Quarterly Outlook
Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges
Althea Spinozzi
Head of Fixed Income Strategy
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The US dollar continues to ride high this morning following yesterday's battering of the single currency at the hands of a dovish European Central Bank governor. "The two main takeaways here are the significantly higher upgrade to the Eurozone inflation outlook and the expectation of no rate hike before the end of the summer of 2019," says Peter Garnry, Saxo's Head of Equity Strategy. "I think this is structurally negative for the euro and I think the market is surprised by the ECB's take on inflationary pressure," he adds.
The lower euro, of course, is good news for European exporters, and those who will benefit most, Garnry says, are those with major exposure to the US market.
Elsewhere, emerging markets remain under pressure from the stronger dollar as well as the outlook to a series of rate hikes this year as outlined by the Federal Open Market Committee earlier this week. "This is a clear negative and one should be underweight EM equities both on a relative and an absolute basis," Garnry advises.
Commodities too proved very responsive to the stronger dollar, says Ole Hansen, Saxo's Head of Commodity Strategy: "Gold priced in euro made its biggest jump since last September and this could potentially be a precursor for a rise in gold versus the dollar as well."
In the energy sector, the focus remains glued to next week's Opec and non-Opec meetings in Vienna. News emerged yesterday that both Saudi Arabia and Russia will seek to reduce their previously agreed output cap, though the Russians want far more crude oil freed up than the Saudis do. "The problem for the market with this is that we don't know where it'll land," Hansen note.
Quarterly Outlook
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