Summary: Equities slid over 1% in the US despite lack of macro catalysts as focus remained on geopolitics and earnings. Biden’s visit to Israel did not put an end to risks of widening of Israel conflict. Treasury 10-year yields reached new highs, and dollar pushed higher as well. China’s data showed signs of a recovery, but markets could not hold up gains. Earnings were also a mixed bag, with Tesla missing estimates but Netflix and P&G delivering a beat. Chair Powell will be on the wires today.
The Saxo Quick Take is a short, distilled opinion on financial markets with references to key news and events.
US Equities: The S&P 500 fell 1.3% and the Nasdaq 100 declined 1.4% as Treasury yields continued to surge. The heightened geopolitical tension in the Middle East and the declines in the share prices of Tesla ahead of earnings also weighed on the indices.
Fixed income: The 10-year Treasury yield rose 8bps to finish the session at 4.91%, reaching a new high since 2007 while the 2-year yield ended 1bp higher at 5.22%. The rise in US yields started early in the day following the post-UK inflation data selloff in Gilts. The 20-year Treasury bond auction results showed decent demand investor demand. It briefly halted the selloff before yields climbed again to close near day highs.
China/HK Equities: The stronger-than-expected Chinese economic data failed to excite investors who were instead troubled by the tightening of US export restrictions on advanced AI chips, including Nvidia’s A800, H800 and L40S, and semiconductor manufacturing items to China. Additionally, market sentiment worsened on Country Garden’s first default as the second-largest Chinese developer failed to pay interest on a USD bond as the grace period lapsed. Country Garden said in a statement that it “is incapable of meeting all the repayment obligations of its external debt items in time”. Technology names sold off, seeing the Hang Seng Tech Index falling 1.7%, underperforming the Hang Seng Index’s modest decline of 0.2%. The CSI300 lost 0.8%, driven by weakness in TMT stocks.
FX: DXY was stronger overnight, but the strength is failing to reflect the strong gains in Treasury yields with 10-year yields at new highs of over 4.9%. Chair Powell’s comments today will be key to assess whether he follows other board members’ views on financial tightening or stays neutral on geopolitical concerns. AUDUSD reversed from highs of 0.6393 printed after China’s data beat as risk sentiment remained weak and jobs data today will be on watch. Other activity currencies also fell, NOK and CAD both falling despite higher oil prices. AUDNZD broke above 1.08 but still far from 1.10 to confirm an uptrend. GBPUSD wobbled but ended lower around 1.2140 amid BOE dovish repricing risks.
Commodities: Oil jumped higher again on Wednesday amid geopolitical concerns ramping up following the hospital bombing in Gaza and official inventory data showing largest US hub stocks at 9-year lows. Recovery in China’s economic data also supported crude prices. Risk remains with Iran also announcing an oil embargo against Israel which continues to threaten escalations. Copper held up the $3.55 support while Gold rose to fresh three-month highs amid safe-haven buying despite the surge in Treasury yields.
Macro:
Earnings:
Macro events: Australian Jobs Report (Sep) exp 20k vs. 64.9k prior, US Philly Fed (Oct), Canada PPI (Sep)
Earnings events: TSMC, CATL, Nestle, Roche, L’Oreal
In the news:
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
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