Quarterly Outlook
Macro Outlook: The US rate cut cycle has begun
Peter Garnry
Chief Investment Strategist
Summary: European and US equity futures are holding steady alongside Asian markets, following a minor decline on Wall Street yesterday. Investors are eagerly awaiting today’s US inflation report, which is expected to offer insights into the potential timing of the first US rate cut. Meanwhile, Bitcoin continues its upward surge, reaching a two-year high driven by robust demand stemming from the recent launch of ETFs. Snowflake slumped over 20% in after-hours trading due to the sudden departure of its CEO and a bleak product revenue forecast. Salesforce initially dropped on a gloomy full-year outlook but later recovered. Treasury markets remain stable after a slight uptick on Wednesday, while the dollar maintains a narrow trading range and gold tests resistance levels in anticipation of the inflation data.
The Saxo Quick Take is a short, distilled opinion on financial markets with references to key news and events.
Equities: Chinese equity futures are higher in today’s session with Hang Seng futures up 0.7% while US and European equity futures are flat in early trading hours. Earnings are no longer impacting the overall market sentiment and thus the next direction will come from a new change in macro figures. Snowflake and Salesforce reported earnings results after the US market close disappointing investors. Snowflake shares were down 20% on weaker than estimated product revenue outlook and the company announcing a new CEO. Salesforce shares were down 2%
FX: The dollar remains rangebound ahead of US PCE with the EURUSD stuck in a relatively tight range with support around 1.08 with Germany, France and Spain inflation on the radar today along with US PCE. The yen meanwhile strengthened to 149.70 after the BoJ signaled a rate hike is getting closer.
Commodities: Crude oil is heading for a second, albeit small monthly gain, supported by extended OPEC+ cuts and signs of near-term conditions continuing to tighten with time spreads widening further into backwardation. A bigger-than-expected weekly jump in US crude stocks helped erase earlier gains on Wednesday. Industrial metals trading mixed following the latest setback driven by signals the Chinese construction sector remains weak. Gold trades firm ahead of the US PCE release while cocoa’s recent parabolic rise, amid a big drop in supply from West Africa, show signs of pausing following yesterday’s 7% setback.
Fixed income: US Treasury ended yesterday's day higher ahead of the month-end indexes rebalancing nears. Front-term yields were down up to 5bps, resulting in a steeper yield curve. US GDP Q4 data saw a slight downgrade to +3.2% vs. 3.3%, the first estimate, remaining still well above trend. In the meantime, policymakers continue to push back on expectations of early and aggressive interest rate cuts, with Collins and Williams saying that they will begin cutting rates "later in the year." In Japan, industrial production slumped more than expected, but recent inflation prints show that price pressures are falling slower than expected, reinforcing expectations of monetary policy normalization. As a result, the 2-year Japanese government bond yield is up to 0.18%, the highest level since 2011. Today, the focus is on the PCE deflator, which markets expect the monthly figure to rebound. Overall, the recent bear flattening of the yield curve provides a good entry point to short-term US Treasuries. Still, the long part of the yield curve remains vulnerable to inflation and monetary policy expectations. On the occasion of Hungary clearing the path for Sweden’s Nato membership, we look at defense bonds here.
Macro: The 2nd estimate of US GDP was revised down to 3.2% from 3.3%, following a mixed report that saw consumer spending at 3% from 2.8% advance estimate and 2.7% expected, while GDP Price Index at 1.6% vs est. 1.5%. Core PCE Price Index at 2.1% vs est. 2%. The small downward revision in headline growth is less of a concern given mixed details and doesn’t change market’s current thinking about the US economy. Fed members continued to warrant caution despite calling for 2024 rate cuts. Bostic (voter) reiterated that he expects the first cut in the summer. Collins (non-voter) suggested the path may be less rapid than past cycles. Williams (voter) said there’s still “a ways to go” to get inflation back to target.
Volatility: Yesterday, the VIX rebounded to $13.84 (+0.41 | +3.05%), finding support at its 50-day moving average, signaling a resurgence in market volatility. The VVIX and SKEW indices followed suit, increasing to 80.36 (+1.82 | +2.32%) and 149.09 (+1.80 | +1.22%) respectively, reflecting concerns over potential market shifts. Today's volatility may escalate with the release of economic data, including the Core PCE Price Index, Initial Jobless Claims, and Chicago PMI. In the earnings arena, Snowflake's after-hours tumble (-20.27%) due to disappointing Q1 forecasts could exert pressure on the broader tech sector. Similarly, Salesforce.com's reported annual revenue fell short of expectations, citing weak cloud demand, potentially influencing market sentiment. VIX futures saw a minor adjustment to 14.200 (-0.025 | -0.16%), with S&P 500 and Nasdaq 100 futures remaining virtually unchanged, indicating a market in contemplation mode. Wednesday's most active stock options were, in order: TSLA, NVDA, AAPL, MARA, BAC, AMZN, GOOGL, COIN, BYND, and AMC, showing some unexpected names making the top 10.
In the news: US Congress leaders reach deal on FY24 spending bills, averting government shutdown (Reuters), Biden’s Doctor Declares Him ‘Fit for Duty’ (WSJ), Supreme Court stalls Trump’s federal election trial while weighing his immunity bid (Politico), Elon Musk Says Long-Delayed Tesla Roadster Coming Next Year (WSJ), The Fed Governor Who Proved Larry Summers Wrong (WSJ)
Macro events (all times are GMT): Germany unemployment change (Feb), exp 5k vs –2k prior (0755), UK mortgage approvals (Jan) exp 52k vs 50.5k prior (0830), Germany EU harmonized CPI (Feb) exp. 0.6% & 2.7% vs –0.2% & 3.1% prior (1200), US personal income and spending (Jan) exp 0.4% & 0.2% vs 0.3% & 0.7% prior (1230), US Core PCE Deflator (Jan) exp 0.4% & 2.8% vs 0.2% & 2.9% prior (1230), EIAs weekly natural gas storage change (1430)
Earnings events: Key earnings releases for the rest of the week are highlighted below. Anheuser-Busch InBev reported yesterday, reporting results slightly below expectations.
For all macro, earnings, and dividend events check Saxo’s calendar
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