Quarterly Outlook
Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges
Althea Spinozzi
Head of Fixed Income Strategy
You can access both of our platforms from a single Saxo account.
Macro Digest: A crucial 48 hours for risk
Steen Jakobsen
Chief Investment Officer
The macro backdrop story is this:
The 'credit cake', or the credit impulse plus nominal debt issuance, is collapsing. Since the financial crisis, the world's monetary growth (main debt) has risen more than nominal growth, i.e. World Monetary Growth / World Nominal Growth > 1 (8-10%/4-6%)
Now, however, world monetary growth is 2-2.5% against 5-6% world growth, so significantly below 1!
We have, along with Saxo Bank macro head Christopher Dembik, exhaustively documented the collapse in the credit impulse (the change of change in credit), which leads the world by nine-12 months.
The question is, where do we go from here?
The Federal Reserve is insisting on normalising policy rates, meaning that the rest of the world (read: emerging markets) are getting less credit at much higher prices. In the US, meanwhile, this liquidity shortfall has been neutralised by tax reforms that see US firms bringing money back home... and thus increasing liquidity foronshore US markets.
Add to this the most aggressive buy-back, dividend, and M&A period in history (to the tune of around $1.2 billion) and you have the reason why the US market has outperformed, and why it could continue to outperform in the short term.
Is contagion happening? It's too early to tell, but with today’s likely announce of an additional $200 billion in tariffs and the market breakdown shown below, the risk is rising.
The action plan
We are still net looking to buy EM risk, but post-today’s announcement. Failure to take out recent EM lows will make us dip our toes; if not, we wait.
The next two trading days will be critical for the overall risk climate, and we will keep you posted as to how we view things playing out.
Now, onto four charts that illustrate the market's present pain:
Tencent
Tencent is the most widely owned stock and maintains the biggest weight in global EM funds. The trend been down since March but now it has broken both its recent low plus the low end of the channel.
The 'credit cake', or the credit impulse plus nominal debt issuance, is collapsing. Since the financial crisis, the world's monetary growth (main debt) has risen more than nominal growth, i.e. World Monetary Growth / World Nominal Growth > 1 (8-10%/4-6%)
Now, however, world monetary growth is 2-2.5% against 5-6% world growth, so significantly below 1!
We have, along with Saxo Bank macro head Christopher Dembik, exhaustively documented the collapse in the credit impulse (the change of change in credit), which leads the world by nine-12 months.
The question is, where do we go from here?
The Federal Reserve is insisting on normalising policy rates, meaning that the rest of the world (read: emerging markets) are getting less credit at much higher prices. In the US, meanwhile, this liquidity shortfall has been neutralised by tax reforms that see US firms bringing money back home... and thus increasing liquidity foronshore US markets.
Add to this the most aggressive buy-back, dividend, and M&A period in history (to the tune of around $1.2 billion) and you have the reason why the US market has outperformed, and why it could continue to outperform in the short term.
Is contagion happening? It's too early to tell, but with today’s likely announce of an additional $200 billion in tariffs and the market breakdown shown below, the risk is rising.
The action plan
We are still net looking to buy EM risk, but post-today’s announcement. Failure to take out recent EM lows will make us dip our toes; if not, we wait.
The next two trading days will be critical for the overall risk climate, and we will keep you posted as to how we view things playing out.
Now, onto four charts that illustrate the market's present pain:
Tencent
Tencent is the most widely owned stock and maintains the biggest weight in global EM funds. The trend been down since March but now it has broken both its recent low plus the low end of the channel.
Alibaba
Alibaba's latest earnings release was reasonably strong, but the company's shares just broke lower. Is this a bad omen for China's tech sector?
Alibaba's latest earnings release was reasonably strong, but the company's shares just broke lower. Is this a bad omen for China's tech sector?
Tesla
Tesla is having a tough time, both in markets and on social media. The TSLA junk bond is now trading at 8% and the default risk is rising fast. Elon Musk's personal life is increasingly becoming a risk to the company itself
The Musk + Trump show is not pretty and I don’t see any good exits/solutions for either of them.
Tesla is having a tough time, both in markets and on social media. The TSLA junk bond is now trading at 8% and the default risk is rising fast. Elon Musk's personal life is increasingly becoming a risk to the company itself
The Musk + Trump show is not pretty and I don’t see any good exits/solutions for either of them.
USDINR
Finally, India and its currency are spinning out of control as high energy prices increase its deficit.
Finally, India and its currency are spinning out of control as high energy prices increase its deficit.
Latest Market Insights
Quarterly Outlook
-
-
Quarterly Outlook
Equity Outlook: Will lower rates lift all boats in equities?
Peter Garnry
Chief Investment Strategist
After a period of historically high equity index concentration driven by the 'Magnificent Seven' sto... -
Quarterly Outlook
FX Outlook: USD in limbo amid political and policy jitters
Charu Chanana
Chief Investment Strategist
As we enter the final quarter of 2024, currency markets are set for heightened turbulence due to US ... -
Quarterly Outlook
Macro Outlook: The US rate cut cycle has begun
Peter Garnry
Chief Investment Strategist
The Fed started the US rate cut cycle in Q3 and in this macro outlook we will explore how the rate c... -
Quarterly Outlook
Commodity Outlook: Gold and silver continue to shine bright
Ole Hansen
Head of Commodity Strategy
-
Quarterly Outlook
FX: Risk-on currencies to surge against havens
Charu Chanana
Chief Investment Strategist
Explore the outlook for USD, AUD, NZD, and EM carry trades as risk-on currencies are set to outperfo... -
Quarterly Outlook
Equities: Are we blowing bubbles again
Peter Garnry
Chief Investment Strategist
Explore key trends and opportunities in European equities and electrification theme as market dynami... -
Quarterly Outlook
Macro: Sandcastle economics
Peter Garnry
Chief Investment Strategist
Explore the "two-lane economy," European equities, energy commodities, and the impact of US fiscal p... -
Quarterly Outlook
Bonds: What to do until inflation stabilises
Althea Spinozzi
Head of Fixed Income Strategy
Discover strategies for managing bonds as US and European yields remain rangebound due to uncertain ... -
Quarterly Outlook
Commodities: Energy and grains in focus as metals pause
Ole Hansen
Head of Commodity Strategy
Energy and grains to shine as metals pause. Discover key trends and market drivers for commodities i...