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 August 11 2023
Erik Schafhauser
Senior Relationship Manager
Summary: Markets stuck after CPI
Good Morning,
Initially the reaction to the US CPI was upbeab but the sentiment daded and we basically endedt he day where it started, as the core CPI showed the crucial part inflation was resilient.
The three US Indexes closed less than 0.2% away form the open while volume was solid ar app 10% above average.
Novo Nordisk saw some profit taking yesterday but recovered off the lows and closed 1.2% loswer.
Our Kim Cramer points out that Apple, Microsoft, NVidia and Tesla have reversed uptrends and built down trends. Uptrends in Meta and Alphabet are still intact but could soon follow the others lower
As our Strats team sees the US and global economies entering a period of stagflation light, Peter wrote up an analysis on how equities traditionally perform in such periods and it is not good: in periods with our definition of stagflation equities do bad. Based on data since Q4 1959, the S&P 500 returns 1.8% annualised excluding dividends during stagflation and 9.9% annualised during periods of no stagflation. In other words, stagflation is really bad for equity returns and it becomes really bad when inflation is subtracted.
A disappointing 30 Year bond auction caused yields to rise, the 10 year rose to 4.12 and the 30 to 4.23. The USD Index rose back to 102.60 EURUSD Meanders the 1,10, GBPUSD 1.27 after a strong GDP this number at 0.4% vs 0.2% expected. , USDJPY appears to be on track for 145, currently 144.75. Gold and Silver fall to 1915 and 22.70. Gold is near the key support at 1900 where the June Lows meet the 200 day Moving average
Today, the key data is the US PPI and possibly the University of Michigan Sentiment at 14:30 and 16:00, besides the numbers we need to watch US Yields for an impact on the USD and Equities.
UBS announced it will not need to tap the government's 9 billion Swiss franc loss protection
Trade safely!
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