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.
As we head into the final quarter of a year that many may wish never happened, the global pandemic will continue assert a major influence on the performance of different sectors: from energy and metals to agriculture. With the pandemic still developing and a vaccine probably months away, the only thing that remains certain is the uncertainty. It will continue to create volatile and unpredictable market conditions, while geopolitical risks add another layer – not least considering what lies ahead, with the US Presidential election on November 3 probably much closer than what the polls can measure.
Never in history have global interest rates been pushed so hard towards zero across so many countries simultaneously, with massive increases in fiscal deficits on top of historically high debt levels in the global economy. Add to this government attempts to support growth through the spending of money that needs to be printed first, and the outlook for precious and some industrial metals continues to look supportive into Q4 and beyond.
The combination of central banks actively supporting the return of inflation and the potential for the dollar to weaken further remains key to our general bullish outlook for commodities, especially those that historically have helped preserve wealth during times of raised uncertainty and inflation.
The year to mid-September performance among some key commodities tells a story about strong demand for precious metals amid the global collapse in rates and the rising risk that inflation will emerge to render government bonds already trading near zero or below useless as a means of safe haven.
Never in history have global interest rates been pushed so hard towards zero across so many countries simultaneously, with massive increases in fiscal deficits on top of historically high debt levels in the global economy. Add to this government attempts to support growth through the spending of money that needs to be printed first, and the outlook for precious and some industrial metals continues to look supportive into Q4 and beyond.
The combination of central banks actively supporting the return of inflation and the potential for the dollar to weaken further remains key to our general bullish outlook for commodities, especially those that historically have helped preserve wealth during times of raised uncertainty and inflation.
The year to mid-September performance among some key commodities tells a story about strong demand for precious metals amid the global collapse in rates and the rising risk that inflation will emerge to render government bonds already trading near zero or below useless as a means of safe haven.
China got the virus first and have subsequently managed a strong, debt-fueled recovery similar to the one seen following the 2008 Global Financial Crisis. The combination of Covid-related supply disruption, financial speculators looking for an inflation hedge and not least very strong demand from China driving down global stocks, have supported a strong year for industrial metals led by copper.
Eventually, we see the steep uptrend in HG Copper from the April low being broken, leading to a period of consolidation which we believe may occur in Q4. On that basis we see the short-term upside for copper as limited, with the potential driver for an extension being a renewed promise of infrastructure spending from the next US President – similar to the one Trump promised, but failed to deliver on, four years ago.
Following a year where gold is up more than 20% and silver double that, it is a bold call to look for further gains, at least in the short term. However, the powerful combination of rock bottom rates, rising demand for inflation hedges and the potential for a weaker dollar all point to further gains. Following a prolonged period of consolidation around and mostly above $1920/oz, we see gold eventually moving higher to finish the year at or near $2000/oz.
Considering we have entered unchartered territory, it is difficult to provide a price estimate for 2021. However, using the decade-old price channel, the target for 2021 could be somewhere between $2400 and $2500/oz, some 20% above the mid-September trading area.
Eventually, we see the steep uptrend in HG Copper from the April low being broken, leading to a period of consolidation which we believe may occur in Q4. On that basis we see the short-term upside for copper as limited, with the potential driver for an extension being a renewed promise of infrastructure spending from the next US President – similar to the one Trump promised, but failed to deliver on, four years ago.
Following a year where gold is up more than 20% and silver double that, it is a bold call to look for further gains, at least in the short term. However, the powerful combination of rock bottom rates, rising demand for inflation hedges and the potential for a weaker dollar all point to further gains. Following a prolonged period of consolidation around and mostly above $1920/oz, we see gold eventually moving higher to finish the year at or near $2000/oz.
Considering we have entered unchartered territory, it is difficult to provide a price estimate for 2021. However, using the decade-old price channel, the target for 2021 could be somewhere between $2400 and $2500/oz, some 20% above the mid-September trading area.
Silver has struggled to outperform gold after the ratio between the two metals returned to its ten-year average close to 70 ounces of silver to one ounce of gold. Given our positive outlook for gold, we see silver continuing higher, perhaps with a slight underperformance given our neutral view on industrial metals. Platinum’s record discount to gold may eventually attract some renewed investor interest, not least considering the outlook for the market moving into a deficit this year. A break below two in the gold-platinum ratio could potentially signal a move to 1.8, a 10% outperformance.
The crude oil market is likely to remain stuck, with Brent crude spending most of the final quarter trading in the 40s before eventually moving higher into the 50s during the first half of 2021. On that basis, we raise our Q3 range by three dollars to a $38-$48 corridor.
The crude oil market is likely to remain stuck, with Brent crude spending most of the final quarter trading in the 40s before eventually moving higher into the 50s during the first half of 2021. On that basis, we raise our Q3 range by three dollars to a $38-$48 corridor.
The battle between OPEC+ production cuts and an uncertain demand outlook escalated in September, with Saudi Arabia showing their growing frustration about crude oil’s inability to rally further. It led to strong verbal intervention by the Saudi Energy Minister, who blamed cheaters and short sellers for the lack of progress. While cheating is a clear problem that needs to be addressed and short sellers may move the market for a short period of time, fundamentals which are currently weak amid an abundance of fuel and low demand will always be the main driver.
We remain cautious about crude oil’s short-term ability to rally much further, unless OPEC+ surprises the market by abandoning its planned 2 million barrels/day production increase set for January. While the U.A.E, a major recent laggard, will cut production again, some concerns linger with regards to Iraq, a notorious cheater, and Libya, which will try to increase production following its ceasefire announcement.
We remain cautious about crude oil’s short-term ability to rally much further, unless OPEC+ surprises the market by abandoning its planned 2 million barrels/day production increase set for January. While the U.A.E, a major recent laggard, will cut production again, some concerns linger with regards to Iraq, a notorious cheater, and Libya, which will try to increase production following its ceasefire announcement.
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)