Head of FX Strategy
Summary: Big tech was sold-off in the after-hours with Meta earnings disappointing with a downbeat outlook. Meanwhile, dollar strength prevailed and focus turns to US Q1 GDP data today where a strong print can once again question the need for Fed rate cuts this year. JPY weakened to fresh record lows amid lack of intervention, and China’s response to fresh highs in CNHJPY on watch. Microsoft and Alphabet report earnings post-market today.
The Saxo Quick Take is a short, distilled opinion on financial markets with references to key news and events.
Equities: US equities eked out small gains as Tesla jumped 12% after its earnings announcement the day before where it said that the EV-maker was accelerating the launch of new and more affordable EV models. Read this article for our take on what investors should look out for in Tesla. However, futures are in red at the Asia open with NASDAQ 100 futures down over 1% as Meta earnings after-hours disappointed with weaker-than-expected outlook and stock slumped 15%. Other tech peers such as Microsoft and Alphabet were also lower in post-market, and both of these are next in the earnings line with their Q1 results due today after-market.
Weak tech sentiment is likely to spill over to Asia, and Nikkei shares could threaten a move back below the key 38k level after it closed 2.4% higher yesterday. Momentum in Hong Kong’s HSI also continued to build yesterday as it jumped to five-month highs on valuation discount and China’s pledge to support the status of HK as a financial hub.
FX: The dollar was modestly higher on the back of higher yields, but not enough for the DXY index to break above the 106 mark as attention turns to US preliminary GDP for Q1 and initial claims data today. Strong labor market, with payrolls at 303k in March, along with a pickup in the manufacturing cycle and a still-strong consumer suggest the US GDP could surprise to the upside, which is likely to boost the dollar and put the activity currencies (AUD, NZD, GBP) on the backfoot. USDJPY is also a big focus, having breached the key 155 level to fresh 34-year highs of 155.37 overnight but an intervention at this stage may be futile with US GDP next and QRA next week likely pushing Treasury yields higher. AUDUSD made a round-trip to 0.6530 highs as 200DMA provided resistance following a higher-than-expected Q1 CPI yesterday. AUDJPY rose to record highs but psychological resistance at 101 offered resistance. USDCNH continued its ascent as well and rose to 7.2735 with CNHJPY at record highs at 21.37 and response from Chinese authorities will be on watch today.
Commodities: Crude oil prices saw modest losses with Brent around $88 and WTI below $83/barrel, despite US inventories showing a decline of 6 million barrels last week. Markets could be in a risk off mood today if US GDP further weakens the conviction on Fed rate cuts, and this could be a headwind for commodities. Gold has been range-bound around $2,320 and support at $2,300 remains in focus, while support for Silver is seen at $26.50. Copper was also back in gains, up 0.6% but still below the 2-year highs seen earlier this week.
Fixed income: US 10-year yields rose 4bps to 4.64%, but losses in European bonds were more pronounced with UK yields up over 9bps and German yields up close to 9bps following upbeat German Ifo. Focus today on US GDP and any hit to equity sentiment that can drive haven demand.
Macro:
Macro events: US GDP/PCE (Q1), Initial Jobless Claims, German GfK Consumer Sentiment (May). Speakers: ECB’s Schnabel
Earnings: Kweichow Moutai, Airbus, AstraZeneca, Caterpillar, Union Pacific, Microsoft, Alphabet, T-Mobile, Intel, Merck & Co, Comcast, Nestle, Sanofi, BNP Paribas, Dassault Systemes, STMicroelectronics, BASF, Deutsche Bank, Keyence
In the news:
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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.
