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 January 19 2023
Erik Schafhauser
Senior Relationship Manager
Summary: Risk Off -Sell signal or entry point?
Good Morning,
Risk took a beating yesterday as retail sales and production data out of the US disappointed and hawkish comments hurt as well. The PPI came lower than expected.
James Bullard and Cleveland Fed President Loretta Mester as well as Patrick Harker reiterated the need to raise rates beyond 5% to bring inflation to acceptable levels.
The hawkish comments prevented the usual reaction where bad economic data leads risk sentiment to improve an expectation of lower rates. We remain at 92% probability of a 25 basis point hike in 2 weeks and the terminal rate at currently 4.845 in May and April. December 23 is now being traded 1 bps below the current level.
US Indexes fell near 1.5%, the US30 is at 33200, the US 500 at 3920 and the USTech100 at 11390. The GER40 trades at 15100. While the lower rates should support risk sentiment, some profit taking was due and as long as the US 500 does not close below 3877, we remain in the range,
Silver fell significantly yesterday while gold remained strong, causing the Gold / Silver Ratio to rise from 78.70 to 81.60. Gold is trading at 1908 and Silver 23.40
USDJPY saw amazing volatility yesterday, rising from 128 to 131.60 before retreating all the way. EURUSD remains near 1.08 GBPUSD 1.23356.
Watch if the support levels hold, then this could be an interesting buying opportunity, but remain cautious.
In other news, Germany is looking willing to provide battle tanks to Ukraine which would a new level of support
France is being hit by nationwide strikes against Macrons pension scheme and the US debt ceiling is becoming a focal point.
Thursday
Swiss PPI
US Labor Data & Philly Fed
Netflix, Procter & Gamble, Northern Trust
Friday
Japan CPI,
Germany PPI
Earnings: Sandvik, Schlumberger, State Street
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