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.
FX Update: Fighting this market is futile. USDJPY break higher?
John J. Hardy
Chief Macro Strategist
Summary: The USD strength of yesterday yields to a fresh surge in risk appetite that has boosted the smaller currencies once again and sent the JPY close to its lowest levels for the cycle versus the US dollar. Is this a breakout in the making?
Trading interest
- Short EURGBP with stops above 0.8400
- Long USDJPY with stops south of 109.75
- Squaring long USDCAD position and short EURJPY position
Markets could not even sustain a single full session of risk-off yesterday, once again making our attempt to wax a bit cautious look foolish, as every hitch in this market’s ongoing melt-up is met with a wall of buying on the assumption that policymakers around the world are in maximum stimulus mode, with the notable exception of the dithering Europeans. The idea that maximum liquidity and fiscal stimulus are on the menu from here and out over the horizon has been most rewarding for gold bulls as the yellow metal is breaking higher across the board and is possibly stealing the thunder from exchange rates themselves, broadly speaking. That will change if commodity prices come alive more generally as many currencies are linked rather closely to specific commodity stories. Stay tuned if the reflation trade makes a shocking comeback in the wake of the coronavirus outbreak.
In FX, while it is a no-brainer to see EM currencies and the smaller G10 currencies pulling back to the strong side on the latest bounce in sentiment, the persistent bid in safe haven bonds remains an odd off-note in the background.
Today, we have a number of voting Fed speakers, including the most dovish Fed voter ever, Neel Kashkari. The FOMC minutes are also up later today, where the market may peruse for signs of concerns that policy is driving financial stability risks, but the signals from this Fed have been very weak on that account so far.
Chart: USDJPY
While there are signs that the market is enthusiastic to buy currencies in countries at the forefront of the shift to fiscal stimulus and Japan has recently announced fairly generous stimulus plans, the JPY is suffering here and the concern may be that Japan is poorly positioned to benefit from stimulus in a world at risk of deglobalization. As well, we wonder if Japanese investors are looking at gold as an investment vehicle as XAUJPY has been hitting record levels for months. regardless, it is more than interesting that USDJPY is popping a new top here despite the ongoing resilient bid for safe haven bonds. Let’s see if this move holds into the close, as a strong move above 110.00 looks like a breakout in the making.
The G-10 rundown
USD – an interesting set of Fed speakers out today, but market probably rightly assumes that central bankers have given up on doing anything and that everything will be up to the political, fiscal cycle. Longer term, we would suggest that the market is under-pricing the risk of a Sanders presidency.
EUR – the euro struggling for air after an incredibly persistent run lower on fears of weak growth and political dysfunction keeping fiscal stimulus signals weak and tardy.
JPY – as noted above, the weak JPY despite still firm safe haven bonds is a possible game changer if it persists.
GBP – the CPI prints a bit higher than expected for January even as the pound has strengthened and this will have the market less concerned that the BoE will consider any cuts from here, especially given the prospects of a powerful fiscal stimulus in the works.
CHF – the franc strength ebbs a bit on this latest bounce in risk sentiment and USDCHF pokes to a new high – would expect correlation with USDJPY there.
AUD – the AUDUSD is down but not yet out as await the latest employment data from Down Under tonight. Time to look for fiscal signals as a possible support for the currency soon.
CAD – the USDCAD bulls facing setback risks here if commodities and risk sentiment continue to bounce – more cautious for calling CAD lower for now.
NZD – minor bump in kiwi overnight after RBNZ Governor Orr waxes positive on the NZ economy in testimony overnight, but no real reaction in NZ rates. Still watching for prospects for AUDNZD rally – i.e., waiting for Godot.
SEK – a weak CPI today, arguably on seasonality, but the market doesn’t like it and EURSEK poking on the reversal zone of 10.60-65 back higher, but hard to argue for a proper reversal
NOK – stimulus hopes and persistent bounce in oil helping the EURNOK threaten lower here – warming to the prospects for a follow through lower with a close below 10.00 as the confirmation.
Upcoming Economic Calendar Highlights (all times GMT)
- 1100 – Turkey Policy Rate
- 1330 – US Fed’s Mester (Voter) to Speak
- 1330 – US Jan. Housing Starts / Building Permits
- 1330 – Canada Jan. CPI
- 1330 – US Jan. PPI
- 1645 – US Fed’s Kashkari (Voter) to Speak
- 1830 – US Fed’s Kaplan (Voter) to Speak
- 1900 – US FOMC Minutes
- 0030 – Australia Jan. Unemployment Rate / Employment Change
- 0130 – China Rate Announcement
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