US equities endured a dramatic Tuesday session, falling 1.4% overall with the decline led by the technology sector. In Saxo Bank head of equity strategy Peter Garnry's view, more turmoil could be ahead as the US 10-year Treasury yield remains north of the psychologically key 3% level.
"The ostensible catalyst for Tuesday's decline was the Caterpillar earnings release, in which the firm's CEO states that the first quarter of 2018 might represent a high-water mark for the company, but I think this story is too simple," Garnry says.
While Caterpillar shares fell 6.2% on the news, US equity prices reflect a complex landscape of macro and cross-asset relationships, with Garnry unwilling to link Tuesday's declines to a single factor, particularly in light of elevated yields.
In Europe, Garnry sees stocks heading lower on mixed earnings following Credit Suisse trending positive on the company's shift to wealth management while Nordea struggles to hit its 2018 targets. Another event in focus this week is the European Central Bank's April 26 press conference in light of data showing ECB corporate bond purchases down 50% in April, leading investors to question whether a "stealth taper" is already in effect.
The twin questions of a hawkish ECB and a potential selloff in risk assets on elevated bond yields are very much active in the fixed income space as well, although Saxo bonds specialist Althea Spinozzi notes that fixed income volatility did not notably pick up in the wake of the surge past 3% in 10-year US yields.
Saxo Bank head of commodity strategy Ole Hansen reports that oil prices headed lower from the recent peak on French president Emmanuel Macron's visit to Washington, where he called for a new Iranian nuclear deal. Geopolitical pressures, however, remain elevated in Hansen's view as the US and major European powers move to isolate and/or oppose Iran and Russia.
"The key levels here are $66.60/barrel in WTI and $72.12 in Brent, representing the 38.2% retracement of the April rally".
In gold, Hansen reports that prices remain tied to the 2018 average of $1,332/oz although downside pressures risk a move to $1,320 and potentially beyond. Finally, Hansen reports that coffee prices have spiked on an improved technical outlook and in the wake of speculative funds overselling an expected 5 million bag surplus by a factor of four.
Outrageous Predictions 2023: The War Economy
- The constantly growing global need for energy drives the world's richest to huddle up and launch a R&D project in a size the world hasn't seen since the Manhattan Project gave the US the first atomic bomb.
French President Macron resignsThe political stalemate in France and the rise of Marie Le Pen following the 2022 elections corners President Macron, forcing him to give up on politics and resign from his position. At least for now.
Gold rockets to USD 3,000 as central banks fail on inflation mandateAs markets and central banks realise that the idea that inflation is transitory is wrong, and that prices will remain higher for longer, gold is sent through the roof, hitting a price tag of USD 3,000
EU Army forces EU down path to full unionWith continued challenges in the region and a US military that isn't aggressively enacting its former role as global policeman, the European Union agrees to create its own armed forces, bringing the whole region closer.
A country agrees to ban all meat production by 2030In an effort to become one of the global leaders on the path to net-zero emissions, one country decides to not only put a heavy tax on meat, but to ban domestic production entirely.
UK holds UnBrexit referendumFollowing a recession and domestic pressure, the United Kingdom is thrown into political turmoil that will end with a vote to wind back Brexit.
Widespread price controls are introduced to cap official inflationHistory tells us that with the war economy comes rationing and price controls. And this time is no different, as policymakers introduce strict price controls that lead to a range of unintended consequences.
OPEC+ & Chindia walk out of the IMF, agree to trade with new reserve assetSanctions against Russia have caused widespread turmoil due to US Dollar moves in countries across the globe that don't consider the US an ally. To relieve themselves from this, they leave the IMF and create a new reserve asset.
USDJPY fixed to the USD at 200 as Japan overhauls financial systemFollowing the challenges that faced the Japanese Yen in 2022, the Bank of Japan attempts to keep the currency from sliding. Unsuccessful on the long-term, Japan will launch a reset of its entire financial system.
Tax haven ban kills private equityWith the war economy comes an increased focus on national interests and sovereign nations' ability to assert themselves. In that regard, the OECD countries turn their attention on tax havens and pull the big guns out, banning them altogether.