Head of Fixed Income Strategy
Summary: The first US presidential debate will drive risk sentiment and the primary bond market this week. In the meantime, in China, Evergrande's notes continue to fall, threatening the overall Chinese bond market with a potential liquidity squeeze and numerous defaults. This adds pressure to the emerging markets as the sub-Saharan region sees Zambia heading for default and countries such as Angola and Chad look for debt relief from some creditors.
This Tuesday, there will be the first US presidential debate. As we approach the US election, we will see the US primary fixed income market slowing down. Investors should be cautious on risk as last week US high yield credit spreads widened, and Aethon United had to pull a junk bond deal from the market. This week credit spreads will remain sensitive as the CDX North America High Yield index will see 11 additions and removals.
In Europe, the market will closely monitor Lagarde’s speeches on Monday and Wednesday, hoping for more stimulus. Sovereigns from the periphery might rise if the need is satisfied with further aid.
We believe the main area to watch is the emerging markets. In China, Evergrande bonds continue to fall, contributing to a higher risk of refinancing for other Chinese corporates. In the meantime, Zambia is looking to delay coupon payment on his sovereign debt, and other sub-Saharan countries are looking to seek relief from creditors. If you want to learn more, we are following up with an in-depth analysis on EMs bonds later today.
What to watch for this week:
28th September
29th September
30th September
1st October
2nd October
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.
