Quarterly Outlook
Macro Outlook: The US rate cut cycle has begun
Peter Garnry
Chief Investment Strategist
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The Saxo Quick Take is a short, distilled opinion on financial markets with references to key news and events.
Equities: The Nikkei traded higher overnight after exporters received a boost from continued yen weakness, even as the rest of Asia struggled for momentum (Hang Seng futures down 1%) following a late selloff on Wall Street. In China the mood soured after BYD earnings reports disappointed showing the industry is struggling with growing profitability; this could put renewed pressure on Tesla shares today. In Europe this morning, H&M, the Swedish fast fashion retailer, reports Q1 operating profit of SEK 2.1bn vs est. SEK 1.3bn reiterating that it targets 10% operating margin for FY24. In US retailing yesterday, Visa and Mastercard agreed to cap credit card swipe fees in an antitrust settlement which will save US merchants at least $30bn over five years.
FX: USDJPY surged to 151.97, reaching its highest level in 34 years. The currency pair slightly pulled back to 151.75 after Japan's Finance Minister, Shunichi Suzuki, issued a cautionary statement, indicating the Ministry of Finance's readiness to take "decisive steps" in reaction to currency fluctuations, hinting at the potential for foreign exchange intervention to stop the weakening of the Yen. Overall, the dollar trades near unchanged on the week as quiet pre-Easter trading conditions prevail
Commodities: Gold pulled back after failing to break $2200 with momentum stalling ahead of Friday’s US PCE inflation data, which may determine whether the current buy-on-dip sentiment can be maintained. Crude oil trades lower with Brent and WTI nearing support after the API reported a bumper 9.3 million barrel stock increase, only partly offset by the longest run of gasoline stock declines in a year. Cocoa hit $10k which potentially could signal a peak despite the current stock shortage. Wheat, corn and soybeans ease ahead of US planting and grain stocks data on Thursday
Fixed income: US Treasury yields closed the day slightly lower, helped by a solid 5-year note auction. The Treasury sold a record $ 67 billion 5-year notes, yet indirect bidders took 70.5% of the auction, the fifth highest on record, leaving primary dealers with 12.7%, the lowest since September 2023. The note sale benefitted from month and quarter-end flow, the fourth highest auction yield for this tenor on record, and the notes’ optimal risk-reward. With a yield of 4.235%, assuming a one-year holding period, yields need to rise above 5.5% to enter the red. Today, the focus is on the $43 billion 7-year notes auction, which doesn’t offer such an appealing risk-reward and might not attract the solid bidding metrics such as the 5-year note sale yesterday.
Macro: US Durable Goods Orders grew 1.4% in February, stronger than the median forecast of 1% but the decline in January was revised to -6.9% from -6.2%. Excluding the volatile component of transportation, orders grew 0.5% (consensus: 0.4%, prior: revised to -0.3% from -0.4%). Australia’s CPI grew 3.4% Y/Y in February, slightly below the 3.5% projected by economists and remained at the same rate in January. The core CPI growth decelerated to 3.9% Y/Y from 4.1% but the trimmed mean CPI came in at 3.9% Y/Y, ticking up from 3.8% the prior month. China's industrial profits amounted to 9140.6 billion yuan in the first two months of the year, marking a turnaround from a 2.3% decline the previous year to a growth of 10.2%. Looking at sectoral performance, profits in mining declined by 21.1% year-on-year, while those in manufacturing grew by 17.4% and utilities increased by 63.1%. Among the 41 major industries, 29 experienced year-on-year profit growth. Notably, computer, communication, and other electronic equipment manufacturing saw profits double.
Technical analysis highlights: Main events: DAX & Eurostoxx50 higher, indicators supporting DAX to 19K. Cocoa could have topped out after spiking above 10K
S&P 500 new top and reversal pattern, uptrend stretched. Nasdaq 100. Top and reversal intact, key support at 17,808. Needs to close above 18,417 to cancel.
EURUSD could be range bound 1.08-1.09 for next few days. USDJPY testing key resistance at 151.95. EURJPY uptrend intact, support at 163.69. USDCHF testing strong resistance at 0.9050. USDCAD range bound 1.3440-1.3620. Gold failed once again to close above resistance at 2,195. key support at 2,146. Cocoa spiked above 10K only to slide back, could be top. US 10-year T-yield likely range bound 4.20-4.35 strong resist
Volatility: Yesterday, the VIX remained almost unchanged at $13.24 (+0.05 | +0.38%) in a quiet trading session, with no major news or data releases influencing the markets. The modest change suggests that volatility might remain confined to a narrow range for the time being. VIX futures edged down to 14.150 (-0.195 | -1.37%), indicating a slight cooling in near-term volatility expectations. Meanwhile, S&P 500 and Nasdaq 100 futures showed resilience, rebounding from a slight downturn at yesterday's close, with increases of +16.50 (+0.31%) and +57.25 (+0.31%). Trading activity was most pronounced in options for TSLA, NVDA, AAPL, AMD, MU, META, DJT, CCL, ARM, and AMZN.
In the news: BoE's Mann says markets are pricing in too many rate cuts (Reuters), Truth Social Stock Price Surges on First Day of Trading, Increasing Trump’s Fortune (WSJ), iPhone Shipments in China Fell 33% in February, State Data Show (Bloomberg), Merck’s $11.5 Billion Bet on Its Next Big Drug Finally Arrives (WSJ), China's Xi Jinping to meet with American executives on Wednesday, sources say (Reuters), Cocoa prices are soaring to record levels. What it means for consumers and why ‘the worst is still yet to come’ (CNBC).
Macro events (all times are GMT): Eurozone March Economic Confidence est. 96.2 vs 95.4 prior (0900), EIA’s weekly crude and fuel stock report (1330), Fed’s Waller speaks on economic outlook (2100).
Earnings events: Today’s key earnings events are Carnival and H&M, both giving clues on the health of the consumers. Analysts expect Carnival to report FY24 Q1 (ending 28 Feb) revenue growth of 22% YoY and EPS of $-0.17 compared to $-0.55 a year ago in a sign that the cruise industry is healing but high debt levels are eating up cash flow from operations.
For all macro, earnings, and dividend events check Saxo’s calendar