TD Research discusses the current market conditions and sees a scope for safe haven currencies like JPY and USD to extend their recent gains.
"We note that MSCI World implies a +50 level of the global PMI, suggesting that equities or growth look mispriced. That's a big concern for markets given the escalation of the trade wars against some of these discrepancies. For now, sentiment should remain rocky and that should reinforce support of safe havens like JPY and USD, even if the liquidity buffers offer some short-term relief," TD notes.
"The upshot of this framework is that the health of the global economy may help to frame the nature of the high-beta and safe havens. Equally important, these relationships are fluid and bear monitoring for breaks. Still, given the links to JPY and USD, some of the old rules apply. Alongside the links to risk, JPY is also the cheapest currency on all our low-frequency fair value models, leaving it the best hedge for the ongoing trade saga,"TD adds.