Quarterly Outlook
Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges
Althea Spinozzi
Head of Fixed Income Strategy
Summary: Nasdaq 100 rallied 2% led by gains in Nvidia which launched new chips, although Dow lagged underpinned by a slide in Boeing. Treasury yields slipped amid a dip in US inflation expectations, and that resulted in a softer dollar with gains led by JPY. Oil unwound last week’s gains on demand concerns. Reports suggested that China is likely to cut RRR again, and that could bring HK stocks, AUD and metals in focus today in the Asian session.
The Saxo Quick Take is a short, distilled opinion on financial markets with references to key news and events.
US Equities: The Magnificent Seven stroke back on Monday with all of them gaining more than 1%, led by a 6.4% jump in Nvidia. Ahead of the CES 2024 consumer electronics show officially starting today, Nvidia announced three new graphics chips with extra components and enhanced AI features for PC users. Additionally, the AI chip giants said four Chinese EV manufacturers will use its technology in their auto-driving platforms. The Nasdaq 100 rose 2.1% and the S&P 500 added 1.4%. Boeing plummeted 8.1% after US regulators ordering the grounding of over 170 Boeing 737 Max 9 jets after the accident over the weekend.
Fixed income: Boosted by falls in inflation expectations for the year ahead through the 5-year horizon in a New York Fed survey of consumers, Treasuries rallied modestly with yields falling around 1bp across the yield curve. Additionally, Fed Governor Bowman has toned down her previously relatively hawkish stance, saying inflation could fall further without additional rate hikes. The 10-year yield finished 2bp lower at 4.03%.
China/HK Equities: The Hang Seng Index plunged by 1.9%, showing notable weaknesses in China Internet, EV, catering, and insurance stocks. The Hang Seng Tech Index plummeted by 3%. XPeng tumbled by 7.8% after analysts revised down the EV maker’s earnings and margin forecasts. The CSI 300 dropped by 1.3%. As investors sought explanations for the poor performance, some attributed it to a Reuters report claiming that the China Securities Regulatory Commission (CSRC) lifted a ban on mutual funds' net selling of stocks, as funds needed to raise money to address increasing redemptions.The news that a Beijing court announced last Friday that it had deemed Zhongzhi insolvent and had accepted an application for liquidation of the shadow banking financial group added to the negative sentiments
FX: The dollar index came under some pressure on Monday, and the DXY index tested 102 amid slowing consumer inflation expectations from the NY Fed survey. USDJPY pushed below 144 on softer Treasury yields but recovered later. EURUSD attempted gains but was rejected at 1.0980, the 23.6% fibo retracement level from the December high. GBPUSD however surged to highs of 1.2767, remaining just shy of Friday’s high at 1.2770 break of which is now needed to reaffirm a bullish bias. USDNOK rose to fresh high of 10.42 with the slump in oil prices weighing on NOK.
Commodities: Oil prices saw a sharp slide of 4% on WTI, unwinding last week’s gains, as Saudi’s price cuts fuelled the demand weakness concerns. This comes despite attacks on shipping in the Red Sea by Houthi rebels continuing, along with supply outages in Libya. EIA’s outlook report will be eyed today, along with any further expectations of China’s RRR cut. Gold however continued to slide despite softer yields, and the 50DMA as well as 38.2% fibo retracement levels coinciding at $2,012 will be in focus. Metals will be on watch today amid reports of China cutting RRR.
Macro:
Macro events: EIA STEO, German Industrial Output (Nov), US NFIB (Dec)
Earnings: Albertsons
In the news:
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