Market Strategist
Summary: Risk sentiment improved on Friday with Israel holding off on Gaza operation amid hostage talks, but equities were still under pressure as risks remained. Treasuries reversed from the post-Powell selloff and with 10-year yields getting rejected at 5%. Oil and gold eased from recent highs while dollar was a notch lower but USDJPY still spiked above 150 in thin Asia morning trade.
The Saxo Quick Take is a short, distilled opinion on financial markets with references to key news and events.
US Equities: Stocks were sold off on Friday with NASDAQ 100 down 1.5% and the S&P 500 down 1.3%, breaking below its 200DMA as VIX rose further to 21.71. Real estate led the declines for the week, down 4.6% followed by consumer discretionary down 4.5% and the only two sectors to close the week in gains were consumer staples and energy, both up 0.7%. Earnings focus will be front and centre this week with Big Tech (Microsoft, Alphabet, Meta, IBM, Amazon) reporting in addition to Coca-Cola, Visa, Mastercard, Ford and others.
Fixed income: Treasuries were higher into the weekend, reversing from post-Powell lows of last week and as traders rejected new yield highs. 10-year yields closed at 4.91% after getting close to 5% earlier in the week, while 2-year yields closed at 5.07%.
China/HK Equities: CSI300 ended Friday down 0.65%, erasing all gains seen in the reopening rally as property sector overhang continues. Selling in tech names also underpinned and focus turns to bank earnings this week. China’s Central Bank pumped a record stimulus into the banking system to keep short-term prime loan rates steady amid the recent credit woes.
FX: Currency volatility was subdued on Friday amid lack of key data and improvement in risk sentiment with Hamas releasing two US hostages. AUDUSD continues to test a hold of the 0.63 handle and Q3 CPI this week will be key, while USDJPY spiked above 150 in Asia morning’s low liquidity before quickly reversing. GBPUSD reversed from 1.21 support to reach back above 1.2160 while EURUSD still struggling to break above 1.06. EURCHF pushing above 0.945 and USDCHF above 0.08930 amid improved risk sentiment.
Commodities: Crude oil prices ended lower on Friday but recorded a second consecutive weekly gain as the risk of supply disruptions hangs over the market given the risks of widening of the Israel-Hamas conflict. But risk sentiment seems to be taking a breather for now, as Israel has delayed its ground invasion in Gaza amid hostage talks. Safe haven bid in Gold also retreated with XAUUSD back at 1970 after getting in close sight of $2000 on Friday. Copper still testing $3.55 support amid rising LME inventories.
Macro:
Macro events: Bank of Israel Announcement, EZ Consumer Confidence (Oct), US National Activity Index (Oct)
In the news:
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Bond. Long Bond(s)
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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.
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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,
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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,
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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,
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