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.
FX Update: An important weekly close for the US dollar
John J. Hardy
Chief Macro Strategist
Summary: Coming into this morning, the US dollar had moved sharply lower all week after the Fed launched its howitzer of measures at the start of the week. The USD need to stay weak to support a reflation narrative so we look at the close today as rather important. Elsewhere, the euro may have a hard time rising after a disastrous EU meeting.
Please consult today’s Quick Take for a great news roundup and setting of today’s market and trading agenda and then today’s Saxo Market Call podcast in which our macro strategist Christopher Dembik picks apart the terrible EU meeting yesterday among other topics.
It is a very important session ahead with the weekend and a likely ugly stream of Covid19 news looming after a week that saw a major bottom posted at the beginning of the week in risk sentiment and a high in the USD. If anything, the USD has moved faster and more in many places, relative to its ascent, than other risk appetite measures. Yesterday’s session looked promising for risk sentiment, but we are already retracing that move aggressively overnight and into this morning.
One of the things justifiably weighing on sentiment yesterday was the terrible EU meeting that has put a hold on any “backdoor debt mutualization via EU coronabonds” narrative for the moment as the traditional ex-France core EU countries remain dead set against mutualization. With Covid19 accelerating here into a peak and economic growth collapsing, when is this crisis sufficiently grave for the EU to get its house in order? Listen to Christopher on the podcast link above on the depths of the dysfunction and the irony of Italy getting help from Russia and China while unable to get more aid from fellow EU nations. Only the heavy hand of the ECB is keeping things in check in financial market terms as Italy-Germany spreads remain orderly after yesterday’s meeting. This was a spooky development for Europe and could keep a lid on the euro for now and then some until we see a more coordinated approach to this crisis in the EU – stay tuned.
We can’t neglect the Covid19 crisis news and still are faced with a rampaging growth in cases in the US that may be slower to slow than elsewhere due to the piecemeal response. As well, do any of know how our economies return to normal and on what time scale – this is still the key risk to general sentiment, authorities’ escalating responses notwithstanding.
Chart: EURUSD
The chart below shows the dramatic roller coaster ride in EURUSD that as of now has merely proven a wild series of gyrations, only to return to the same levels prevailing before the crisis. Volatility will stay high here as the jury is still out on whether the Fed’s measures are enough to keep the world ahead of the global funding situation and whether the market starts to judge whether other countries’ policy moves are on the same level as the US’ policy response. For the euro side of the equation, it is about how long EU leaders can afford to dither while the ECB does what it can to keep the ship from leaking. The 200-day moving average and the 1.10-1.1100 area in general is an important pivot zone for now to the upside.
The G-10 rundown
USD – the USD springing back in early European trading today – an important coincident indicator for risk appetite. More policy forthcoming – perhaps with the US Treasury joining in more forcefully – if the USD pulls back to the strong side.
EUR – concerns for the euro and Europe if the EU cant coordinate a more profound fiscal response even if ECB supporting strongly at the margin by having abandoned former rules on purchase allocations across the EU.
JPY – big questions for quarter and Japan financial year-end loom over the end of this month and with JPY crosses providing high beta to the swings in risk appetite. In more normal times, such low long US yields would be more JPY supportive.
GBP – the GBPUSD rally ran all the way to 1.2300 in this epic move off the bottom, but the move may need digestion. The UK government responding strongly on the virus now and has luxury of control over its own money printing!
CHF – the new dip in sentiment weighing on EURCHF again, but with SNB likely leaning against. Down the road – wondering how Switzerland deals with the aftermath of one of the world’s worst housing bubbles – the script could flip suddenly on the CHF down the road.
AUD – the Aussie rally extended all the way above 0.6100 before a sharp reversal this morning. If risk sentiment can’t stage a recovery, AUDUSD and AUDJPY could post an ugly daily candlestick today.
CAD – the correction all the way to 1.4000 looks overaggressive given the state of oil markets – this is perhaps the first pair to lean against for the USD to bounce back given the oil situation.
NZD – the kiwi back to outperforming the AUD as sentiment deteriorates, and the NZDUSD and NZDJPY moves off the lows were enormous and are up against important resistance on respective charts.
SEK – the 10.90-11.00 zone in EURSEK shaping up as the important pivots. Last nights weak EU meeting no help for the SEK, and the uniquely lax Swedish Covid19 policy response is a high stakes gamble.
NOK – the NOK recovery extended very far considering how weak crude oil prices remain. One support may be that increased fiscal response from Norway requires much larger NOK purchases.
Upcoming Economic Calendar Highlights (all times GMT)
- 1230 - US Mar. PCE Inflation
- 1400 - US Final Mar. University of Michigan Sentiment
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...