Summary: Risk off mood gripped markets and some haven-buying was seen amid uncertainty over an Iran response. Oil prices jumped higher with Brent over $91/barrel, and USD, Japanese yen and Swiss franc also received a mild safety bid. Price action in Gold was more choppy after the recent run higher to $2,300. Fed commentary was incoherent with Kashkari calling for no rate cuts but Mester hinting at confidence in the start of the easing cycle, which squarely puts the focus on US jobs report today.
Saxo’s Q2 2024 Outlook titled “The wasted year” is now out. You can read it here.
The Saxo Quick Take is a short, distilled opinion on financial markets with references to key news and events.
Equities: Another round of comments from Fed officials, being cautious about easing prematurely, including Minneapolis Fed's Kashkari, a non-voting FOMC member this year, who mentioned the possibility of no rate cut at all if inflation moves sideways, weighed on the US equity market. The Nasdaq 100 plunged 1.6%, and the S&P 500 dropped by 1.2% in a broad-based decline. All 11 sectors of the S&P500 finished lower, led by the sharp fall in information technology, health care, and communication services. AMD plummeted 8.3%, making it one of the worst-performing stocks.
In Japan, the Nikkei 225 rebounded, gaining 0.8%, as investors turned their attention to the anticipated increases in dividends and stock buybacks by Japanese companies in the upcoming earnings reporting season. Meanwhile, the mainland China and Hong Kong markets were closed on Thursday for a public holiday, and the mainland bourses will continue to be closed today as the Hong Kong bourse resumes.
FX: Fed commentaries were incoherent rather than hawkish, and the markets were spooked more by geopolitical worries rather than a pushback on rate cut expectations. This saw a safety bid coming through in the dollar in the late US session, marking some reversal of recent gains in other currencies. GBPUSD reversed from highs of 1.2684 to trade around 1.2640, while EURUSD was back at 1.0840 from highs of 1.0877. Safety bid came through to yen and CHF as well. EURCHF saw sharp gains earlier in the session to 0.9840 on Swiss CPI coming in lower than expected, but pair dropped back below 0.9780 in the late US session. USDJPY was also lower, slipping below 151.40. Meanwhile, AUDUSD still ended the day higher supported by gains in commodities.
Commodities: Geopolitical risks have taken a leg up as talk of Iran retaliatory strikes against Israel began to grip the markets. Brent crude extended its recent rally, as a result, and currently trades above $91/barrel. Gold retreated from its recent record high on profit taking and after Fed speakers warned of higher rates for longer. Copper rallied to a 14-month high as further risks to supply emerged on the prospect of a global recovery in demand.
Fixed income: Despite another round of hawkish comments from Fed officials, the US Treasury market was resilient on Thursday, as the selling pressure that was mounting earlier in the week faded away. Rising geopolitical tension in the Middle East and the US job report scheduled to be released on Friday kept traders cautious about pushing yields higher. The 10-year yield fell by 4bps to 4.31%.
Macro:
Macro events: RBI Announcement, German Industrial Orders (Feb), EZ/UK Construction PMI (Mar), EZ Retail Sales (Feb), US Labour Market Report (Mar), Canadian Labour Market Report (Mar)
Earnings: Yaskawa Electric
In the news:
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2024: The wasted year
Markets are driven by election optimism, overshadowing growing debt and liquidity concerns. The 2024 elections loom large, but economic fundamentals and debt issues warrant cautious investment.
As US economic slowdown hints at a shift away from exceptionalism, USD faces downside with looming Fed cuts. AUD and NZD set to outperform as their rate cuts lag. JPY gains on carry unwind bets and BOJ pivot.
Amid AI and obesity drug excitement, equities see varied prospects: neutral on overvalued US stocks, negative on Japan due to JPY risks, positive on Europe. European defence stocks gain appeal.
With the economic slowdown, quality assets will gain favour, especially sovereign bonds up to 5 years. Central banks' potential rate cuts in Q2 suggest extending duration, despite policy and inflation concerns.
Commodities poised for rebound. The "Year of the Metal" boosts gold and silver, copper awaits rate cuts. Grains may recover, natural gas stabilises. Gold targets $2,300-$2,500/oz, copper's breakout could signal growth.
Markets are driven by election optimism, overshadowing growing debt and liquidity concerns. The 2024 elections loom large, but economic fundamentals and debt issues warrant cautious investment.
As US economic slowdown hints at a shift away from exceptionalism, USD faces downside with looming Fed cuts. AUD and NZD set to outperform as their rate cuts lag. JPY gains on carry unwind bets and BOJ pivot.
Amid AI and obesity drug excitement, equities see varied prospects: neutral on overvalued US stocks, negative on Japan due to JPY risks, positive on Europe. European defence stocks gain appeal.
With the economic slowdown, quality assets will gain favour, especially sovereign bonds up to 5 years. Central banks' potential rate cuts in Q2 suggest extending duration, despite policy and inflation concerns.
Commodities poised for rebound. The "Year of the Metal" boosts gold and silver, copper awaits rate cuts. Grains may recover, natural gas stabilises. Gold targets $2,300-$2,500/oz, copper's breakout could signal growth.
