Summary: US Treasuries had a reversal after the 10-year yield briefly breached 5% before falling sharply to close at 4.85% as comments from Bill Ackman and Bill Gross triggered short-covering. Stocks ended mixed as the Nasdaq 100 gained 0.3% while the S&P 500 slid 0.2%, extending its 5-day losing streak. The Nasdaq 100's advance was propelled by gains in the mega-cap tech giants. Nvidia surged by 3.8%. Microsoft and Alphabet are set to report earnings on Tuesday. China’s Central Huijin said that it had purchased stock ETFs on Monday and committed to accumulating more. USD was sold off as 10-year bond yields retreated. Oil prices saw a sharp decline as war premiums continued to be erased.
The Saxo Quick Take is a short, distilled opinion on financial markets with references to key news and events.
US Equities: In a volatile session marked by significant movements in bond yields, stocks concluded with mixed results. The Nasdaq 100 gained 0.3% to reach 14,605, while the S&P 500 slid 0.2%, extending its 5-day losing streak to 4,217. The Nasdaq 100's advance was propelled by gains in the mega-cap tech giants. Nvidia surged by 3.8% following a news report indicating that the dominant GPU producer would produce CPU chips for PCs using ARM technology. Microsoft and Alphabet are set to report earnings on Tuesday.
Fixed income: US Treasuries had a reversal after the 10-year yield briefly breached 5% in London hours, reaching 5.02%, the highest level since 2007. Subsequently, the yield sharply dropped by 19bps intraday to as low as 4.83% in the New York afternoon. Traders attributed this dramatic movement to comments made by well-known investors. Bill Ackman tweeted that he had covered his shorts in bonds due to "too much risk in the world" and because "the economy is slowing faster than recent data suggests." Similarly, Bill Gross stated that he was buying SOFR interest rate futures, anticipating a recession by the end of the year. The 2-year yield finished at 5.05%, up 3bps, and the 10-year yield fell by 6bps to 4.85%. Today, the Treasury is auctioning $51 billion of 2-year notes. At Saxo, we see value in US Treasuries, particularly in the front end of the curve.
China/HK Equities: The Hong Kong market was closed for a public holiday on Monday. In mainland China, the CSI300 declined by 1% due to persistent weakness in sentiment. Additionally, the Chinese authorities' probe into Foxconn over tax issues and land use also weighed on technology names. In the evening, Central Huijin, a unit of the China sovereign wealth fund, stated that it had purchased stock ETFs on Monday and committed to accumulating more. In response, Chinese ADRs rallied overnight, with the Nasdaq Golden Dragon China Index gaining 0.9%. Central Huijin's actions may help boost sentiment and provide support to the Hong Kong and China markets on Tuesday.
FX: USD was sold-off as 10-year bond yields retreated after touching the 5% mark and safe-haven bid remained in check with Israel holding off on the ground invasion. EURUSD pierced through 1.06 to MTD highs of 1.0678 and PMIs will be on watch today followed by the ECB meeting on Thursday. GBPUSD pushed above 1.22 as well, and AUDUSD also bounced higher from 0.63 handle and AU CPI tomorrow will be key. USDJPY retreated from 150 to lows of 149.56 as Treasury yields eased, before returning slightly higher.
Commodities: Oil prices saw a sharp decline as war premium continued to be erased, although minor gains returned this morning in Asia. Copper touched 11-month lows amid demand weakness concerns with tighter monetary policy effects being seen in forward looking indicators, while supply concerns are also easing. Gold traded sideways around $1975, as safe-haven bid retreated while softer yields offset.
Macro:
Macro events: German GfK Consumer Confidence (Nov), EZ/UK/US Flash PMIs
Earnings: Microsoft, Alphabet, Visa, Coca-cola, Novartis, Hermes
In the news:
For all macro, earnings, and dividend events check Saxo’s calendar.
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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
