Quarterly Outlook
Macro Outlook: The US rate cut cycle has begun
Peter Garnry
Chief Investment Strategist
Summary: Big tech concerns weighed on broader US equity indices, while China’s NPC announcements have also been underwhelming. Gold and Bitcoin touched record highs, but saw profit taking more so in Bitcoin rather than Gold. Markets awaiting dovish hints from Powell’s testimony to the Congress today, while Super Tuesday results are also starting to trickle in, and a re-match between Biden and Trump remains the base case for now.
The Saxo Quick Take is a short, distilled opinion on financial markets with references to key news and events.
US Equities: Nvidia, adding 0.9%, was the lone gainer among the Magnificent Seven stocks, which slid between 0.5% and 3.9% and wiped out more than 230 billion market capitalization from the US equity market. Apple shed 2.8% on a report that iPhone sales fell 24% in the first six weeks of the year in China. The weakness in this group of heavyweights dragged down the S&P 500 and the Nasdaq 100 by 1.8% and 1.0% respectively. Bucking the market decline, Target surged 12% after reporting results beating analysts’ forecasts.
Hong Kong/China Equities: The economic targets for 2024 aligned with expectations, but the absence of positive surprises led to a sell-off of Hong Kong stocks. After the Government Work Report, the Hang Seng Index fell by 2.6%, while the Hang Seng TECH Index plummeted by 4.3%, with all 30 constituent stocks finishing lower. Digital health services providers, e-commerce, AI, and new energy vehicle stocks were among the biggest losers. In contrast, mainland A-share indices showed resilience, with the CSI 300 adding 0.7%. Despite modest index gains, over 4,300 A-share stocks declined, signaling a puzzling market scenario. Notably, significant trading volume increases occurred in major ETFs, suggesting National Team intervention to support the market. While National Team buying may continue to support key A-share benchmarks and their top constituent stocks throughout the remainder of the Two Sessions, the overall A-share market and the Hong Kong market appear poised for retracement to the downside, particularly in the aftermath of the Two Sessions. To delve deeper into the contrasting performance of the Hang Seng Index and the CSI300, refer to this Saxo article.
After the Hong Kong market closed, NIO revealed a 6% Y/Y increase in Q4 revenue, reaching RMB17.1 billion, slightly surpassing previous guidance and market expectations. Despite improvement from the previous year, the EV manufacturer reported a loss of RMB4.9 billion after adjustments, missing analysts' forecasts of RMB4.4 billion according to Bloomberg. Gross margins, though better than a year ago, declined by 0.5 points Q/Q to 7.5% in Q4. Looking ahead to Q1, NIO forecasts deliveries of 31-31k vehicles and revenue of RMB10.5-11.1 billion. NIO's American Depositary Shares (ADS) gained 2.8% overnight. Today, JD.com and JD Logistics are set to report.
Fixed income: Ahead of Fed Chair Powell’s semi-annual testimony to Congress before the House Financial Services Committee today and after a soft ISM Services survey, Treasury yields fell across the yield curve. The 2-year yield shed 4bps to 4.56% while the 10-year yield dropped by 6bps to 4.15%.
FX: Forex markets remain subdued, with action only seen in non-traditional FX pairs reflecting Gold and Bitcoin that touched record highs but pared gains subsequently. Bitcoin (XBTUSD) has retreated back to 60k after seeing record highs at 69k+ as traders locked in gains. Gold (XAUUSD) still seen close to $2130 after record highs of $2140+ overnight. Yen strengthened as well with yields slipping on soft ISM services data, but USDJPY could only go down to 150. Chair Powell’s testimony will be in focus today, and any downplaying of hot inflation prints could be a dovish reading. EURUSD hit highs of 1.0876 on dollar weakness following ISM release, but is turning back lower towards 1.0850 now as 50DMA offered resistance. GBPUSD also rallied to highs of 1.2735 but is seen back at big figure now. CAD underperformed ahead of Bank of Canada announcement today, with USDCAD testing 1.36 handle. A dovish surprise, although less likely unless Fed changes course, could bring 61.8% fibo retracement at 1.3623 in USDCAD in focus.
Commodities: Gold momentum extended further, taking the yellow metal to a fresh record high, and any dovish hints from Powell today could mean further gains may be on the radar. Super Tuesday confirming Trump’s Republican nomination could also support Gold as geopolitics become a big focus and central bank buying will be expected to ramp up further. Oil prices ended the day lower as China’s GDP growth target remained modest and none of the announcements so far have been able to spark optimism. Private US crude inventories also rose by 400,000 barrels last week and official numbers will be on watch now.
Macro:
Macro events: BoC Announcement, German Trade Balance (Jan), EZ Retail Sales, US ADP National Employment, Wholesale Inventory, JOLTS. Speakers: Fed Chair Powell, Daly, Kashkari
Earnings: JD Logistics, JD.com, Brown-Forman, Campbell Soup
In the news:
For all macro, earnings, and dividend events check Saxo’s calendar.
For a global look at markets – go to Inspiration