Quarterly Outlook
Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges
Althea Spinozzi
Head of Fixed Income Strategy
Summary: Mixed sentiment in equities after a bit softer macro figures scaling back the market's higher-for-longer narrative on policy rates. USD weakness and sharp selloff in crude oil in focus with bond yields headed lower.
Key points:
The Saxo Quick Take is a short, distilled opinion on financial markets with references to key news and events.
Equities: Sentiment is a bit mixed after the first day of trading this week. The biggest moves have been in Mexican and Indian equities following election results. Maersk hiked its profit guidance yesterday to FY24 underlying EBITDA of $7-9bn vs previously $4-6bn as elevated container freight rates are boosting profitability. Defence stocks in Europe continue to rally but there are signs that things are overheating, and our view is that investors should begin lowering their exposure on the back of these strong gains. Key earnings focus today is CrowdStrike reporting after the US market close.
FX: The US dollar plummeted lower at the start of the week as weakness in ISM manufacturing took Treasury yields lower. NZDUSD outperformed, breaking above 0.6150 to highest levels since March and looking to attempt a break of the 0.62 handle in early Asian trading hours. Japanese yen also got a sigh of relief, and USDJPY slipped all the way to test the 156 handle. Swiss franc in focus today as Swiss CPI is reported and SNB Jordan sounded concerned about weak franc last week. USDCHF slumped to break below 0.90 and was last seen around 0.8950, its lowest levels since the SNB rate cut on March 21. EURUSD rallied above 1.09 ahead of the expected ECB rate cut this week, and GBPUSD is above 1.28. CAD underperformed, as we noted in Monday’s macro and FX podcast, with USDCAD wobbling around 1.3620 ahead of the likely BOC rate cut on Wednesday. For more on our tactical G10 FX views, read the Weekly FX Chartbook.
Commodities: The Bloomberg Commodity Index Spot fell again yesterday erasing all the gains since late April. Brent crude is down 8.2% over the past four trading session trading around the $77.50/brl level with the OPEC+ production cuts on Sunday failing to maintain a floor under oil prices. Gold is range bound around the 2,350 level.
Fixed income: The ISM manufacturing softness and downside miss yesterday extended the gains in US government bonds pushing the 10-year yield down to 4.4% taking some steam out of the higher-for-longer narrative. After a strong rally since mid-May in the German 10-year yield the European benchmark yield has come lower over the past couple of trading sessions dipping below 2.6% yesterday. The ECB is still expected to deliver a rate cut on Thursday, but the market is already pricing in a pause until either the October or December for the next rate cut.
Technical Analysis Highlights: Top and reversal patterns still in play for US indices and need to be taken out to resume uptrend, however, S&P500 rebounded from 5,193. Nasdaq 100 rebounded from 18,16. DAX rebounded form 18,409. EURUSD closed above 1.0885 now likely move to 1.0980. GBPUSD above 1.28 potential to 1.29. USDJPY correction unfolding support at 155.47 and 154.09. EURJPY below 169 correction down to 167.50 likely. GBPJPY rejected at 200.65 likely correction down to 197.20. AUDUSD broken resist at 0.6650 upside potential to 0.6750. USDCHF broken below key support at 0.90, next support at 0.8880. EURCHF likely to test support at 0.9725. Gold closing above support at 2,326 after dipping to 2,314, rebound in the cards. Silver testing key support at 30 if closing below sell-off to 28.50 is likely. US 10-year T-yield testing 0.786 retracement at 4.3y, likely bounce
Volatility: The VIX continues its volatile trend, spiking to 14.31 before settling at $13.11 (+0.19 | +1.47%). Short-term volatility indices showed even more pronounced movements, with the VIX1D dropping below 10 (-0.22 | -2.16%) and the VIX9D rising to 13.91 (+2.23 | +19.09%), indicating that market volatility is expected to persist in the coming days. Today's economic news is light, with the JOLTs Job Openings being the only major release that could impact volatility. Notable earnings after the bell tonight include CrowdStrike (CRWD) and Hewlett Packard Enterprise (HPE). VIX futures are currently at $13.800 (+0.145 | +1.07%). S&P 500 and Nasdaq 100 futures reflect a relatively calm overnight session, at 5298.25 (+1.00 | +0.01%) and 18642.00 (-4.25 | -0.02%) respectively. Yesterday's top 10 most traded stock options, in order: Tesla, Nvidia, Apple, GameStop, AMC Entertainment, Advanced Micro Devices, Amazon, Meta Platforms, Dell, and Palantir Technologies.
Macro: US demand has started to show more and more cracks. Headline ISM manufacturing was in contraction for a second straight month, coming in at 48.7 in May from 49.2 previously and 49.5 expected. New Orders dropped to 45.4 from 49.1 while Employment sub-index returned to expansionary territory at 51.1 from 48.6 prior. Dovish news also came from the Prices Paid component which slipped to 57.0 from 60.9, coming in below expectations of 58.5. Focus today turns to JOLTS job openings which will signal whether the consumer pullback may extend further. China’s Caixin manufacturing PMI expanded to 51.7 in May from 51.4 previously. That was the fastest pace of growth since July 2022 and signals a mixed recovery in China after official PMIs indicated softness last week.
In the news: India’s Narendra Modi on course for election win (FT), UAE seeks ‘marriage’ with US over artificial intelligence deals (FT), ECB Rate-Cut Expectations Start to Unravel Before First Move (Bloomberg), BHP Faces a Test of Patience After $49 Billion Anglo Bid Falters (Bloomberg)
Macro events (times in GMT): Germany May unemployment change est. 7k vs 10k prior (07:55), US April JOLTS job openings est. 8,350k vs 8,488k prior (14:00), Japan April labour cash earnings est. 1.8% YoY vs 0.6% prior (23:30)
Earnings events: Quiet week ahead on earnings with the key earnings to watch being Crowdstrike, Lululemon, and Inditex. Given the strong pullback in Crowdstrike last week this earnings result will in particular be important for the whole cybersecurity industry. Analysts expect FY25 Q1 (ending 30 April) revenue growth of 31% YoY as demand remains very strong for cloud-based cybersecurity solutions.
For all macro, earnings, and dividend events check Saxo’s calendar
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