Summary: The mega-cap tech stocks, including Nvidia, Alphabet, Meta, Microsoft, Amazon, and Apple, led a rise in the equity market. Treasury yields increased significantly to 4.70%, the highest in nearly 16 years, driven by hawkish Fed statements and strong economic data, including the ISM Manufacturing Index and S&P Manufacturing PMI. This surge in yields boosted the US dollar, as the DXY index reached 107. Meanwhile, oil prices declined, with WTI falling below $90/barrel, while China's Ministry of Culture and Tourism projected a 140% Y/Y increase in domestic tourism revenue from 2022 or 5% Y/Y growth from the 2019 Golden Week.
The Saxo Quick Take is a short, distilled opinion on financial markets with references to key news and events.
US Equities: The strength in the mega-cap tech stocks lifted the equity market. The tech-heavy Nasdaq 100 gained 0.8% to reach 14,837, led by Nvidia, Alphabet, Meta, Microsoft, Amazon, and Apple, all of which rose between 1.5% and 3%. Meanwhile, the S&P500 remained flat as the broader benchmark was dragged down by the interest rate-sensitive utilities and real estate sectors, as well as the energy sector, which fell due to a sharp drop in crude oil prices. The narrow concentration of market performance on the "magnificent seven" stocks pointed to the fragility of the broader equity market.
Fixed income: Treasuries started in a soft tone, with yields rising, after the weekend accord to keep the federal government funded through November 17. The market extended losses through the day on hawkish Fedspeak and the ISM Manufacturing Index and the S&P Manufacturing PMI, both rising more than expected. The 10-year bond yield reached as high 4.70%, level last seen in nearly 16 years ago. The 10-year yield finished the session 10bps higher at 4.68% and the 2-year ended 6bps higher at 5.10%. Upcoming supply of new issuance and the higher-for-longer rhetoric of the Fed continued to weigh on the Treasury market in the near term.
China/HK Equities: The Hong Kong market returns from a holiday-lengthened weekend today, while the mainland bourses remain closed for Golden Week. At the halfway point of the 8-day-long national holiday, running from September 29 to October, the Ministry of Culture and Tourism estimated domestic tourism revenue to grow by 140% Y/Y from 2022 or 5% Y/Y from the Golden Week in 2019. Data released over the weekend was mixed, with the NBS PMI prints better than expected, but the Caixin PMI came in softer.
FX: The surge in Treasury yields brought another bid to the US dollar, and the DXY index rose to 107. Risk sentiment waned with US data remaining strong and AUDUSD plunged below 0.6360 with RBA meeting on tap today and last week’s lows of 0.6331 may be the next target. NZDUSD also plunged below 0.5940. USDJPY rose above 149.80 and 10-year auction will be in focus today. EURUSD extended overnight slide to sub-1.05 further to fresh YTD lows of 1.0465 in early Asian hours and GBPUSD also failed to get a boost from Mann’s hawkish comments and slid to sub-1.21.
Commodities: Oil prices slid further with WTI below $90/barrel and Brent just above it, with risk off and higher dollar underpinning. Supply concerns also got a pushback with Turkey resuming a key pipeline flow from Iraq. Gold plunged further to lows of $1820 and the big $1800 figure remains in focus. Silver was down over 5% to plunge below $21 and gold/silver ratio climbed above 86. Next support seen at $20. Wheat and corn futures jumped after a plunge lower following Friday’s USDA report that showed significant supplies.
Macro:
Macro events: RBA Cash Target Rate exp 4.10% vs. 4.10% prior (1130 SGT)
In the news:
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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
