Jessica Amir
Market Strategist
Summary: Watch our video in under five minutes or read the text for what’s happening in markets, what to watch; plus potential trading and investing ideas to consider.
ASX200 futures suggest the market will rally on Wednesday, and erase yesterday’s 0.5% fall. But short-term pressure has built up by the RBA indicating more hikes are needed. Coal prices are down 36% and picked up this week almost 7% after the Australia Energy Market Operator said coal supply and gas supply in Australia is short and will stay short till 2026, so we think the RBA could make upward revisions to underlying inflation forecasts on Friday, despite the Bank keeping its headline CPI, unemployment and activity forecasts broadly unchanged. For investors, this means volatility in the ASX200 could pick up on Friday - financials and insurers could be supported with the RBA seeing more hikes ahead. The services sector is already in contraction, yet the RBA sees GDP slowing to around 1.5% this and next year, expecting household spending to pull back amid tightening financial conditions, as the post-pandemic spending rush has eased. This means, consumer discretionary stocks likely face headwinds. On the flip side, the energy sector is being supported.
Crude oil (CLH3 & LCOJ3) supported by supply concerns, OPEC+ not raising output
Oil jumped 4.3% to $77.31 as investors grew more confident in China's demand outlook, while there are expectations OPEC+ won't raise crude output in 2023 amid uncertainty over Russian supply. The Bank of America also sees US shale oil production peaking in the next three to four years. For Saxo’s view, read out Quarterly Outlook.
Saxo launches in Q1 2023 quarterly outlook: The Models are Broken
Saxo’s quarterly outlook released argues that the economic models and assumptions of how market cycles are supposed to work are broken. We explore how this may affect both equities and commodities, as well inflation being higher-for-longer and how could it impact forex and crypto. Read the outlook here.
To listen to our take on markets tune into our global Podcast.
Bond. Long Bond(s)
With real rates being too positive, we see three scenarios: Opportunity to lock in rates at cycle high, government overreach to keep the economy afloat or a complete reset of the economy.
Steen Jakobsen,
Chief Investment Officer
Is a bond bull market ahead? Inflation still poses a risk for investors, but the moment for increasing duration to your portfolio may be approaching towards the end of the year, when central banks might be forced to cut interest rates.
Althea Spinozzi,
Senior Fixed Income Strategist
The furious rate hike cycle has brought gains in the US dollar, but with stagflation risks in Europe and the UK and weakness in the Chinese economy, USD may have more room to run. But a strong dollar could also have repercussions for US growth, emerging markets and commodity prices.
Charu Chanana,
Market Strategist
With the cost of capital rising painfully, stagflation fears are back, illuminating the fragile state of the green transformation, while giving a tailwind to nuclear power, and threatening the growth of AI-related stocks.
Peter Garnry,
Head of Equity Strategy
With supply tightness not only in energy but all commodities, the momentum in commodity prices may continue, pressuring central banks to lower real rates. That could be a good setup for precious metals, including gold, silver and potentially platinum as well.
Ole S. Hansen,
Head of Commodity Strategy
As the pandemic showed, even the US Treasury can experience seismic shifts. With the government increasing the pace of issuing bonds to support fiscal spending, the complex Treasury market and regulatory constraints could spark a liquidity event.
Redmond Wong,
Market Strategist
The tide has turned for bonds. Given the current yields, bonds have become an attractive investment, with added benefits including lower risk than stocks, increased diversification and a steady stream of income unaffected by economic changes.
Peter Siks,
Investment Coach