Quarterly Outlook
Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges
Althea Spinozzi
Head of Fixed Income Strategy
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Morning Brew May 24 2024
Erik Schafhauser
Senior Relationship Manager
Summary: High PMI causes nervousness - ETH ETF approved
Good morning,
Nvidia closed the day up more than 9% yesterday but even that failed to keep the big indexes green. A surprisingly strong Purchasing Manager Index let inflation fears rise. Yesterday, a full rate cut was priced in by November, that is no longer the case, we are only at 21 basis points. 10 year Yields rose to near 4.5% and Indexes sold off. The Dow was the largest loser at 1.5%, the S&P 500 -0.75% and the Nasdaq -0.4%. The Dow was pulled lower by Boeing, where quality issues are having an impact and the company sees a negative free cash flow for 2024, stocks lose 7.5%.
The USD Index rose to above 105 on the strong PMI, EURUSD is 1.0810, GBPUSD 1.2690, USDJPY is above 157 again after low inflaltion. Gold and Silver are at 2338 and 30.50.
The SEC has approved eight Ether ETF, so far with disappointing impact – it is a buy the rumor and don’t yet buy the fact situation. ETHUSD is at 3750, up 0.1% on the day but 7% on the week, 18 the month and 65 the year. Let us see how it continues.
UK Retail sales just came in much worse than expected at -2.3% vs -0.4% expected, this sets an interesting stage for the general election in early July and shows the UK economy is really in a horrible place.
With most of the recent market movers off the extremes (except for Nvidia) it will be interesting what the next big driver will be.
There is certainly a lot of scenarios to choose from:
- Lack of clarity causing a sideways grind
- Geopolitics (Middle East, China)
- Rising cost of debt in the US strangling the economy
- Inflation higher, causing a hawkish reaction
- Labor market tipping, giving the Fed room to maneuver.
- Commodity shortage causing short squezes or lack of demand causing a slump.
With today’s agenda fairly void of interesting items, it will either be a quiet day, or we will see sharp moves. Keep an eye on Ethereum, as I doubt that it makes sense that there is no real move due to the ETF approval, even if ther is still some time before the actual start of trading
Also, the Chinese War games around Taiwan are likely to cause nervousness as a statement by the PLA says the exercises are to test the ability to jointly seize power, launch joint attacks and occupy key areas.
Trade safely!
Friday
- Data Japan CPI, DE GDP, UK Retai Sales, US Durable Goods & Michigan Sentiment, Canada Retail Sales
- Earnings: Dollar Tree Inc
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