"],"acf":{"acf_article_selection_author":null},"aioseo_notices":[],"_links":{"self":[{"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/posts\/27054","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/users\/62"}],"replies":[{"embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/comments?post=27054"}],"version-history":[{"count":0,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/posts\/27054\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/media\/16989"}],"wp:attachment":[{"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/media?parent=27054"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/categories?post=27054"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/tags?post=27054"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}