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.
Equities rebound on positive trade news
Peter Garnry
Chief Investment Strategist
Summary: Nikkei futures are leading the gains in equities on positive trade news from China. We also take a look at the massive quant quake that took place in momentum stocks yesterday. Finally we focus on Uber following California passing a new bill that will most likely force the company to reclassify its contractors as employees.
China has announced exemptions from the 25% extra tariffs put in place last year in some product categories such as pharmaceuticals and lubricant oil. This softer stance is being viewed a move by China to restart the trade negotiation on good terms in October. This has lifted sentiment in Asia combined with a technical rebound generally in equities.
Risk-on with Nikkei futures leading the gains
Leading the rally in equities is once again Japanese equities with Nikkei futures up 1.1% erasing the losses from the intermediate peak in July. As we said repeatedly over the last week, we prefer German and Japanese equities as high beta play on risk sentiment and general optimism. As we highlighted in yesterday’s equity update economic surprises have become less and less negative with Citi’s Economic Surprise Index G10 turning almost positive. If we are right that central banks will deliver enough monetary stimulus, with ECB starting tomorrow, and macro data begin to surprise positively then the rally could continue.
Momentum crash and value pops
Beneath the surface of equity markets yesterday a quant quake 2.0 escalated in US session with neutral momentum (long stocks with the highest momentum and short those with the lowest momentum) strategies experiencing massive losses. Bigger than the first quant quake in August 2007. As the chart shows the reverse has happened in neutral value strategies.
Our hypothesis is that over the past year momentum stocks have increasingly got characteristics of high growth and high valuation stocks which means that momentum stocks have become long duration assets. This is because these stocks derive a larger share of their present value from cash flows far into the future. As a direct result these stocks are more sensitive to interest rate changes. Value stocks on the other hand have increasingly become short duration assets with companies deriving most of their present value from near-term cash flows. When US 10-year interest rate rise by 28 basis points then long duration assets will go down relative to short duration assets.
Judging from price action in the European session the sell-off in momentum stocks is over so we would not be surprised to see short-term rebound and outperformance among momentum stocks.
Stocks to watch
With California’s Assembly Bill 5 passed Uber’s shares will be in focus today as the new bill could force Uber (UBER:xnys) and other companies selling contractors on their platforms to classify contractors as employees. As Uber stated in their S-1 filing before going public this was one of the key risks for investors. It could potentially erode the entire price differential between traditional taxi companies and Uber drivers. Is Uber then just a taxi company with a fancy app? Uber shares were up 4% yesterday as the company announced further layoffs to rein in accelerating losses.
Assembly Bill 5 says that people in California can only be a contractor if their work is outside the usual course of the company they work for.
Apple (AAPL:xnas) introduced its iPhone 11 yesterday which now comes in three different versions with cheapest version selling for $699 which a price cut aimed to lure smartphone buyers back into Apple’s realm. The stock market reacted positively to the news, but criticism has surfaced that Apple is falling behind as the new iPhone 11 is not coming with a 5G integration which makes almost impossible for Apple to have growth in China where local smartphone makers such as Huawei is introducing smartphone with 5G integration. Beginning in the second half of 2020 this will be a constraint for Apple.
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...
Disclaimer