Summary: The sell-off in Treasury bonds took a breather, helping stocks and paring some of the gains in the US dollar. That helped AUD although CAD remained under pressure as crude oil prices eased from recent highs. US data remained mixed but German CPI saw a significant easing, paving the way for a softer Eurozone print today. Focus also on US PCE data and China goes on Golden Week holiday.
The Saxo Quick Take is a short, distilled opinion on financial markets with references to key news and events.
US Equities: Stocks staged a broad-based rally after Chicago Fed President Goolsbee lent his support to the notion of reducing inflation without triggering a recession. Shares in automakers gained ground as the labor union scaled back its wage demands. Megacap tech names also delivered strong performances. In the semiconductor space, AMD surged by 4.9% and Nvidia added 1.5%, while Micron lost 4.4%. The S&P500 concluded the session 0.6% higher at 4,299 and the Nasdaq 100 gained 0.8%, bouncing to 14,702. During extended hours, Nike surged over 8% after reporting earnings, gross margins and inventory cuts that exceeded street estimates.
Fixed income: The short end of the curve caught a bid on dovish Fedspeak and a large decline in pending home sales, seeing the 2-year yield fall by 8bps to 5.06%. The demand for the USD37 billion 7-year note auction was lackluster but had a minimal impact on the market. The 10-year yield fell 3bps to 4.57%, after once reaching as high as 4.69% during the day.
China/HK Equities: The Hang Seng Index and CSI300 had another day of declines, with drops of 1.4% and 0.3%, respectively. China Evergrande suspended trading following a series of adverse developments, including the founder's placement under police control, which garnered headlines. Additionally, the readout from the Politburo meeting and the headline that Inner Mongolia has been granted permission to issue "refinancing bonds" for the purpose of repaying hidden local government debts failed to generate any market enthusiasm. It's worth noting that mainland bourses are closed today and next week due to the observance of the Mid-Autumn Festival and National Day holidays.
FX: Dollar reversed slightly with Treasury yields reaching a peak, but the DXY index remained above 106. SEK was the outperformer again, followed by AUD and CHF. AUDUSD rallied over 0.64 and RBA meeting next week will be eyed. EURUSD also bounced higher from the 1.05 with EZ yields remaining firmer despite the softer German inflation, and recaptured 1.0560 although EURCHF is seen sliding again this morning in Asia. USDJPY eased yesterday but upside pressures towards 149.40 returned this morning.
Commodities: Oil prices eased from their recent highs despite a softer dollar and focus turns to US PCE data due today. Gold came under further pressure, and $1850 may be the next target, while Copper rose higher amid a softer dollar.
Macro:
Macro events:
In the news:
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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
