Quarterly Outlook
Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges
Althea Spinozzi
Head of Fixed Income Strategy
Chief Investment Strategist
Summary: US stocks extended their recovery from last week’s slump and Tesla’s earnings announcement was better-than-feared with focus back on affordable EVs. US PMIs also came in soft in contrast to a broader recovery in UK and Eurozone PMIs. Dollar sold-off, and GBP outperformed even as JPY remains close to multi-year lows. Earnings remain in focus with Meta coming up today, along with Boeing, Ford and IBM.
The Saxo Quick Take is a short, distilled opinion on financial markets with references to key news and events.
Equities: US stock futures were higher after the S&P 500 and NASDAQ 100 closed higher for a second straight day. Tesla reported earnings after-hours and missed expectations on both revenues and earnings, but the company announced a renewed push into more affordable EV models and that pushed the stock higher by over 10%. Texas Instruments also rose over 7% after-market on positive earnings, and Visa added over 3% as its Q1 earnings beat expectations. Spotify hit a record quarterly profit and stock was up 11.5%.
Notably, Apple closed 0.5% higher despite reports signaling a fall of 10% in China iPhone sales in Q1. Facebook owner Meta will report earnings today, followed by tech giants Microsoft and google-parent Alphabet on Thursday.
Asia markets are poised to get a positive start after the Wall Street closed higher and Tesla earnings announcement were better than feared. A weaker USD on the back of a miss in US PMIs could also underpin. Japan’s Nikkei 225 opened about 1% higher, and HK stocks were up by 1.9% on Tuesday on China’s pledge to boost HK’s financial hub status.
FX: Weak US PMIs were a contrast to the improving European PMIs, questioning how long the US exceptionalism will continue just as we highlighted in our Q2 FX outlook. Dollar slumped with the DXY index back below 106, boosting all of the other G10 currencies. GBPUSD rushed back above 1.24 as BOE speaker Haskel was hawkish. However, comments from BOE Chief Economist seemed to make room for a rate cut in the summer, and we continue to be on the lookout for market pricing of the BOE rate cuts to shift dovish, suggesting GBP downside. AUDUSD testing a break above 0.6490 but Australia’s Q1 CPI is up next and could show a sharp disinflation trend, questioning the market pricing of RBA rate cuts to not begin until the end of the year. EURUSD marched above 1.07 but the break appeared fragile, while USDJPY is still above 154.75 even as comments from authorities are hinting towards a clear intent to intervene.
Commodities: Crude oil prices were marginally higher as pricing in geopolitical risk premium remains a challenge for oil traders. The API crude inventories declined by 3.2 million barrels last week and focus will be on the EIA numbers. Meanwhile, Iran sanctions are also in focus. Copper was down 1% after hitting two-year highs while iron ore slipped close to 3%. Gold bounced back higher from the $2,300 handle as a sharp overdue correction unfolds, while Silver stayed above $26.50. Read our Commodity Strategist, Ole Hansen’s, thoughts on gold and silver correction in this article.
Fixed income: The US PMI numbers stoked labor market concerns, helping Treasuries to inch higher. 2-year yields were up by 4bps, although 10-year remains pinned near 0.8% ahead of the Quarterly Refunding announcement next week. The 5s and 7s auctions are due on Wednesday and Thursday, respectively.
Macro:
Macro events: Australian CPI (Mar), German Ifo Survey (Apr), US Durable Goods (Mar), Canadian Retail Sales (Feb). Speakers: ECB’s Cipollone; Schnabel
Earnings: Meta, IBM, ServiceNow, Thermo Fisher Scientific, DSV, Kone, Orange, Eni, Boeing, Ford, Hasbro
In the news:
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