Quarterly Outlook
Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges
Althea Spinozzi
Head of Fixed Income Strategy
Summary: The US markets were closed on Monday. On Tuesday in Asia, S&P 500 eMini and Nasdaq 100 eMini futures dipped slightly from Friday's close. Treasury yields rose about 4bps due to weakness in European government bonds, following ECB officials pushing back investors' rate cut expectations. The US dollar strengthened broadly, and oil prices ticked higher amid renewed geopolitical tensions in the Middle East amid Houthis hitting a US vessel and explosions near the US consulate in Iraq, claimed by Iran. Morgan Stanley and Goldman Sachs are scheduled to report their results before the US market opens on Tuesday.
Saxo’s Q1 2024 Outlook titled “What happened to the future” is now out. You can read it here.
The Saxo Quick Take is a short, distilled opinion on financial markets with references to key news and events.
US Equities: The US equity market was closed on Monday for a holiday. On Tuesday morning in Asia, the S&P 500 eMini futures and the Nasdaq 100 eMini futures were down approximately 0.2% from their Friday close. This dip followed weakness overnight in European markets, attributed to ECB officials pushing back on investors' rate cut expectations. Notably, Morgan Stanley and Goldman Sachs are set to report their results before the US market opens on Tuesday.
Fixed income: Returning from the Martin Luther King Day holiday, Treasuries were sold in early Tokyo trading on Tuesday, with yields approximately 4bps higher than their Friday New York closing levels. The 2-year Treasury notes are trading at 4.18%, and the 10-year Treasury notes are at 3.98%, influenced by the weakness in European government bonds following hawkish comments from ECB Governing Council member Holszman.
China/HK Equities: Defying market expectations, the People's Bank of China (PBoC) kept the 1-year MLF, its policy lending rate unchanged. The Hang Seng Index and the CSI300 Index edged down 0.2% to 16,216. Baidu, falling over 11.5%, emerged as the worst-performing stock in the Hong Kong benchmark. This development followed a report by the South China Morning Post, Hong Kong’s leading local English newspaper, stating that Chinese scientists are utilizing Baidu's Ernie and iflyTek’s Spark, both large language model services, for training military AI systems. EV stocks sold off, with Li Auto dropping by 4.3%, attributed to Tesla's decision to cut prices for some models in China. The CSI 300 slid 0.1% to 3,291. Sentiments remain subdued as investors await China’s Q4 GDP, retail sales, industrial production, and fixed-asset investment data on Wednesday, expected to reflect the persistent weak momentum of the Chinese economy.
FX: The US dollar was broadly higher at the start of the new week, with DXY index rising to 102.60. China’s surprise announcement of no rate cut yesterday and a broader risk averse tone made NZD the underperformer. NZDUSD dropped below 0.62 and the 50DMA at 0.6159 will be the next target. AUDUSD also plunged lower for a test of 50DMA at 0.6640. USDJPY rose to 145.80 and 146 level ahead will be a key test, although pair traded lower to 145.60 on firmer PPI report this morning, and CPI data remains on watch this week. EURNOK also surged higher with natural gas prices continuing to dip despite Mideast risks, and pair traded higher to 11.34. EURUSD still unable to test 1.10 despite ECB officials pushing back on rate cut expectations.
Commodities: Oil ticked higher with the ramp up in geopolitical tensions once again amid Houthis hitting US vessel and Iran targeting US consulate. European gas futures fell to a five-month low amid high inventories despite reports that Qatar could pause LNG shipments through the Red Sea. Demand concerns also underpinning energy markets, and traders will be focusing on comments out of Davos along with geopolitical developments. Gold saw a modest rally, and a break of $2,070 will be in focus.
Macro:
Macro events: Germany Final CPI (Dec), Germany ZEW (Jan), US NY Fed Empire State Manufacturing (Jan), Canada CPI (Dec), Fed’s Waller speaks on economic outlook and monetary policy
Earnings: Morgan Stanley, Goldman Sachs, PNC Financial
In the news:
For all macro, earnings, and dividend events check Saxo’s calendar.
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