Summary: The surge in yields, dollar and oil continued to take a toll on sentiment, but equities managed to close in green after wobbling in the day. More hawkish comments were seen from Fed member Kashkari, and focus from here turns to US PCE and shutdown risks. China and HK stocks remained supported even as Evergrande concerns sustained, and USDJPY is now even closer to 150 with intervention threat looming.
The Saxo Quick Take is a short, distilled opinion on financial markets with references to key news and events.
US Equities: The S&P500 ended nearly flat while the Nasdaq 100 edged up 0.2%. The jump of crude oil price to its 1-year high helped energy stocks finish higher while utilities and real estate names declined. In the extended-hour trading, Micron plummeted 4.1% after guiding a larger-than-expected loss for the current quarter ending November 2023.
Fixed income: Treasuries continued to sell off, with the 10-year yield surging by 7bps to a new high of 4.61% since 2007. An unexpected increase in durable goods orders set a weak tone for Treasuries at the start of the day and the rise in crude oil price weighed on sentiments further. The demand for the USD49 billon 5-year auction was robust.
China/HK Equities: The Hang Seng Index and CSI300 gained 0.8% and 0.2% respectively after China released a 17.2% Y/Y increase in industrial profits in August and a dovish-leaning statement from the PBoC’s Q3 Monetary Policy Committee meeting. Healthcare and renewable stocks led the rally while internet and EV stocks underperformed.
FX: Further yield-driven gains brought the dollar to fresh YTD highs although higher oil prices helped NOK and CAD. Weakest on the G-10 FX board was AUD despite a higher inflation print yesterday boosting RBA’s rate hike bets and support of authorities for the yuan. AUDUSD dipped below 0.6340 and NZDUSD tested the 0.59 handle. EURUSD broke below 1.05 to lows of 1.0488 before recovering to just above the handle, while GBPUSD took a look below 1.2120. USDJPY getting even closer to 150 and intervention threat remains.
Commodities: Crude oil prices got another push from shrinking inventory data, and fresh new YTD highs were seen with WTI close to $94 and Brent in sight of $97. Inventories at Cushing Oklahoma – the biggest crude hub in the US – dropped just below 22 million barrels, close to operational minimums and lowest since the seasonal lows of 2014. Gold slipped below $1900 and the $1885 support to print fresh lows since March.
Macro:
Macro events: German HICP Prelim. (Sep) exp 4.5% y/y vs. 6.4% prior (2000 SGT), US Q2 GDP (T) exp 2.2% q/q ann vs. 2.1% prior, US jobless claims (Sep 23) exp 215k vs. 201k prior.
In the news:
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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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