Quarterly Outlook
Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges
Althea Spinozzi
Head of Fixed Income Strategy
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NY Open: Caterpillar bulldozes Wall Street
Michael O’Neill
FX Trader, Loonieviews.net
Summary: It's been a choppy start to Wall Street trading today with very sharp falls for the three main US equity indices, jagged FX trading and much lower Treasury yields.
The buildings are still standing on Wall Street, but Caterpillar’s lower than expected earnings guidance helped flatten equity indices. CAT: NYSE dropped from $128.71 at yesterday’s close to $117.17 before bouncing to $117.80 in early trading. 3M Company (MMM: NYSE) earnings disappointed as well and investors punished the stock. It plunged from $201.36 at the close to $186.50 today. Verizon (VZ: Nasdaq) earnings were better than expected and the stock is up 2.82% as of 13:45 GMT.
The three major US indices are all down by at least 2% following equity market meltdowns in Asia and Europe. Traders are a tad unnerved by the Saudi Arabia/Turkey/US drama.
FX markets have been choppy since the New York open, exacerbated by the lack of top-tier economic data from the Eurozone, UK and the US. EURGBP broke support at 0.8830 and touched 0.8799 before bouncing to 0.8823 by 14:00 GMT. The move was fuelled by a spike in GBPUSD which occurred after a headline said the EU was going to offer a UK wide customs arrangement to solve the Irish border dilemma. GBPUSD spiked to 1.3043 from 1.2985, but it has since retraced the entire rally.
US Treasury yields dropped dramatically and drove USDJPY below 112.20 to 111.99. Prices are hovering above the low as of 14:00 GMT because 10-year Treasury yields are 3.12%, well below the 3.20% they were at yesterday.
Oil prices tanked. WTI traded at $69.52/barrel overnight and touched $67.38 in New York. Saudi Arabia said that it would increase production ahead of US sanctions on Iran. The move should appease President Trump. He is unhappy that Opec continues to limit production and is also not buying the Saudi tale of the dismembered journalist. The break below $68.50 takes out the 39.2% Fibonacci retracement level of the November 2017, $55.00 break out level to the $76.85 October 2018 peak. That break suggests a test of $66.0/b is on the cards.
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