Summary: Risk off tone seen in the overnight session as markets awaited the FOMC announcement due today. Hot Canadian CPI weighed on Treasuries, and helped commodity currencies to outperform. Crude’s rally took a breather and first up today will be the China loan prime rate decision before heads turn to UK CPI and Fed meeting.
The Saxo Quick Take is a short, distilled opinion on financial markets with references to key news and events.
US Equities: Stocks retreated in broad-base selling as the 10-year Treasury yield hit its highest level since 2007. The S&P500 and the Nasdaq 100 both shed 0.2%. Intel, Qualcomm, and Amazon were among the major laggards.
Fixed income: The initial weakness in the US Treasury market came when traders took note of the selloff in Canadian government bonds after a surprisingly hot Canadian CPI. Large selling in the 10-year US T-note futures in late afternoon saw the 10-year yield surged to 4.37%, the highest level in 16 years, despite a solid 20-year auction. The 2-year yield climbed 4bps to 5.09% while the 10-year yield settled 6bps higher at 4.36%.
China/HK Equities: Markets were helped by gains in energy and utilities stocks but dragged down by EV names. The Hang Seng Index finished moderately higher, up 0.4% while the Hang Seng Tech Index slid 0.1%. The CSI300 dropped by 0.2%. News headlines include more cities relaxing home purchase restrictions, CSRC considering measures to encourage listed companies paying dividends, and plans to set up a special loan programme for urban development.
FX: Commodity currencies outperformed with NZDUSD extending gains in the Asian morning hours to 0.5950 with Q2 current account beating estimates. USDCAD reversed from lows of 1.3381 seen after hot CPI while AUDUSD continues to attempt a move towards 0.65. USDJPY remained choppy, with yen defying gains despite more verbal intervention and threats of a coordinated yen intervention with the US (see Janet Yellen comments below). EURUSD still unable to hold gains above 1.07 while GBPUSD stays close to 1.24 with CPI data ahead.
Commodities: Oil rally took a breather with FOMC event risk ahead. Brent still above $94 with API showing inventory drawdowns continued in the latest week. Signs of tightness in physical markets, including diesel, are adding to concerns and $100 oil chatter remains. Gold also turns to FOMC risks after US yields were pushed higher due to hot Canadian inflation prints.
Macro:
In the news:
Macro events:
Key company events: Earnings reports for KB Home, FedEx, and General Mills are on the horizon. KB Home's Q3 revenue is expected to be around USD 1.48 billion, in line with their guidance. FedEx's FY23 Q1 results may benefit from UPS labor issues but face challenges in consumer spending and global freights. General Mills' FY24 Q1 is projected to have revenue of USD 4.88 billion. For detailed information, please refer to the Saxo Spotlight.
For all macro, earnings, and dividend events check Saxo’s calendar.
For a detailed look at what to watch in markets this week – read our Saxo Spotlight.
For a global look at markets – go to Inspiration.
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
