Chief Investment Officer
Summary: Markets are coming back online in Europe this week for the first trading session after the Eurogroup emergency spending deal. After this agreed deal and the latest massive push from the Fed to provide support for small businesses and even junk bonds, markets are in a hopeful mood, even as visibility from here for the real economy remains poor. Despite the historic OPEC++ deal crude oil remains troubled by an overhang of supply as lockdowns continue to suppress demand.
What is our trading focus?
What is going on?
Recap – latest Fed bazooka last Thursday – this was another aggressive Fed moves that has likely provided a considerable portion of the market’s improved sentiment. The Fed last Thursday announced another $2.3 trillion in backstops for the economy in announcing, among other measures, purchases of junk debt (if downgrades were made to junk after March 22) as well as a lending program for small businesses and direct financing for states, municipalities and counties.
Covid19: talk in the US of a return to normalization, with few plans on the ground for what this looks like and a very divided opinion across the US depending on the region. Europe is on a more forward timeline than the US and many countries have extended lockdowns into early May, although some countries like Austria and Denmark will start a slow opening up this week.
Australia NAB Business survey saw confidence plummeting to -66 in March from -2 in February, an unheard of drop and compares with a financial crisis low of -31.
What we are watching next?
The mood in Europe – a late Eurogroup deal to provide EUR 540 billion in emergency funding across the EU was hammered out last Thursday after European markets closed, and today is the first day back from holiday for most EU markets after the Easter break.
Beginning of earnings season – the Q1 earnings season starts today and this week focus will be on financials which have been lagging the overall market. Earnings outlook from financials this week will be the first real test of sentiment in equity markets.
Economic Calendar (times GMT)
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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
