Summary: The 10-year US Treasury yield hit a 15-year high at 4.53% as traders anticipated a robust economy and the Fed's "higher for longer" policy. Rising Treasury yields strengthened the dollar. EURUSD fell below 1.06 despite strong German Ifo data, while USDJPY approached 149, possibly prompting verbal intervention. The S&P 500 ended a 4-day losing streak with a 0.4% gain, driven by Amazon's 1.6% rise following its investment in AI startup Anthropic. The Hang Seng Index and CSI300 retreated due to China Evergrande's troubled restructuring efforts and a PBoC advisor's caution on limited monetary easing room in China.
The Saxo Quick Take is a short, distilled opinion on financial markets with references to key news and events.
US Equities: The S&P 500 ended a 4-day losing streak, rising 0.4% on Monday, while the Nasdaq added 0.5%. Among the mega-cap tech companies, Amazon led the way with a 1.6% gain after announcing plans to invest in Anthropic and collaborate on generative AI, an AI safety and research startup. Nvidia advanced 1.5%.
Fixed income: The 10-year yield surged by 10bps to 4.53%, reaching a new 15-year high. No major headlines triggered this movement. The selling concentrated on the long end, which bear-steepened the yield curve as traders continued to adjust positions in anticipation of a resilient economy and the “higher for longer” stance of the Fed.
China/HK Equities: The Hang Seng Index and CSI300 pulled back from the rally last Friday. The news over the weekend, stating that China Evergrande was unable to meet the regulatory qualifications for the issuance of new notes to replace old debts under the proposed restructuring of offshore debts, dragged down China property stocks. Comments from Liu Shijin, a member of the PBoC’s monetary policy committee that China should seek reform instead of depending on monetary easing or other macroeconomic measures also weighed on market sentiment. The Hang Seng Index plunged 1.8%, while the CSI300 shed 0.7%, closing near the day's lows.
FX: Higher Treasury yields, particularly at the long end, pushed the dollar higher to extend its gains. USDCHF rose to near 4-month highs of 0.9136 with immediate target at 0.9162 which is 0.382 retracement level. EURUSD broke below 1.06 support despite better-than-expected German Ifo. USDJPY attempted a move towards 149 but verbal intervention could get louder again. AUD slipped on China woes while NZD and CAD gained, and the outperformer was SEK with the Riksbank starting their FX hedging.
Commodities: Crude oil hovered near recent highs despite China woes clouding demand outlook but being offset by signs of improvement in the German economy and sustained resilience in the US, as well as the expectation of a Golden Week travel demand bump in China. There was also some relief in the supply situation with Russia making some changes in the fuel-export ban by excluding bunker fuel, gas oils, and some middle distillates from the list. Metals were hurt by China, higher yields, and the dollar, with iron ore down over 4% and Gold slipping below $1920.
Macro:
Macro events: US Consumer Confidence (Sep) exp 105.5 vs. prev 106.1 (due 2200 SGT), New Home Sales (Aug) exp 698k vs. prev 714k (due 2200 SGT) and Richmond Fed Manufacturing index (Sep) exp -7 vs. prev -7 (due 2200 SGT).
In the news:
Key company events:
For all macro, earnings, and dividend events check Saxo’s calendar.
For a global look at markets – go to Inspiration.
Bond. Long Bond(s)
With real rates being too positive, we see three scenarios: Opportunity to lock in rates at cycle high, government overreach to keep the economy afloat or a complete reset of the economy.
Steen Jakobsen,
Chief Investment Officer
Is a bond bull market ahead? Inflation still poses a risk for investors, but the moment for increasing duration to your portfolio may be approaching towards the end of the year, when central banks might be forced to cut interest rates.
Althea Spinozzi,
Senior Fixed Income Strategist
The furious rate hike cycle has brought gains in the US dollar, but with stagflation risks in Europe and the UK and weakness in the Chinese economy, USD may have more room to run. But a strong dollar could also have repercussions for US growth, emerging markets and commodity prices.
Charu Chanana,
Market Strategist
With the cost of capital rising painfully, stagflation fears are back, illuminating the fragile state of the green transformation, while giving a tailwind to nuclear power, and threatening the growth of AI-related stocks.
Peter Garnry,
Head of Equity Strategy
With supply tightness not only in energy but all commodities, the momentum in commodity prices may continue, pressuring central banks to lower real rates. That could be a good setup for precious metals, including gold, silver and potentially platinum as well.
Ole S. Hansen,
Head of Commodity Strategy
As the pandemic showed, even the US Treasury can experience seismic shifts. With the government increasing the pace of issuing bonds to support fiscal spending, the complex Treasury market and regulatory constraints could spark a liquidity event.
Redmond Wong,
Market Strategist
The tide has turned for bonds. Given the current yields, bonds have become an attractive investment, with added benefits including lower risk than stocks, increased diversification and a steady stream of income unaffected by economic changes.
Peter Siks,
Investment Coach
