Quarterly Outlook
Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges
Althea Spinozzi
Head of Fixed Income Strategy
Chief Investment Officer
Summary: Markets were back and forth in Asia after US President Donald Trump ordered social distancing measures to continue until April 30, though the mood improved by later in the session. Another important week ahead after last week saw an enormous bounce in risk appetite and a related drop in the US dollar.
An important week ahead as we get a look at whether last week’s enormous bounce in risk assets and related strong sell-off in the US dollar will find continued legs this week. The weakening of the US dollar is a particularly important support for global markets.
What is our trading focus?
What is going on?
US President Donald Trump said social distancing will continue in the US until April 30 after previously aiming for a lifting of measures after Easter before mid-month. Local authorities at city and state level have may have more authority in many jurisdictions and in key areas of the economy anyway.
Oil prices remain under pressure – on the demand shock, oil prices remain under extreme pressure and show extreme contango, though the market is predicting that supply destruction from this episode of low prices will mean prices farther down the road will rise to higher levels.
What we are watching next?
Momentum from last week and quarter end– correlations are very tight across asset markets and we saw a profound bounce in sentiment last week – the chief question this week is the degree to which this has established some market low for now as the market feels around for support and to what degree something like month-end and quarter-end rebalancing is behind some of the bounce in equities.
CORNMAY20, SOYBEANSMAY20, WHEATMAY20: US farmers planting intentions for the 2020-21 season will published by the US Department of Agriculture on Tuesday. It is one of the most closely watched reports by the market and it is expected that acres of corn and soybeans could spike
The missing piece – Oil – We continue to watch the oil markets as a key indicator for markets from here as the risk of defaults and insolvency continue at these price levels and a recovery in oil prices will be an important coincident indicator that some more durable stabilization has arrived.
Path to the other side of Covid19 – this is the medium term key.
Calendar today (times GMT)
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