Summary: Nvidia, Amazon, Microsoft, and Adobe declined, weighing on key indices. Nasdaq 100 dropped 1.8%, S&P500 lost 1.2%. The 10-year Treasury yield surged to 4.33% amid Bunds and Gilts selloff due to hawkish ECB comments and higher BoE inflation expectations. USDJPY rose towards 148 as US yields climbed. USDCAD tested 1.35 amid rising oil prices. USDCNH rebounded to 7.2750 from 7.2596 on PBOC's liquidity measures. Strong US data and increased Chinese stimulus lifted Brent oil prices near $95/barrel. A busy central bank week ahead with the Fed, BOE, and BOJ in focus.
The Saxo Quick Take is a short, distilled opinion on financial markets with references to key news and events.
US Equities: Technology stocks pulled down the market. Adobe shares dropped by 4.2% after earnings, while Nvidia, Amazon, and Microsoft each declined by 3%, 3%, and 2.5%, respectively, putting pressure on the indices. The Nasdaq 100 decreased by 1.8% to 15,202, and the S&P500 lost 1.2%, settling at 4,450. We believe that the hype around generative AI has led to a rush of interest in the technology sector, but it will take much longer than current stock prices suggest for commercialization to fully materialize. The VIX rebounded to 13.79, rising from its year-low point due to a significant volume of options expiring.
Fixed income: Treasuries sold off during London hours, following the sharp increases in yields of German Bunds and UK Gilts amid hawkish ECB comments and higher Bank of England inflation expectations. Selling continued after a strong 20-point rebound in the Empire State manufacturing index, indicating a return to expansion. The 2-year yield rose by 2 bps to 5.03%, while the 10-year yield increased by 5 bps to 4.33%.
China/HK Equities: Reactions to the 25bp reduction in the reserve requirement ratio, a net injection of RMB 191 billion in 1-year medium-term lending to banks, and stronger industrial production and retail sales were subdued. Investors remained unconvinced and considered the incremental positive news in both policies and economic data insufficient. The 24% Y/Y decline in 30-city new home sales so far in September and the suspension of offshore debt payments by developer Sino Ocean poured some cold water on the initial excitement about regulatory easing in the property market. The Hang Seng Index edged up 0.8%, while the CSI300 slid 0.7%. Amid a light economic data calendar, investors may focus on the high-frequency data on property transactions and closely watch for any spillover effect from Zhongrong International Trust.
FX: Dollar closed in a ninth straight week of gains even as AUD and CAD tried to make a comeback last week. Heavy central bank week ahead with Fed, PBoC, BOE and BOJ on the radar along with other major central banks. USDJPY rose back towards 148 as US yields surged. EURUSD slid below 1.07 last week on ECB’s dovish hike but a small rebound to 1.0660+ levels was seen on Friday. GBPUSD still below 1.24 with the path for BOE is also extremely complicated. USDCAD testing 1.35 as oil prices continue to rise. USDCNH back at 7.2750 from lows of 7.2596 after PBOC’s liquidity enhancing measures on Friday.
Commodities: US data resilience and step higher in China’s stimulus measures boosted oil prices further on Friday with Brent attempting to move towards $95/barrel. With supply outlook remaining tight into the end of the year, demand outlook becomes key for months ahead. Meanwhile, diesel supply is also running short, risking another uptick in inflation. A host of central bank meetings ahead in the week will be key to whether oil breaks above $95 barrier. Gold surged on Friday to test $1930 support showing resilience in the face of higher US yields, and Denver Gold Forum this week will be key along with central bank commentaries.
Macro:
Macro events: Japan holiday, Canada August PPI exp 0.2% MoM (prev 0.4%)
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
