Voima Markets Newsletter—May 2023
Sam Laakso
Head of Voima Markets
Currency market table
| Gold price in | April | 3M | 1Y | 3Y | 5Y | 10Y | 20Y |
|---|---|---|---|---|---|---|---|
| JPY | 3.76% | 8.12% | 10.13% | 50.59% | 88.61% | 88.51% | 571.48% |
| NOK | 2.75% | 9.91% | 19.06% | 22.92% | 100.71% | 148.35% | 789.88% |
| AUD | 2.15% | 9.97% | 11.95% | 16.47% | 72.16% | 111.09% | 454.61% |
| CAD | 1.37% | 5.10% | 10.58% | 15.10% | 59.70% | 81.29% | 453.84% |
| USD | 1.11% | 3.23% | 4.92% | 18.43% | 51.31% | 34.75% | 485.85% |
| SEK | -0.12% | 1.36% | 9.52% | 24.43% | 77.30% | 113.14% | 636.43% |
| EUR | -0.56% | 1.69% | 0.32% | 17.68% | 65.76% | 60.92% | 494.29% |
| GBP | -0.73% | 1.13% | 4.97% | 18.69% | 65.82% | 66.56% | 645.42% |
| CHF | -0.18% | 0.71% | -3.63% | 9.70% | 36.58% | 29.67% | 286.63% |
The weakest major currency of the month in April was the Japanese yen (JPY).
Top news in the markets recently
Yuan overtakes dollar to become most-used currency in China's cross-border transactions (Reuters)
Brazil's Lula supports trading currency for BRICS countries (Reuters)
BRICS Draws Membership Bids From 19 Nations Before Summit (Bloomberg)
Malaysia, China to Discuss ‘Asian Fund' to Cut US Dollar Dependency (Bloomberg)
China Expands Gold Reserves at Central Bank For Fifth Month (Bloomberg)
Zimbabwe to Introduce Gold-Backed Digital Currency: Sunday Mail (Bloomberg)
Trader's comment 16 May 2023
April witnessed broad consolidation in the markets, with gold, stock indices, and bonds ending the month with marginal movements. On the contrary, the geopolitical landscape experienced heightened activity, as news events revolving around global trade, the US dollar, and gold were prominent in headlines. As we continue to seek market direction, let us take a look at some of the significant "tectonic plate" level developments that unfolded in April.
Fragmentation of global trade relations
The top news highlighted this month paints a picture of tectonic shifts that have become more visible recently. News such as the Chinese Yuan taking over the US dollar in China's cross-border payments, talks within BRICS about alternative payment systems to replace the US dollar, revisited discussions about an Asian Monetary Fund to rival the International Monetary Fund, increased interest in BRICS membership from numerous countries, and the continuation of central bank gold purchases are evidence of three key factors:
- interest in reducing US dollar dependency,
- increasing interest in settling trade with currencies other than the US dollar, and
- the division of global trade relations into blocs.
This division or fragmentation is mainly propelled by geopolitical tensions that have risen over the past two decades, especially due to the increasing rivalry between the United States and China and the evolution of Russia's war against Ukraine, which started in 2014 and escalated severely last year. These shooting wars and trade wars have resulted in political and economic sanctions that are fragmenting global trade relations and driving the world into competing trade blocs.
The accelerating shift in geopolitical tectonic plates places portfolios at a crucial crossroad.
The dominance of currencies like the US dollar and the euro is challenged in this evolving landscape. Although these changes take decades to develop, the escalation of geopolitical tensions tends to speed up the process, as we've seen with the Russo-Ukrainian war. The reduced demand for the US dollar and the euro are megatrends, and as these currencies form the basis of measuring the performance of Western portfolios, investors must take these megatrends into account when considering their allocations.
As we navigate through this transformative period, it is essential for investors to adopt a proactive and forward-thinking approach. Effectively navigating these changes and remaining flexible for portfolio adjustments are of paramount importance. The changes highlighted herein are profound and should prompt investors to consider globally diversified portfolios that encompass not only diversification within asset classes but also diversification between different asset classes.
Western institutions begin to recognize these movements
On April 17th, the President of the European Central Bank, Christine Lagarde, delivered a notable speech in New York, featuring several key highlights:
- The global economy is fragmenting into competing blocs with distinct strategic interests and values.
- The global economy is undergoing transformative changes, driven by geopolitical tensions.
- This fragmentation may lead to instability and multipolarity.
- Geopolitical risks have historically yielded high inflation, reduced economic activity, and a decline in international trade.
- New trade patterns and alliances have the potential to impact international currency reserves and challenge the dominance of the US dollar and euro.
- Attempts are being made to establish alternatives to traditional payment systems and currency frameworks, potentially reducing dependency on Western systems.
These highlights may sound familiar, but it is imperative to recognize that Lagarde's statements merely validate these shifts in tectonic plates that have been in motion for decades. Now, more than ever, is the time to execute and start steering your portfolio towards global diversification.
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