fx fx fx

Worst H1 in history for equities; Treasuries start the second half on front foot; Markets overpricing recession fears; President Xi in Hong Kong

Equities 4 minutes to read
Charu Chanana 400x400
Charu Chanana

Head of FX Strategy

Summary:  As markets keep running ahead of themselves to price in a recession, we believe inflation will still remain the key pain point in H2. While a short-term break in commodity super cycle may be warranted with markets pricing in demand destruction concerns, the structural supply issues still remain at play. US Treasuries started the second half on front foot, while the dollar gains returned.

What’s happening in markets?

Big picture

As we step into H2, it is prudent to look at the record losses in key indices for H1 and be prepared/cautious of the further strains to come. The Fed is tightening at its fastest pace since the early 1980s, with 150bps of rate hikes already in the kitty and another 175bps priced in by the markets for this year. This comes along with quantitative tightening, which is taking out liquidity from the system. We believe inflation will remain higher-for-longer, and the central banks will have to remain aggressive to fight it.

The second key risk to the markets comes from the upcoming earnings season, which despite 70% of the companies issuing negative EPS guidance, continues to see analyst estimates running high. This is the perfect recipe for disappointment, and more pain in the equity markets.

APAC equities begin H2 mostly in losses

Markets remain overly gripped by recession fears as US data suggests a technical recession may be coming. With the Wall Street closing in the red, Asian equities were offered in the morning as well, while gains in oil prices also weighed. Japan’s Nikkei (NI225.I) led the losses in Asia, which was down close to 0.9% at lunch. Utilities were the largest drag on Nikkei as Tokyo Gas (9531) and Osaka Gas (9532) were both down 7-9% amid news of President Putin signing a decree to transfer the Sakhalin-2 natural gas plant to a new Russian entity, a move that could force the companies to exit their investment in the key energy project.

China’s CSI300 (000300.I) was in loss of 0.3% but led the region with gains for the month and the quarter. China Big Tech stocks have bucked against the bearish trend of global equities especially its US mega cap tech peers. Hong Kong’s markets are closed for a holiday marking the 25th anniversary of Chinese rule. Australia’s ASX200 was the lone index in green, up 0.3%, but down 12% for the second quarter. Singapore’s STI (ES3) stayed flat-to-down with Wilmar leading the gains.

US Treasury yields take a dip below 3%

Treasuries began the second half of the year on the front foot as concerns continued to mount that Federal Reserve rate hikes will lead to a recession. After slipping below 3% overnight, UST 10-year yields dipped further below 2.95% in the Asian session, with the move spreading to local bond markets as well. Australia’s 3-year yields plunged 21bps ahead of the RBA decision due next week.

Dollar reverses its overnight slide, sluggishly

The new quarter has begun with strong USD bids against commodity pairs in the Asian session after a big slide in the USD overnight. AUDUSD and NZDUSD making new lows, breaking 0.685 and 0.620 respectively. USDJPY retraced to 135 as US 10-year yields slid further below 3%. AUDJPY was the biggest mover, down 1.5%.

Crude oil (OILUKAUG22 & OILUSJUL22) prices down for the first month since November

Crude oil prices had their first month in red since November, suggesting the pace of consistent gains we have seen for over six months may be coming under pressure. OPEC+ committed to increasing production to 648k barrels per day in August, unchanged from the agreement earlier, but there is little confidence this can be achieved. Meanwhile, it was disappointing that the group delayed the September guidance to August 3 meeting. While we believe the supply constraints will mean the bull run will continue in the medium-to-long term, but short-term headwinds may continue to be seen as markets price in demand destruction concerns.

What to consider?

U.S. growth concerns take a leg up

U.S. personal spending for May fell to 0.2% m/m from 0.6% m/m in April, below consensus of 0.4%. This has resulted in the Atlanta Fed GDPnow model tracking an economic contraction of 1.0% in Q2, which would imply a US “technical” recession of two consecutive quarters of negative real GDP growth. Still, we do not think that the US is heading into a broad-based recession, even as the Fed will likely continue to chase inflation. US PCE Price Index, the preferred inflation gauge monitored by the Fed was unchanged at 6.3% y/y, below its all-time high of 6.6% y/y recorded in March but still stuck near the highs supporting our view of higher-for-longer inflation.

Japan’s inflation stays above 2%

Japan’s Tokyo CPI came in at 2.3% y/y for June, coming in below expectations but core was as expected at 2.1% y/y. Gasoline subsidies have helped to keep the acceleration in check, but consumers are getting hurt with rising food prices and chip supply shortages which are raising the prices of household appliances. Energy prices also remained elevated at 21.7%. Meanwhile, Tankan survey showed a deterioration among Japan's large manufacturers in Q2, while small manufacturers remained in negative. The outlook is also fragile, with price pressures seen rising further from here. Japan’s inflationary pressures, but more so inflation expectations, will remain a key input if the Bank of Japan has to capitulate at some point.

President Xi visits Hong Kong

China President Xi made his first international visit since the pandemic began as he to Hong Kong for the 25th anniversary. He laid out a future for Hong Kong, embedded firmly within the goals of the central government on the mainland. He also swore in Hong Kong’s new leader, John Lee Ka-chiu. The July 1 celebrations mark the halfway point of China’s 50-year promise to maintain Hong Kong’s liberal institutions and capitalist markets until at least 2047 under a framework called “one country, two systems.”

Potential trading and investing ideas to consider?

Micron earnings sends a reminder on tech sentiment

Micron Technology (MU) reported earnings for the fiscal third quarter ended June 2 last night and guided for weaker-than-expected revenue and EPS for Q4 at $6.8b to $7.6b vs $9.14b and $1.43 earlier and $1.83 vs $2.57 earlier respectively. It also flagged weakened consumer demand, signaling the negative sentiment we have been flagging for the PC and smartphone segments, but sustained demand for memory and storage.


For a global look at markets – tune into our Podcast. 

Quarterly Outlook 2024 Q3

Sandcastle economics

01 / 05

  • 350x200 peter

    Macro: Sandcastle economics

    Invest wisely in Q3 2024: Discover SaxoStrats' insights on navigating a stable yet fragile global economy.

    Read article
  • 350x200 althea

    Bonds: What to do until inflation stabilises

    Discover strategies for managing bonds as US and European yields remain rangebound due to uncertain inflation and evolving monetary policies.

    Read article
  • 350x200 peter

    Equities: Are we blowing bubbles again

    Explore key trends and opportunities in European equities and electrification theme as market dynamics echo 2021's rally.

    Read article
  • 350x200 charu (1)

    FX: Risk-on currencies to surge against havens

    Explore the outlook for USD, AUD, NZD, and EM carry trades as risk-on currencies are set to outperform in Q3 2024.

    Read article
  • 350x200 ole

    Commodities: Energy and grains in focus as metals pause

    Energy and grains to shine as metals pause. Discover key trends and market drivers for commodities in Q3 2024.

    Read article


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/legal/disclaimer/saxo-disclaimer)
Full disclaimer (https://www.home.saxo/legal/saxoselect-disclaimer/disclaimer)

Saxo Bank A/S (Headquarters)
Philip Heymans Alle 15

Contact Saxo

Select region


Trade responsibly
All trading carries risk. Read more. To help you understand the risks involved we have put together a series of Key Information Documents (KIDs) highlighting the risks and rewards related to each product. Read more

This website can be accessed worldwide however the information on the website is related to Saxo Bank A/S and is not specific to any entity of Saxo Bank Group. All clients will directly engage with Saxo Bank A/S and all client agreements will be entered into with Saxo Bank A/S and thus governed by Danish Law.

Apple and the Apple logo are trademarks of Apple Inc, registered in the US and other countries and regions. App Store is a service mark of Apple Inc. Google Play and the Google Play logo are trademarks of Google LLC.