Quarterly Outlook
Macro Outlook: The US rate cut cycle has begun
Peter Garnry
Chief Investment Strategist
The Saxo Quick Take is a short, distilled opinion on financial markets with references to key news and events.
Equities: Most equity futures are headed lower this morning led by Nikkei (-1.1%), Hang Seng (-1.1%), FTSE 100 (-0.4%) and Nasdaq 100 (-0.3%) as the market is settling on three rate hikes in the US this year. The positive momentum in economic data could easily reduce expectations even further. Yesterday, Tesla Q1 deliveries at 386,810 vs est. 449,080, marking the biggest miss in the EV maker’s history, pulled shares 5% lower increasing worries among investors that EV demand is way too high relative to recent investments in production capacity. Higher interest rates and issues with building out EV infrastructure for charging are hitting demand. Eurozone March preliminary CPI figures and ADP employment change are today’s key macro events to watch for potential sentiment change in equities.
FX: The dollar index trades lower following a second failed attempt to gain a foothold above 105 despite more evidence of US economic strength suggesting markets may have peaked in pricing in a less dovish Fed outcome than what data and communication suggests. Fed Chair Powell speaks today at 16:10 GMT. CHF was the underperformer in G10, with EURCHF heading higher again to re-test the 0.98 handle. Japanese yen also remained in focus with intervention threat lingering into the NFP release on Friday, as USDJPY still trades above 151.50 after touching highs of 151.80. EURUSD was relieved with German CPI only mildly below expectations and rushed higher to 1.0760+ on dollar weakness later, while GBPUSD rose to 1.2580. Yuan also saw some gains due to the weaker dollar overnight, but USDCNH still trades above 7.25 signaling bearishness on the yuan.
Commodities: Oil prices extended gains to an October high with focus on geopolitical tensions, today’s OPEC+ JMMC meeting, US stockpiles and US and China economic data pointing to robust demand. Last night the API reported an across-the-board drop in US stockpiles of crude and fuel while its expected OPEC+ will keep production curbs with focus on compliance. Gold’s strong run towards our USD 2300 target continues with silver joining the rally reaching a two-year high above USD 26. Copper meanwhile trades back above USD 4 on optimism over global demand following recent economic data from the US and China. The parabolic cocoa rally may slow after Ivory Coast farmgate prices for the mid-season crop received a 50% boost to CFA 1500 pr kg (USD 2.47), still well below global prices but potentially supporting next year's production. Chicago wheat futures drop on improved US growing conditions
Fixed income: European bond markets faced early selling pressure, exacerbated by strong US job data, despite German inflation indicating a swift slowdown. The German yield curve twist-steepened: 2-year Schatz yields fell slightly by 1 basis point to 2.83%, whereas 10-year Bund yields rose by 10 basis points to 2.39%. This suggests that if the Federal Reserve delays interest rate cuts, the European Central Bank (ECB) might struggle to significantly lower rates, even with inflation at or below targets. Subsequently, the US yield curve reflected a similar twist-steepening, driven by a 1.7% climb in crude oil prices amid geopolitical tensions, yet short-term yields stayed steady due to anticipated summer rate cuts. Ten-year yields touched 4.40% before closing at 4.349%, 4bps higher in the day. A break and close above 4.35% could signal a potential rise towards 4.5%. Today, the market waits for the US composite PMI and ISM data on prices paid and new orders, but the focus remains on Friday’s non-farm payrolls. We still favor the front part of the yield curve while we remain cautious about ultra-long maturities.
Macro: US JOLTS job openings for February came in line with expectations at 8.756 mn (exp. 8.75 mn), although January’s was revised lower to 8.748 mn from 8.863 mn, with the quits rate unchanged at 2.2%. Data continues to suggest that the US labor market remains strong and justifies the cautious stance of Fed members towards rate cuts. Fed’s Daly and Mester, both voters this year, stuck to a baseline view of three rate cuts this year but caveated by saying that there is no urgency, and they want to see more data before easing. Mester also said the May 1st meeting is too soon for a rate cut but later said she would not rule out a June cut. Daly said that there is a real risk of cutting rates too soon. German inflation cooled more than expected in March to 2.3% YoY, down from 2.7% in the prior month. The Caixin China Services PMI increased to 52.7 in March from 52.5 in the previous month and stayed in the expansion territory for the 15th consecutive month.
Technical analysis highlights: S&P500 correction likely unfolding, potential to 5,057. Nasdaq 100 top and reversal pattern could sell-off to 17,808. Needs to close above 18,417 to cancel. DAX top and reversal, correction likely to 17,900. EURUSD bouncing from minor support at 1.0723 but downtrend intact, likely to drop to 1.07, possibly 1.06. GBPUSD likely to test support at 1.25. USDJPY range bound 151.95 – 150.85. EURJPY correction to 162.17. AUDUSD testing support at 0.6485, a daily close below sell-off to 0.64. Gold uptrend could reach 2,312 but a bit stretched. Silver likely to test resist at 26.77. Brent Crude oil pushing towards resist at 90.50. US 10-year T-yield spiked higher, closed bang on resist at 4.35, could push higher towards 4.50 resist
Volatility: VIX rose quite a bit yesterday, ending at $14.61 (+0.96 | +7.03%), it shows a certain back-with-our-feet-on-the-ground feeling. VVIX also up to 82.76 (+4.31 | +5.49%), which accentuates the sudden nervousness among market participants. With the short term VIX-siblings (VIX1D and VIX9D) showing even more uncertainty (+25.18% and +11.17%) it's clear that the market expects volatility in the coming days. Later on today volatility will most likely come from some more economic numbers (ADP Nofarm Employment, ISM Non-Manufacturing PMI) and the speech of Fed Chair Powell this afternoon. VIX futures are at 15.100 (+0.100 | +0.67%) this morning. S&P500 and Nasdaq 100 futures are at 5248.25 (-12.25 | -0.23%) and 18274.50 (-55.50 | -0.31%) respectively. Yesterday's top 10 most traded stock options: TSLA, NVDA, AAPL, AMD, PLTR, NKLA, META, AMZN, GOOGL and C.
In the news: Tesla’s Quarterly Deliveries Fall for First Time Since 2020 (WSJ), Call between Xi Jinping and Joe Biden conveys stability, deep disconnect in US-China ties: analysts (SCMP), South Korea sends chipmaking equipment to China — and the U.S. wants it to stop (Quartz), U.S., Japan to agree on subsidy rules on chips, batteries with China in mind (Nikkei Asia), India manufacturing PMI surges to 16-year high ahead of elections (Nikkei Asia), Toyota reports 20% jump in first-quarter US auto sales (Reuters), Plans for Ivory Coast 50% farmgate cocoa price rise hailed as a ‘historic landmark (CP).
Macro events (all times are GMT): Eurozone Flash CPI (Mar) exp. 0.9% & 3% vs 0.6% & 3.1% prior (1000), US ADP National Employment change (Mar) exp 150k vs 140k prior (1315), US S&P Services and Composite Final Mar PMI (1400), US ISM Services PMI (Mar), exp 52.78 vs 52.6 prior (1500), EIA’s weekly crude and fuel stock report (1530), During the day: OPEC+ JMMC Meeting. Speakers: Fed’s Bowman, Goolsbee, Powell (1710), Barr, Kugler.
Earnings events: Quiet earnings week before the Q1 earnings season starts next week with major US financials such as JPMorgan Chase, Wells Fargo, and Citigroup reporting.
For all macro, earnings, and dividend events check Saxo’s calendar
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