Quarterly Outlook
Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges
Althea Spinozzi
Head of Fixed Income Strategy
Chief Investment Strategist
Summary: Another hot US CPI print closed the door for a June Fed rate cut, sending stocks and bonds lower as dollar rose to YTD highs. Benchmark 10-year treasury yield peaked at 4.57% sending USDJPY past the intervention threat zone at 152 to test new highs. Oil prices saw another surge as geopolitical risks escalated amid reports of an imminent Iran attack, but Gold safety bid was more limited amid the larger yield move. ECB meeting up next and a dovish tilt could be key for European markets.
The Saxo Quick Take is a short, distilled opinion on financial markets with references to key news and events.
Equities: US stock futures pointed lower, extending losses seen on the Wall Street in Wednesday’s session following inflation fears coming back to the forefront after a third consecutive print of hot CPI in the US which saw the door to a June Fed rate cut closing. Stocks were also spooked by escalating geopolitical tensions amid an expected Iran response. Energy sector outperformed the broader index as reflation theme underpinned, and the interest rate sensitive real estate sector led the losses. Big tech was mostly lower, but Nvidia rose 2%.
Delta Airlines kicked off the Q1 earnings season with stronger-than-expected results, and focus turns to bank earnings due on Friday. But before that, Japan’s Uniqlo-owner Fast Retailing reports Q2 results today and a weak yen is expected to have boosted international sales.
FX: The dollar surged on the back of Fed policy path being re-assessed after a third consecutive month of hotter-than-expected CPI print. DXY index surged past the 105 level to its highest levels since November, and PPI today could be the next big test where another hot print could send jitters about a hot PCE print. Dollar strength weighed the most on activity currencies, and losses in G10 were led by AUD and NOK despite another surge in oil prices. AUDUSD slip over one big figure to test 0.65 handle while a hawkish RBNZ hold saw AUDNZD sliding below 1.09. Japanese yen remains a key focus as USDJPY finally pierced through 152 and rose above to fresh record highs of 153.24 and verbal intervention from Japanese authorities gathered momentum. EURUSD hit a trough of 1.0730 and ECB meeting is eyed today. USDCAD broke above resistance at 1.3625 and touched the 1.37 handle. Key to watch today will be the PBOC yuan fixing and USDCNH rose towards 7.2650 from 7.24 area.
Commodities: Geopolitical risks were heightened again with reports of an imminent Iran attack on Israel which brought fresh gains in oil despite a higher dollar post-CPI. This came after a decline in oil prices earlier as EIA reported that US crude stocks climbed 5.8 million barrels in the week of April 5, more than double of the expected increase. Gold prices however could not get a safety bid as delay of Fed rate cut expectations underpinned. Copper prices also retreated on the back of stronger dollar and China’s FX response and inflation numbers will be on the radar today.
Fixed income: Treasuries saw the biggest one-day selloff since late 2022 as hot US CPI delayed Fed rate cut expectations and 2-year yields rose over 20bps. This was also accompanied by a dismal 10-year auction which also saw a move of over 15bps higher in 10-year yields. 10-year Japanese government bonds were also sold-off in the Asian morning, and yields rose above 0.8%, the highest since November.
Macro:
Macro events: ECB Announcement, OPEC MOMR, China Inflation (Mar), US PPI (Mar)
Earnings: Fast Retailing, Fastenal, Constellation Brands, CarMax
In the news:
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