Quarterly Outlook
Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges
Althea Spinozzi
Head of Fixed Income Strategy
Summary: US equities ended last week on an upbeat note after a choppy session roiled by hotter than expected PCE inflation data, but in the end with fresh drop in US treasury yields to new multi-month lows driving a sentiment boost. A new month is under way as earnings season rolls on and the week features a busy calendar of macro event risks, with Friday’s US payrolls and earnings for July topping the list. Tonight, the RBA meets as the market leans for a 50-basis point hike.
After gains last week, the focus in crude oil is shifting to the OPEC+ meeting this week where expectations for any notable increase in output for September are minimal. Supply side issues also continue to underpin but focus short-term has shifted to China’s manufacturing PMI miss and the resulting demand contraction. WTI futures slid back below $98/barrel in the Asian hours, while the October Brent futures were below $103.
US ISM manufacturing on tap today
The US S&P Global flash Manufacturing PMI for July moderated 0.4pp to 52.3 and regional Fed surveys were mixed. The Bloomberg survey for today’s July ISM manufacturing index has a median forecast from economists at 52.0, down from 53 a month ago, which means a further slowing of the expansion is expected. While the supply side hurdles may be easing, weakening in demand is likely to cap increases in new orders and the overall headline.The RBA is expected to hike rates 50 basis points tonight at their monthly meeting, but a minority are looking for a smaller move as rate expectations for the cycle peak have moderated sharply for many central banks since the mid-June FOMC meeting and the RBA expectations for peak rates are near the lowest levels since early June.
The Q2 earnings season is still pushing ahead with more than 260 important earnings releases next week with the most important for market sentiment listed below. Given the economic pressures in Europe, the German earnings next week are our focus.
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