Quarterly Outlook
Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges
Althea Spinozzi
Head of Fixed Income Strategy
Chief Investment Strategist
Summary: US stock futures have lifted higher as tech sentiment rebounded following stronger-than-expected earnings from Microsoft and Alphabet. This has reversed the pressure seen in Thursday’s session due to the sell-off in Meta and Q1 GDP bringing stagflation concerns back on table. Big focus today on Bank of Japan meeting with yen weakness accelerating, and the US March PCE data is also due later in the day. Earnings focus shifts to energy companies such as Exxon Mobil and Chevron.
The Saxo Quick Take is a short, distilled opinion on financial markets with references to key news and events.
Equities: Wall Street rebounded from its lows after Meta’s 15% pre-market decline led to a gap lower at the open, but still closed in the red. US GDP data brought stagflation concerns back to the table with growth weaker but prices higher, and focus turns to March PCE data out today. Markets have pushed out expectations of Fed rate cuts for 2024 with first full rate cut now only priced in for December. Meta eventually ended the day over 10% lower, and IBM was down 8% on weak first-quarter earnings. Caterpillar fell 7% after the heavy machinery manufacturer reported a mixed first quarter of 2024, with earnings surpassing analysts' expectations but revenue falling short.
Tech sentiment, however, rebounded after the close with a strong set of earnings from both Microsoft and Alphabet, and US equity futures are pointing higher. This could help Japan’s Nikkei 225 to rebound after over 2% decline yesterday, but Bank of Japan announcement in the day ahead will be key. HK stocks have outperformed global equities this week, and HSI has cleared a key level at 17,200 – the high from January – and closed right at the 200DMA.
FX: Choppy price action seen in the US dollar which rose to test the 106 handle as Q1 US GDP report garnered a hawkish reaction on the back of hot PCE print, but risk sentiment improved later in the session as equities recovered from the lows, pushing dollar lower. USDJPY saw some volatility as Jiji Press report suggested BOJ bond purchases may be pruned at the announcement today, but reaction was limited, and pair remains near record highs. We discussed the JPY weakness, intervention risks, and BOJ meeting in detail in this article. Cable was back above 1.25 and AUDUSD is choppy around 0.65. AUDJPY has cleared the psychological barrier at 101, while CNHJPY has also reached record highs of 21.45 prompting yuan devaluation concerns.
Commodities: Crude oil prices rose slightly, recovering from an earlier drop as US GDP data prompted stagflation concerns. Focus likely to stay on macro ahead of PCE release today, and further acceleration in prices could send jitters on demand prospects. Copper stayed hot, rising back to fresh highs, while price action in gold and silver was choppy as Fed’s rate cuts continue to be pushed out from 2024 market pricing.
Fixed income: While the weaker headline GDP growth for Q1 from the US prompted a spike higher in Treasuries, price action shifted as the report was digested and greater concern seen coming through from the sticky Q1 PCE print paving the way for risks of an upside surprise from the March PCE data due today. There was little reaction to the 7-year auction, and Treasury yields ended 6-7bps higher as Fed rate cut expectations for 2024 were shifted further out.
Macro:
Macro events: BoJ Announcement and Outlook Report, CBR Announcement, Japanese Tokyo CPI (Apr), US PCE (Mar)
Earnings: Chevron, Exxon Mobil, AbbVie, TotalEnergies
For all macro, earnings, and dividend events check Saxo’s calendar.
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