Quarterly Outlook
Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges
Althea Spinozzi
Head of Fixed Income Strategy
US president Donald Trump’s May 12 decision on whether to retain, amend or ditch the multilateral deal that allows Iran trade its oil internationally, will be the dominant force in commodity markets during the week ahead.
“Crude oil’s geopolitical risk premium continues to build, with traders gearing up for a worst-case scenario ahead of Trump’s call on Iran. Stepping away from the 2015 nuclear deal risks raising Middle East tensions (US, Saudi Arabia and Israel vs Iran, Russia (& China)) while curbing production from Opec’s third-biggest producer,” says Ole Hansen, Saxo’s head of commodity strategy.
Traders are also on watch for any developments in the US-China trade relationship after a Beijing visit last week by treasury secretary Steve Mnuchin produced nothing of substance. “On top of this we have a rising dollar, China trade data on Tuesday, and a $73bn US bond auction (Tues-Thur),” Hansen notes.
Equities, meanwhile, are in a cheerful mood with Asian and European bourses taking their cue from Friday’s strong close on Wall Street. That positive finish, says Peter Garnry, Saxo’s head of equity strategy, was inspired by an in-line nonfarm payrolls report which markets interpreted as “a Goldilocks scenario of robust growth with little wage inflation.” That said, Garnry says that there remain many reasons to be cautions and defensive on equities, not least the stronger dollar “which is toxic for emerging markets”.