Upcoming catalysts

Upcoming catalysts

Equities 5 minutes to read

Overnight, US equities traded in the green, US treasuries sold off, and the dollar paused its decline climbing throughout the session. Closing in on month-end with both the UK and US out on Monday’s trade, expect some noise positioning wise as month-end rebalancing flows wash out. In today’s session Asia stocks have traded mixed with US futures in the red for most of the days trade.

Fed officials continue to spruik transitory price pressures, downplaying inflation concerns. Even as continued signs that this narrative may be false continue to crop up in the real world, with Dick’s Sporting Goods joining the growing list of companies pointing to lasting elevated cost pressures. With input costs rising and demand bouncing back it is reasonable to expect the pass through of price pressures to be relatively sticky.

Break-even inflation rates have declined from recent cycle highs as the market, for now, tentatively buys into the Fed’s AIT and transitory messaging. The retreat in break-evens putting a bid under long duration, secular growth, tech exposures, and growth outperforming value in terms of factor exposure. Month to date however cyclicality has clearly outperformed once again, with energy, materials and financials leading from a sector perspective.

We view this as a consolidation of reflationary cyclical exposures, a retracement in a trend that remains intact and continue to position for another leg higher in the reflation trade. Although the caveat here – this may well be the last innings and the easy gains have been made, with the trade ongoing since November.

There are several catalysts on the horizon that could jump start the reflation rotation once again. Personal Consumption Expenditures, a Fed favorite inflation gauge, are due this week, but the bigger catalyst comes in the form of next Fridays US labour market data, which could well spur the next leg higher in US yields which look oversold at present.

We continue to expect higher yields, last month’s miss on the jobs report unlikely to be repeated. Statisticians/forecasters typically cluster around the mean – last month’s big miss sets up for beat this month in conjunction with an ongoing recovery in the labour market. Several states will end the additional $300/week enhanced unemployment benefits early, school reopening’s continue also promoting increased return to work. Hyatt Hotels says they have 3500 positions open and are having “significant issues getting people back to work”, with their CEO highlighting that in states who suspended the enhanced unemployment checks, they have seen an increase in the number of applicants.

With yields potentially set the break higher and curves steepening, with further economic strength filtering through as the labour market recovers, the reflation trade should have room to run, supporting value/cyclicality/economic sensitivity/reflation orientated sub sectors of risk assets. In tandem exerting pressure on long duration exposures. Volatility has also retraced significantly, with the VIX collapsing 37.08% in the last 10 days, indicating that risk asset buoyancy and the cyclical rotation likely has further to run as positioning is grossed up with both volatility and the dollar declining.

Looking further ahead though, investors should have an impending pivot from the Fed on their radars, potentially following in the footsteps from recent more hawkish signals from the BoC and RBNZ. The Jackson Hole meet in August could well serve as a signalling forum with the potential for the Fed to flag an impending policy shift, with pressure growing to withdraw accommodation as the economy recovers and inflation pressures gather steam. As focus shifts to the impact of higher inflation and scaling back QE a different market regime may ensue, with rising inflation and taper talk becoming a catalyst for increased volatility.

Quarterly Outlook

01 /

  • Equity outlook: The high cost of global fragmentation for US portfolios

    Quarterly Outlook

    Equity outlook: The high cost of global fragmentation for US portfolios

    Charu Chanana

    Chief Investment Strategist

  • Commodity Outlook: Commodities rally despite global uncertainty

    Quarterly Outlook

    Commodity Outlook: Commodities rally despite global uncertainty

    Ole Hansen

    Head of Commodity Strategy

  • Upending the global order at blinding speed

    Quarterly Outlook

    Upending the global order at blinding speed

    John J. Hardy

    Global Head of Macro Strategy

    We are witnessing a once-in-a-lifetime shredding of the global order. As the new order takes shape, ...
  • Asset allocation outlook: From Magnificent 7 to Magnificent 2,645—diversification matters, now more than ever

    Quarterly Outlook

    Asset allocation outlook: From Magnificent 7 to Magnificent 2,645—diversification matters, now more than ever

    Jacob Falkencrone

    Global Head of Investment Strategy

  • Macro outlook: Trump 2.0: Can the US have its cake and eat it, too?

    Quarterly Outlook

    Macro outlook: Trump 2.0: Can the US have its cake and eat it, too?

    John J. Hardy

    Global Head of Macro Strategy

  • Equity Outlook: The ride just got rougher

    Quarterly Outlook

    Equity Outlook: The ride just got rougher

    Charu Chanana

    Chief Investment Strategist

  • China Outlook: The choice between retaliation or de-escalation

    Quarterly Outlook

    China Outlook: The choice between retaliation or de-escalation

    Charu Chanana

    Chief Investment Strategist

  • Commodity Outlook: A bumpy road ahead calls for diversification

    Quarterly Outlook

    Commodity Outlook: A bumpy road ahead calls for diversification

    Ole Hansen

    Head of Commodity Strategy

  • FX outlook: Tariffs drive USD strength, until...?

    Quarterly Outlook

    FX outlook: Tariffs drive USD strength, until...?

    John J. Hardy

    Global Head of Macro Strategy

  • Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges

    Quarterly Outlook

    Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges

    Althea Spinozzi

    Head of Fixed Income Strategy

None of the information provided on this website constitutes an offer, solicitation, or endorsement to buy or sell any financial instrument, nor is it financial, investment, or trading advice. Saxo Capital Markets UK Ltd. (Saxo) and the Saxo Bank Group provides execution-only services, with all trades and investments based on self-directed decisions. Analysis, research, and educational content is for informational purposes only and should not be considered advice nor a recommendation. Access and use of this website is subject to: (i) the Terms of Use; (ii) the full Disclaimer; (iii) the Risk Warning; and (iv) any other notice or terms applying to Saxo’s news and research.

Saxo’s content may reflect the personal views of the author, which are subject to change without notice. Mentions of specific financial products are for illustrative purposes only and may serve to clarify financial literacy topics. Content classified as investment research is marketing material and does not meet legal requirements for independent research.

Before making any investment decisions, you should assess your own financial situation, needs, and objectives, and consider seeking independent professional advice. Saxo does not guarantee the accuracy or completeness of any information provided and assumes no liability for any errors, omissions, losses, or damages resulting from the use of this information.

Please refer to our full disclaimer for more details.

Saxo
40 Bank Street, 26th floor
E14 5DA
London
United Kingdom

Contact Saxo

Select region

United Kingdom
United Kingdom

Trade Responsibly
All trading carries risk. To help you understand the risks involved we have put together a series of Key Information Documents (KIDs) highlighting the risks and rewards related to each product. Read more
Additional Key Information Documents are available in our trading platform.

Saxo is a registered Trading Name of Saxo Capital Markets UK Ltd (‘Saxo’). Saxo is authorised and regulated by the Financial Conduct Authority, Firm Reference Number 551422. Registered address: 26th Floor, 40 Bank Street, Canary Wharf, London E14 5DA. Company number 7413871. Registered in England & Wales.

This website, including the information and materials contained in it, are not directed at, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in the United States, Belgium or any other jurisdiction where such distribution, publication, availability or use would be contrary to applicable law or regulation.

It is important that you understand that with investments, your capital is at risk. Past performance is not a guide to future performance. It is your responsibility to ensure that you make an informed decision about whether or not to invest with us. If you are still unsure if investing is right for you, please seek independent advice. Saxo assumes no liability for any loss sustained from trading in accordance with a recommendation.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the U.S. and other countries. App Store is a service mark of Apple Inc. Android is a trademark of Google Inc.

©   since 1992