Quarterly Outlook
Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges
Althea Spinozzi
Head of Fixed Income Strategy
Access both platforms from your single Saxo account.
The disconnect between equities and macro grows wider
Peter Garnry
Chief Investment Strategist
Summary: Japan's leading indicators in August fell to the worst momentum levels since the 2008 financial crisis highlighting that the global economy is likely headed into a recession. However, global equities remain at high levels with low realised volatility levels reflecting a strong believe of recent weakness only being temporary. It's a dangerous game for equity investors to be playing but maybe the negative yielding bonds are creating perverse behaviour nobody could think of just 10 years ago. Today's equity update also discuss HSBC's decision to cut 10,000 jobs and the prospects for the banking industry.
Overnight Japan released its leading indicators for August, and they are down 8% compared to last year showing the worst momentum since the 2008 financial crisis. Japan’s leading indicators are telling investors that the third largest economy in the world is most likely entering a recession soon following Sweden and Germany. Global equities have remained bid all indicators suggesting the slowdown is worsening and that global profits will fall. As we have said before we believe there is a massive disconnect between macro reality and equities likely made worse by policy action forcing rates deep into negative territory.
Tomorrow, OECD releases their global leading indicators for August, and we expect another decline extending it to a 19-month straight decline and further evidence that the global economy is likely headed into a recession. There are some indications about a stabilization measured on the real-time GDP tracker on the Eurozone economy called the Eurocoin Growth Indicator, but the stabilization is fragile. Worse than expected earnings from the upcoming Q3 earnings season is all it takes for sentiment to crumble.
On Thursday the US-China trade talks resume in Washington and according to the media China has firmly narrowed the scope of a trade deal refusing to cave into Trump’s demand of a grand deal. Specifically, the Chinese government will not allow changes to China’s industrial policy or government subsidies be part of the trade negotiations. This could be interpreted as China perceiving to have a stronger hand going with Donald Trump facing an impeachment with a second whistleblower emerging and apparently a person much closer to the actual content of the phone call between the US and Ukraine presidents.
While both the US and Chinese macro numbers have deteriorated, they also both face political issues ranging from impeachment to demonstrations, but the scoreboard in financial markets is still declaring the US as the winner judging by our trade war basket (see chart). US equity markets are not bad enough for Trump to waver in the US-China trade talks. We still see a low probability of even a narrower trade deal.
HSBC is out today announcing that it’s cutting 10,000 jobs to reduce costs and improve profitability. The endless exercise for banks failing to deliver the same returns for shareholders as before the financial crisis. In the first half of 2019 the 12-month trailing return on equity (ROE) stood at 8.4% down from the average of 16% pre-financial crisis of 2008. While HSBC has recently increased its ROE the bank still faces issues structural issues in North America and Europe. In the first half of this year HSBC generated 80% of its pre-tax profit from the Asia region. As we discuss in today’s Market Call podcast negative rates and general banking regulation are weighing on banks making it a difficult industry to invest in. Our view is still underweight banks but if we observe a policy change in the coming year with more focus on fiscal policy and a path away from negative yields then banks are clearly an overweight sector driven by low valuations.
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
The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website. This content is not intended to and does not change or expand on the execution-only service. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.
Please read our disclaimers:
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
- Full disclaimer (https://www.home.saxo/en-gb/legal/disclaimer/saxo-disclaimer)