Quarterly Outlook
Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges
Althea Spinozzi
Head of Fixed Income Strategy
Chief Investment Strategist
Key points:
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The Saxo Quick Take is a short, distilled opinion on financial markets with references to key news and events.
Equities: After a dull overnight session where US equity indices struggled to find a direction, US index futures pointed slightly lower. Macro and earnings catalysts are starting to thin out, and focus remains on Fed speakers. Uber fell more than 5% as it posted a surprise quarterly loss. Reddit, however, gained 4% on earnings upside. After-hours, chip designer ARM fell nearly 10% as its annual revenue guidance largely disappointed investors. ARM’s report is sending ripple effects to other chipmaker stocks such as Nvidia and AMD as well in the post-market session.
Meanwhile, European equities extended their recent gains, with EuroStoxx 600 and UK’s FTSE 100 again reaching fresh highs. Japan’s Nikkei 225 opened in green, but chip stock shivers and BOJ’s tightening hints could cap gains. China and HK stocks are also in correction after the recent run higher, and China’s trade data will be on watch today.
FX: Some more strengthening seen in the US dollar as equity momentum faded and Fed speakers maintained their narrative on inflation concerns. JPY was back on the radar as it weakened again, partially erasing the intervention-driven gains from last week. USDJPY is now back above 155.55 and verbal jawboning from authorities continued. Worth noting that comments from BOJ have started to tilt towards hinting at the next rate hike, and BOJ summary of opinions released this morning also talked about deepening talks on rate hike timing. USDSEK rose on Sweden’s interest rate cut, and GBPUSD will be in focus today after it slipped below 1.25. Watch for a dovish tilt in BOE’s vote split, that could prompt the markets to take up the pricing of a June rate cut, and create downside pressures on GBP. GBPAUD could slip towards 1.89 and EURGBP could rise to 0.8650 in such a scenario. AUDUSD has slipped below 0.66 on dollar strength and AUDNZD is back below 1.0960.
Commodities: Crude oil prices rose as US inventories signalled a tight physical market with crude stockpiles declining by 1.36 million barrels last week. Moreover, The Biden administration raised the price it is willing to pay to refill the country’s depleted strategic oil reserve. The Energy Department said it will pay as much as $79.99/bbl, up from an informal cap of $79/bbl. Read this article to get our latest views on crude. Hawkish Fed comments and stronger dollar continued to weigh on metals, while grains also retreated after recent gains on weather-related concerns.
Fixed income: The demand at the 10-year auction was underwhelming, suggesting that investors are demanding a higher yield to hold duration. Gilts in focus today as BOE decision is due and risk of a dovish tilt in vote split remains. JGB yields also key with BOJ hinting at a possible June rate hike.
Macro:
Macro events: BoE Announcement & May MPR, US jobless claims, China Trade Balance (Apr). Speakers: BoE’s Bailey, Pill; ECB’s Cipollone; ECB’s de Guindos; Fed's Daly.
Earnings: Enel, SoftBank, Brookfield, 3i Group
News:
For all macro, earnings, and dividend events check Saxo’s calendar.
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