Senior Relationship Manager
Summary: Risk On Despite High Yields
Good Morning,
We are seeing a curious development since yesterday where rising yields are not causing the USD to increase in value further. The USD Index is at 103.17 while the 10 year yields rose to 4.34 – the highest since 2007.
Stocks are also trading friendlier than one would expect, the Dow lost 0.1% but the S&P 500 and the Nasdaq gain 1.6%. Nvidia gained 8.5%& as HSBC raised the forecast to 780 – with earnings up tomorrow, the stock is clearly worth watching – can they deliver what the AI boom promises?
S&P Global on Monday cut credit ratings and revised its outlook for multiple U.S. Banks.
Peter Garnry took a look at China: The prevailing narrative on China is that its economic model is broken and the government is not doing enough to stimulate the economy, but balance sheet growth among Chinese banks shows that overall credit growth is the highest since Q1 2012
EURUSD broke above the 1.09 figure, Cable is 1.2780 and USDJPY 146. Gold and Silver found some resilience and are trading at 1897 and 23.30.
Gas Prices in Europe are worth watching – having risen by 50% this month alone. For Softs, Ukraine is working on insuring Grain deliveries while the US Wheat crop looks possibly disappointing – watch wheat prices.
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The economic Agenda is fairly thin today with US existing home sales the most interesting but with the BRICS meeting kicking off and the recent divergences it should be a great trading day.
Tuesday August 22
Start: BRICS Summit
Data: Norway GDP Growth, US existing Home sales
Earnings Baidu Inc, Lowe's Cos
Wednesday August 23
Data: Japan PMI, Denmark consumer confidence, FR DE, EU PMI, EU Consumer confidence
Earnings China Construction Bank, China Life Insurance ,Analog Devices Inc, NVIDIA Corp
Thursday August 24
Start: The 2023 Economic Policy Symposium in Jackson Hole "Structural Shifts in the Global Economy," Aug. 24-26.
Data: Turkey Rate decision, US Durable Goods orders, Initial jobless claims
Earnings CRH PLC, AIA Group, Toronto-Dominion, Workday Inc, Marvell Technology, Royal Bank of Canada
Friday August 25
Data: Japan CPI; PPI, DE GDP & IFO, University of Michigan
Earnings: China Merchants Bank China Petroleum & Chemical Zijin Mining Group
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