Quarterly Outlook
Macro Outlook: The US rate cut cycle has begun
Peter Garnry
Chief Investment Strategist
Summary: Mixed trading day with equities down while bonds rose in a risk-off after Fed members and Beige Book sent dovish hints but US Q3 GDP was revised higher. Hang Seng broke the key 17000 level as Meituan dropped 12%. USD slid to new lows but then found a floor and reversed higher as AUD plummeted on cooler Aussie CPI. German and Spain inflation prints were also softer than expectations, which builds hope for a cooling in Eurozone inflation today. OPEC+ meeting announcement on watch, China PMIs, US PCE and jobless claims also due.
The Saxo Quick Take is a short, distilled opinion on financial markets with references to key news and events.
US Equities: The S&P500 and Nasdaq 100 finished modestly lower, falling by 0.1% and 0.2% respectively. Foot Locker soared 16.1% after the athletic footwear retailer reported strong Q3 results and Q4 guidance. General Motors jumped 9.3% after the automaker said it was raising dividends and unveiled a 10 billion share buyback plan. Salesforce gained nearly 9% in the extended hours on an upbeat outlook, surpassing analysts' expectations.
Fixed income: Treasuries extended their rally, with the 2-year yield falling 9bps to 4.65% and the 10-year yield sliding 7bps to 4.26%. The rally kicked off following softer prints in Australia and Germany CPIs. A downward revision to the Q3 PCE, a Beige Book which showed a slower economy and inflation in November, and dovish comments from Fed officials also added fuel to the positive sentiment towards Treasuries. Investors’ attention will be on the PCE and jobless claims data today and Fed Powell’s speaking on Friday.
China/HK Equities: Hong Kong stocks retreated for the fourth consecutive day, with the Hang Seng Index plummeting 2.1%, driven by declines in the internet, consumer, and property sectors. Meituan dropped by 12.2% after reporting in-line results but providing a more conservative revenue growth outlook for Q4, along with lower average order values and reduced in-store margins. In mainland bourses, the CSI300 declined by 0.9%, primarily due to decreases in the property, auto, new energy, and non-bank financial sectors. Investors are closely watching the release of China’s PMI data scheduled for Thursday.
FX: The dollar found a floor after dipping lower again in the early Asian lows on Wednesday on the back of Waller’s comments and a sharp spike in NZD following RBNZ’s hawkish hold. NZDUSD rallied to 0.62 before reversing later to settle around 0.6160. Softer than expected Aussie CPI pushed AUD to be the underperformer, as AUDUSD reversed to 0.66 from earlier highs of 0.6676. EURUSD also gave up the 1.10 handle after softer inflation prints in Germany and Spain and today’s regionwide CPI will be the next big test along with US PCE. GBPUSD stuck around 1.27 as Bailey said it is too early to talk about rate cuts. USDJPY testing a break of 147 after 10-year Treasury yields broke key support yesterday.
Commodities: Crude oil turns its eyes to OPEC decision due today where deeper production cuts are expected. Dovish repricing of the Fed also eased demand concerns, but weekly EIA data showed a surprise crude build. Copper briefly touched a 10-week high as mine closures brought supply risks back into focus. Gold extended its Santa rally on lower yields, although a recovery in dollar offset. We continue to caution for a consolidation here as cost of carry remains high, but gold remains on track for further gains in December and into 2024.
Macro:
Macro events: Australia Building Approvals, China PMI, Eurozone CPI and Unemployment Rate, US PCE Price Index, US Jobless Claims, Canada GDP, OPEC+ Meeting, Fed’s Williams, ECB’s Lagarde
Earnings: RBC, Toronto Dominion Bank, Dell, Marvell, Kroger, CSPC Pharmaceutical,
In the news:
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