Summary: Strong US employment gains triggered Treasury sell-offs, pushing 10-year yields to 4.40%. Investor focus shifted to CPI data and FOMC minutes. Despite rising yields, US stocks surged on optimism about economic strength and its potential impact on corporate earnings. The S&P 500 rose 1.1% to 5,204, but Tesla dropped 3.6% after a report of abandoning plans for low-cost EVs. In Japan, the Nikkei 225 fell 2% to 38,992 amid heightened risk aversion and cautious corporate earnings outlook. Meanwhile, China's central bank continued its gold acquisition streak, reaching 72.7 million troy ounces over 17 consecutive months.
Saxo’s Q2 2024 Outlook titled “The wasted year” is now out. You can read it here.
The Saxo Quick Take is a short, distilled opinion on financial markets with references to key news and events.
Equities: US stocks shrugged off the higher bond yields triggered by a strong job report and chose instead to focus on the resilience of the economy’s positive implications on corporate earnings. The S&P 500 staged a broad-based rally with all of its 11 sectors finishing 1.1% higher at 5,204 on Friday, led by communication services, industrials and information technology. GE surged 6.1%, topping the performance of the S&P 500. The tech-heavy Nasdaq 100 gained 1.3%. Tesla shed 3.6% following a Reuters report that Tesla has scrapped its plan to make low-cost EVs while focusing on developing robotaxis.
In Japan, the Nikkei 225 plummeted 2% to 38,992 as investors trimmed positions amid rising tensions in the Middle East that saw oil prices higher and stirring up risk-off sentiments, coupled with cautious corporate earnings forecasts. The mainland Chinese markets remained closed for a holiday while Hong Kong’s Hang Seng Index finished nearly unchanged in a lackluster session.
On April 8, Shimao Group announced that China Constructtion Bank (Asia) filed a winding-up petition at the High Court of the Hong Kong SAR against the company.
FX: The reaction of the FX markets to the hot US jobs report was short-lived, as the dollar’s jump to 104.70 was erased quickly. Dollar ended the week marginally lower despite hawkish Fedspeak and US exceptionalism in the week, signaling that much of the hawkishness may have been priced in for now. NOK was the G10 outperformer for the week, as USDNOK slid below 10.8 on oil price gains. Sharp jump in Treasury yields however saw Japanese yen weakening again, and USDJPY remains in the intervention threat zone of 151.50+. USDCAD rose above resistance at 1.3615 to its YTD lows amid a soft Canadian jobs report where unemployment rate rose to 6.1% from 5.9%. EURUSD supported at 1.08 for now and GBPUSD stays above 1.26.
Commodities: Oil prices pushed lower at the start of the new week in Asia after Brent touched $92/barrel levels on Friday and closed at its highest levels in over five months. Geopolitical tensions have underpinned gains recently, but Iran risks remained in check over the weekend and reports are suggesting that talks of a ceasefire in Mideast are progressing. Gold also retreated from post-NFP highs of $2,330 as geopolitical premium was being taken off, and Silver followed after 10% gains last week. Copper prices also turning lower as the week begins and focus will be on China’s return from holidays and their yuan fixing.
Fixed income: Strong gains in employment in both the non-farm payroll establishment survey and the household survey, a decline in the unemployment rate, and a rebound in the workweek all pointed to a robust US labour market. As a result, Treasuries sold off across the yield curve. The 2-year yield finished 10bps higher at 4.75% and the 10-year yield added 9bps to settle at 4.40%. Investors’ focus is turning to the CPI inflation data and the FOMC minutes on Wednesday. Core-CPI is expected to dip modestly to 0.3% M/M from 0.4% and 3.7% Y/Y from 3.8%. Regarding the FOMC minutes, investors will scrutinize the discussion on a potential slowing down of the runoff of the Fed’s securities holdings, or quantitative tightening. Given Powell's repeated use of the phrase 'fairly soon' in the latest post-FOMC press conference, it's probable that the Fed will announce a reduction in the pace of balance sheet runoff during the May 1 FOMC meeting, with implementation expected to begin in June. For a discussion on the reduction in the pace of the QT, please refer to this article.
Macro:
Macro events: Swiss Unemployment Rate (Mar), German Trade Balance (Feb)/Industrial Output (Feb), EZ Sentix Index (Apr)
Earnings: Welcia Holdings, Create SD Holdings, Mani Inc, Fuji Co, Samty, CK Infrastructure, Hiday Hidaka Corp.
In the news:
For all macro, earnings, and dividend events check Saxo’s calendar.
For a global look at markets – go to Inspiration
2024: The wasted year
Markets are driven by election optimism, overshadowing growing debt and liquidity concerns. The 2024 elections loom large, but economic fundamentals and debt issues warrant cautious investment.
As US economic slowdown hints at a shift away from exceptionalism, USD faces downside with looming Fed cuts. AUD and NZD set to outperform as their rate cuts lag. JPY gains on carry unwind bets and BOJ pivot.
Amid AI and obesity drug excitement, equities see varied prospects: neutral on overvalued US stocks, negative on Japan due to JPY risks, positive on Europe. European defence stocks gain appeal.
With the economic slowdown, quality assets will gain favour, especially sovereign bonds up to 5 years. Central banks' potential rate cuts in Q2 suggest extending duration, despite policy and inflation concerns.
Commodities poised for rebound. The "Year of the Metal" boosts gold and silver, copper awaits rate cuts. Grains may recover, natural gas stabilises. Gold targets $2,300-$2,500/oz, copper's breakout could signal growth.
Markets are driven by election optimism, overshadowing growing debt and liquidity concerns. The 2024 elections loom large, but economic fundamentals and debt issues warrant cautious investment.
As US economic slowdown hints at a shift away from exceptionalism, USD faces downside with looming Fed cuts. AUD and NZD set to outperform as their rate cuts lag. JPY gains on carry unwind bets and BOJ pivot.
Amid AI and obesity drug excitement, equities see varied prospects: neutral on overvalued US stocks, negative on Japan due to JPY risks, positive on Europe. European defence stocks gain appeal.
With the economic slowdown, quality assets will gain favour, especially sovereign bonds up to 5 years. Central banks' potential rate cuts in Q2 suggest extending duration, despite policy and inflation concerns.
Commodities poised for rebound. The "Year of the Metal" boosts gold and silver, copper awaits rate cuts. Grains may recover, natural gas stabilises. Gold targets $2,300-$2,500/oz, copper's breakout could signal growth.
