Wait and see mode in full swing ahead of a precipitous week

Wait and see mode in full swing ahead of a precipitous week

Equities 4 minutes to read

Summary:  Asia equities trade mixed in wait and see mode. This ahead of a precipitous week for risk assets, with all eyes on the Fed tonight and with the Nasdaq hanging on the precipice of Aprils rising trend bellwether tech earnings Thursday, set to form directional drivers into the weeks end. Although more broadly speaking, risk assets remain resilient in the face of unfolding political gridlock, expiring additional unemployment assistance Friday and data consistent with a plateauing recovery curve.


The ASX 200 kicked off with a show of strength in this morning’s trade, despite the weak lead from Wall Street.

The morning’s charge was led higher by financials as APRA (in stark contrast with the ECB yesterday) greenlit dividend payouts, at a reduced level, for Aussie banks this year. Investor’s clearly liked the news, but we would caution confusing juicy higher yields at the offset with earnings duration/capital growth alongside sustainable dividend growth and compounding. Over an extended time horizon, the effects of a deteriorating capital base and questionable dividend trajectory will detract from portfolio returns, relative to investments in stocks that may yield less on a dividend basis at the investment offset but have the ability to sustainably maintain dividend trajectories alongside stable capital growth opportunities and earnings quality.

However, with the closure of the Queensland’s border and incremental virus clusters cropping up in Sydney’s populous suburbs the show of strength fizzled off the mornings highs with energy and materials stocks leading lower as the index succumbed to the weak overnight lead.

Consumer Confidence Dropping Off

Caution overnight spurred by the reported congressional gridlock on the next round of fiscal stimulus in the US. This as the gap between the GOP and Democrats seemingly looks difficult to bridge before August recess, and the roll off of the enhanced unemployment benefits.

The Conference Board’s consumer confidence index fell to 92.6 from 98.3, below expectations for a print of 95.0 adding to the cautious mood. Although the Present Situation Index improved, the Expectations Index fell. With large declines in Michigan, Florida, Texas and California, clearly the resurgence of the virus playing into the drop. Confidence is a key recovery dynamic, and uncertainty about the future does not bode well for the fizzling recovery. Consumers need confidence to go and spend and consume in an environment where many have lost jobs or job insecurities are running high. With pullbacks in consumption creating negative feedback loops for businesses already struggling with the fallout of the COVID induced demand shock. Without confidence, consumption driven economies will struggle as recovery curves flatten.

With the enhanced unemployment benefits set to roll off, and at best be reduced once a deal on the next relief is reached, confidence is likely set to suffer another setback. With those directly affected by the lapse in unemployment support likely pulling back on their propensity to consume immediately.

The virus resurgence and deterioration in high frequency data, alongside recent hard data prints suggesting recovery curve is flattening, with unemployment remaining high guarantees downside risks remain in place for the US economy. The fragility of the recovery and the real economy outcomes, which remain vastly different to financial markets, will keep FOMC hawks well and truly caged and ensure Chairman Powell attempts to sound as dovish as possible, whilst probably offering up very little in the form of new information.

It is likely nothing ground-breaking is offered at tonight’s presser, other than the reiterations that the Fed will stay the course in providing assistance to the economy whatever the future costs or side effects. Expansionary policy is here to stay, and that forward guidance will be reiterated. Recent Fed speak has noted a commitment to keeping interest rates near zero until inflation reaches the 2% target level, or even exceeds it, implying that rates will be anchored near zero for some time to come. However, policy changes will likely be deferred until post the Monetary Policy Review.

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