Quarterly Outlook
Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges
Althea Spinozzi
Head of Fixed Income Strategy
Access all our platforms from a single account.
Green stocks rally on lower inflation; earnings update
Peter Garnry
Chief Investment Strategist
Summary: Today's equity update focus on yesterday's better than expected inflation print setting in motion big moves in bonds and equities, the big rally in funding sensitive equity segments such as green stocks, bubble stocks, biotechnology, and finally we touch on some of the latest earnings results. While lower US inflation became the headline yesterday, it is important to note and various super core measures are still showing persistent inflation. Green transformation stocks are rallying today because of 1) the lower funding costs, and 2) short covering across many of these names. On earnings, the results and outlook from Tencent and JD.com support the view that the Chinese consumer should be written off.
A hypersensitive market
US October inflation m/m came in lower than estimated on both headline and core measures setting in motion a 20 basis point move lower in the US 10-year yield. This pushed Nasdaq 100 futures higher by 2.1% with the momentum extending this morning. There is likely a high probability that the Nasdaq 100 futures could push to a new closing high for this year unless sentiment reverses.
A strong technical setup and animal spirits are never something to lean against so in the short-term momentum is positive and equities could extend higher. But the strong reaction function yesterday to a small beat on inflation is telling about what hypersensitive state the market is in. It is also telling that the earnings outlook has not changed much and the US 10-year yield remain still 70 basis point higher than the level in July, and still equity markets are back to their highs from July. It tells you two things, 1) the move is a clear valuation multiple expansion, and 2) the relative forward looking risk-premium to bonds has declined.
On inflation it worth noting that the US services inflation less energy (roughly 60% of overall inflation) is still running at an annualized rate of 4.7% for the third straight month. So inflation pressures are still here and the supply side of the global economy means that a small acceleration in economic activity could quickly reignite inflation. We should be careful at claiming victory to early.
Biotechnology, bubble stocks, and green transformation in huge relief rally
If we take a look at the theme basket overview sorted on yesterday’s performance it is clear where the market was stretched. Every segment in the equity market which is relying on cheap and accessible funding was underperforming this year. So yesterday was a huge day for our New biotech, Bubble stocks, Energy Storage, and Renewable energy baskets up between 6.8% and 8.1%. Lower inflation and lower interest rates are obviously key drivers of value for these segments.
Some of the biggest movers yesterday across these themes were Denali Therapeutics (+18.1%), Plug Power (+21.9%), Fuelcell Energy (+18.1%), and Sunrun (+19%). It should be noted that these pockets of the market have likely been shorted heavily and thus we are likely seeing covering of those shorts amplifying the moves because the buying activity is suddenly driven by both new buyers and short sellers covering positions.
Earnings update: Home Depot, Tencent, JD.com, Infineon, and Siemens Energy
Earnings results are still being released over the past two days we have got some interesting results. Home Depot raised their guidance yesterday as the home improvement market seems to finally be hitting a turning point. Tencent has just reported Q3 results beating estimates underscoring that the Chinese consumer is coming back and the online advertising market seems to be improving. JD.com’s Q3 results showed similar strength as Tencent beating estimates. In Europe, Infineon Technologies which is one of the largest semiconductor suppliers to the global car market has reported slightly better than expected fiscal Q4 results and more importantly an improved sales outlook despite margins came in a bit lower than expected.
Finally, Siemens Energy announced yesterday that it got a deal with its parent company Siemens and the German government worth €15bn in guarantees to support the fast growing order book in grid technology and gas turbines as the company is working through its problems in its wind turbine designs. Siemens Energy has capital markets day next week where the company will update the market on its wind turbine business which has hit massive difficulties with a faulty design costing the company a lot of money.
It is worth noting that 12-month forward earnings estimates have not moved higher since the Q3 earnings season started except for Nasdaq 100 companies highlighting once again that the big winner and driver this year has been US technology stocks.
Key earnings for the rest of the week are:
- Today: TJX, Cisco, Palo Alto Networks, Target
- Thursday: Siemens, Copart, NetEase, Walmart, Ross Stores, Applied Materials, Alibaba
- Friday: Johnson Controls, Generali
Latest Market Insights
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...