Summary: Treasuries unwound the post-NFP gains, helping the dollar to rise back modestly. Equities were mixed with Russell 2000 sinking 1.3% but broader indices closing higher. China sentiment remained upbeat and trade data today will be a key test. AUD also remains vulnerable to RBA decision, while earnings focus shifts to Uber.
The Saxo Quick Take is a short, distilled opinion on financial markets with references to key news and events.
US Equities: A rally in Treasury yields weighed on US stocks, especially smaller caps, with the Russell 2000 reversing and sinking 1.3%. The strength in mega-cap technology and pharmaceutical stocks helped the S&P500 and Nasdaq 100 to continue to extend gains, rising 0.2% to 4,366 and 0.4% to 15,155 respectively. Eli Lilly surged 4.8% as the drug maker’s chief scientific officer said he was ‘extremely optimistic’ about breakthroughs in its pipelines. On Tuesday, investors’ focus is likely to turn to Uber’s earnings announcement.
Fixed income: Treasuries sold off and unwound most of the post-nonfarm-payrolls gains last Friday, with the 10-year yield surging 7bps to 4.64%. The 2-year yield climbed 10bps, reaching 4.93%, bear-flattening the curve. The issuance of around $25 billion in corporate bonds on Monday, coupled with the upcoming $48 billion 3-year Treasury notes on Tuesday followed the 10-year and 30-year auctions on Wednesday and Thursday had investors cautious about taking up additional duration.
China/HK Equities: Hong Kong and China markets rallied for the third day in a row following the improvement of sentiment towards risk assets globally on the prospect of the Fed is done for hiking rates. Additionally, the Central Financial Work Conference held early last week refrained from mentioning “deleveraging” which had been the driving theme since 2017. On Monday, the Shenzhen State-owned Assets Supervision and Administration Commission of the State Council (Shenzhen SASAC) said that it had the resources to provide support to Vanke, a leading Chinese developer. Chinese brokerage stocks rose sharply after the CSRC planned to ease capital requirements for some assets of brokerage firms. EV, technology hardware, and internet names also outperformed. The Hang Seng Index gained 1.7% and the Hang Seng Tech Index surged 4.1%. The market sentiment has improved amid above-average turnover. The CSI300 added 1.4%.
FX: Choppy trading session but the dollar managed to move higher slightly, erasing some of the losses from Friday. Kiwi was the weakest currency, after it failed to pierce through the 0.60 handle and reversed lower to 0.5960. USDJPY moved back to 150 from lows of 149.21 seen on Friday as BOJ Governor Ueda reaffirmed dovish policy. AUDUSD back below 0.65 with stakes high for today’s RBA meeting. EURUSD still holding above 1.07 with services PMI unrevised. Chinese yuan stayed below 7.30 with PBOC’s strong fixings continuing to underpin.
Commodities: Supply concerns were back on the forefront as Saudi Arabia and Russia reaffirmed cuts until year-end. That helped crude oil prices start the week with some gains despite fading geopolitical risks. Meanwhile, the surge higher in Treasury yields again brought Gold lower, while Copper continued to rally further amid optimism on demand and more stimulus measures in China and the end of the Fed rate hike cycle.
Macro:
Macro events: RBA Policy Announcement exp 4.35% vs. 4.10% prior – read more in yesterday’s FX note, EIA STEO; China Trade Balance (Oct) exp $82bn vs. $77.83bn prior, US International Trade (Sep) exp -$59.8bn vs. -$58.3bn
Earnings: Uber, Gilead, UBS, Occidental
In the news:
BOJ chief sees increasing chance of achieving 2% inflation goal (Nikkei)
For all macro, earnings, and dividend events check Saxo’s calendar.
For a global look at markets – go to Inspiration.
Bond. Long Bond(s)
With real rates being too positive, we see three scenarios: Opportunity to lock in rates at cycle high, government overreach to keep the economy afloat or a complete reset of the economy.
Steen Jakobsen,
Chief Investment Officer
Is a bond bull market ahead? Inflation still poses a risk for investors, but the moment for increasing duration to your portfolio may be approaching towards the end of the year, when central banks might be forced to cut interest rates.
Althea Spinozzi,
Senior Fixed Income Strategist
The furious rate hike cycle has brought gains in the US dollar, but with stagflation risks in Europe and the UK and weakness in the Chinese economy, USD may have more room to run. But a strong dollar could also have repercussions for US growth, emerging markets and commodity prices.
Charu Chanana,
Market Strategist
With the cost of capital rising painfully, stagflation fears are back, illuminating the fragile state of the green transformation, while giving a tailwind to nuclear power, and threatening the growth of AI-related stocks.
Peter Garnry,
Head of Equity Strategy
With supply tightness not only in energy but all commodities, the momentum in commodity prices may continue, pressuring central banks to lower real rates. That could be a good setup for precious metals, including gold, silver and potentially platinum as well.
Ole S. Hansen,
Head of Commodity Strategy
As the pandemic showed, even the US Treasury can experience seismic shifts. With the government increasing the pace of issuing bonds to support fiscal spending, the complex Treasury market and regulatory constraints could spark a liquidity event.
Redmond Wong,
Market Strategist
The tide has turned for bonds. Given the current yields, bonds have become an attractive investment, with added benefits including lower risk than stocks, increased diversification and a steady stream of income unaffected by economic changes.
Peter Siks,
Investment Coach
Disclaimer
The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website. This content is not intended to and does not change or expand on the execution-only service. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.
Please read our disclaimers:
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
- Full disclaimer (https://www.home.saxo/en-gb/legal/disclaimer/saxo-disclaimer)
