Quarterly Outlook
Macro Outlook: The US rate cut cycle has begun
Peter Garnry
Chief Investment Strategist
Key points:
The Saxo Quick Take is a short, distilled opinion on financial markets with references to key news and events.
Macro events (times in GMT): Germany ZEW Survey at 0900, Eurozone Aug. Industrial Production at 0900, US Oct. Empire Manufacturing at 1230, Canada Sep. CPI at 1230, South Africa SARB Monetary Policy review at 1400, US Fed’s Daly (Voter) to speak at 1530, New Zealand Q3 CPI at 2145. Australia RBA’s Hunter to Speak at 2200. New Zealand RBNZ’s Silk to speak at 2245. US Fed’s Bostic (voter) to speak at 2300
Earnings events: we are entering full swing for earnings season from today onwards, with the remaining large US banks reporting today and tomorrow and the Dutch crown jewel, chip equipment maker ASML, up tomorrow. Earnings highlights this week:
For all macro, earnings, and dividend events check Saxo’s calendar.
Equities: U.S. stocks surged on Monday, with the S&P 500 (+0.77%) and Dow Jones (+0.47%) hitting new record highs, while the Nasdaq 100 climbed 0.8%. Tech stocks led the rally, with Nvidia closing at a record high of $138.07, up 2.4%, though it missed its intraday high from June. The broader chip sector also saw strong gains, with Arm Holdings jumping 6.8%, Qualcomm up 4.7%, Applied Materials rising 4.3%, and ASML advancing 3.7%. However, after hours, Bloomberg reported that Biden administration officials are considering new restrictions on advanced AI-chip sales from Nvidia and other chipmakers to certain countries, including the UAE and Saudi Arabia. Nvidia, currently valued at $3.4 trillion, is just shy of surpassing Apple as the world’s largest company by market cap. This week, earnings season intensifies with major reports due today from UnitedHealth, J&J, Bank of America, and Goldman Sachs, while Netflix is set to report later this week.
Volatility: Volatility continued to ease on Monday, with the VIX falling 3.71% to 19.70, indicating that market sentiment remains relatively calm despite markets pushing to all-time highs. Futures on the VIX also ticked lower, down 0.74%, reflecting continued confidence heading into a busy week of earnings reports. With key earnings from financials today and Netflix later in the week, expected moves for the S&P 500 stand at 0.41%, while the Nasdaq 100 could see swings of up to 0.60%. Any major earnings surprises could drive market volatility higher as the week progresses.
Fixed Income: after the US bank holiday yesterday, the US 10-year yield opened today just below the recent highs above 4.1%. The next major upside level is near 4.14%, which was the major low before the July 31 FOMC meeting that triggered a large slide in yields. Japanese 2- and 10-year yields closed at local highs ahead of Friday’s inflation data from Japan. The 10-year JGB yield is a few basis points below the 1.00% level, which has not traded since the early August drama that saw the Japanese yen surging.
Commodities: Ongoing disappointment with the scale of Chinese stimulus may be weighing on some commodities, as copper slumped to a multi-week low, although iron ore was up in Asia overnight. Gold corrected about a percent lower from highs yesterday, perhaps as the strong US dollar weighed. Oil suffered a large three-dollar per barrel correction lower on stories suggesting that Israel will not target Iran’s oil production facilities when it retaliates for recent attacks.
FX: the US dollar rose across the board yesterday before wilting slightly lower against a resilient Japanese yen overnight. The surge in the US dollar could be linked to rising odds of a Trump victory in the last week as traders dust off the 2016 election playbook. The psychologically important 150.00 level in USDJPY is seen as a possible area of intervention from Japanese authorities after USDJPY hit 149.98 late yesterday. Elsewhere, CAD is notably weak as the US-Canada 2-year yield has widened sharply in the US dollar’s favour as the Bank of Canada is seen bringing more easing and oil prices plunged yesterday.
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