Quarterly Outlook
Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges
Althea Spinozzi
Head of Fixed Income Strategy
Chief Investment Strategist
Summary: Stocks were choppy as the post-FOMC run was deflated, but dollar continued its slide with ECB and BOE proving to be relatively hawkish and staying away from talking about rate cuts at this stage. Semiconductor stocks jumped to fresh highs, while Adobe slid 7% on earnings disappointment. China data key ahead along with quad witching and earnings from Darden Restaurants.
The Saxo Quick Take is a short, distilled opinion on financial markets with references to key news and events.
US Equities: Stocks lost some of the post-FOMC momentum with Russell outperforming but S&P 500 was up a modest 0.3% while NASDAQ 100 was down 0.2%. Hot retail sales and a slip in jobless claims took out some of the air from Fed’s dovish stance. Adobe was down 7% following disappointing earnings, but semiconductor stocks jumped to an all-time high with Intel rising to fresh 52-week highs. Rivian was up 13% on AT&T deal and Occidental Petroleum jumped 3% on Buffett push.
Fixed income: Treasuries extended gains after the dovish FOMC a day before, although the pace weakened with relatively hawkish ECB and BOE, as well as hot US retail sales and lower jobless claims. 2yr yields ended down by ~4bps while 10yr yields slipped over 9bps. Today’s focus turns to flash PMIs which may serve as a test of the saft landing hopes.
China/HK Equities: While most of the Asian markets were higher on Thursday post-FOMC, CSI 300 still closed down by 0.5% with credit data showing a weaker-than-expected expansion in November and eyes turning to activity data due today which may show an improving headline due to base effects but underlying trends could continue to be a concern. HSI opened higher but lost momentum in the day, still closing in gains of 1%.
FX: The dollar extended its post-FOMC slump, which was aided by a relatively hawkish BOE and ECB pushing their currencies higher. EURUSD jumped higher to test 1.10 from sub-1.09 at Thursday’s open, and 76.4% fibo retracement level at 1.1080 is in focus. GBPUSD pierced through the 1.27 handle, and touched highs of near-1.28 with 1.2881 being in focus. USDNOK slid to 10.4471 on Norges Bank rate hike, while USDCHF saw only a modest gain to 0.8630-levels. AUDUSD rose to trade around the 0.67 handle while NZD rose to 0.6240. USDJPY was seen at lows of 140.97, and a break below 140 could open the doors to 137-138 levels.
Commodities: The sharply lower USD boosted the commodity sector. Crude oil prices rose over 3% with Fed pivot signalling demand outlook could get supported. The IEA hiked its 2024 world oil demand growth forecast by 120k BPD to 1.1mln BPD, albeit cutting its 2023 forecast by 90k BPD to 2.3mln BPD. Gold was steady around $2040 while Silver cleared the barrier at $24. Copper took a look above $3.90 but China activity data may be key test today.
Macro:
Macro events: Quad Witching, UK GfK (Dec), China Retail Sales (Nov), EZ/UK Flash PMIs (Dec), EZ Trade (Oct), US NY Fed Manufacturing (Dec)
Earnings: Darden Restaurants
In the news:
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