Jessica Amir
Market Strategist
Summary: After the demise of three US regional lending banks, including SVB, markets slid sharply almost erasing this year’s gains, while Australia’s market completely erased 2023’s rally. Ripple effects have been sent through markets, gold spiked, the Fed is expected to make several rate cuts. Meanwhile China’s peak construction season ramps up, supporting iron ore and copper prices and commodity equites. Here is the pivotal economic and company news ahead.
The NY Fed probability of a recession index, climbed to its highest level since the GFC – with the bond market suggesting the Fed will make several rate cuts this year - as the corporate world is in pain. Amid recessionary calls – the growth proxy, oil, is gathering some short-term bearish calls. But moreover - the collapse of SVB, Signature Bank, and Silvergate Capital brings the issue to the surface that higher interest rates heavily impacted tech and cryptocurrency companies - and their suffering snowballed to banks. The Fed, Washington, and investors alike are all concerned. And we think this will ultimately result in VC and crypto firms having more restrictive access to capital in the future, and this will ultimately impact some innovation. The US KBW Bank Index shed 24% in three days – that’s its biggest pullback since COVID19.
Gold is gaining increasing interest
With inflation remaining at historical highs, recession calls getting louder, and bond yields falling, with the market expecting the Fed will cut rates - gold seems supported. Historically gold rallies in times of uncertainty, and also rallied strongly the last three times the Fed paused rate rises and moved to cutting. Gold broke over the key $1900 level, and that could signal the end of the February sell-off, with the market now awaiting to see if gold can head to $1950. The last time Fed cut rates in 2019, gold rallied 61%. If that happens, Saxo’s Outrageous Prediction of gold hitting $3,000 could come true.
We’ve been speaking a lot about Chinese steel mills getting ready for peak construction season - which runs from March through to June. And now fresh data is showing both steel stockpiles and iron ore inventories are falling – which implies there is a need to top up stockpiles. We think buying of iron ore will likely continue in 2023, along with other metals including copper and aluminium - as the re-opening picks up pace. This rhetoric is also being reflected in higher prices of copper, and iron ore and that’s supporting shares of major companies in these fields (for more refer to Saxo’s commodity equity basket for inspiration).
The US inflation read (CPI) will be watched, expected to show inflation is slowing but remaining high. The Fed is expected to hike by 0.25% next week, then make several cuts ahead.
China’s industrial production numbers out on Wednesday expected to show its economy’s production is sharply picking up. The data could be a positive catalyst for commodity metal prices.
On Friday, a big test will be the ECB’s decision on rates. The ECB will be the first central bank to react to the demise of several US lenders. The market expects a 50bps (0.5%) hike, but there’s a chance of a 0.25% hike. Keep an eye on guidance – given there’s been a pullback in expectations for hikes ahead. Watching the USDEUR will be key
Europe’s biggest carmaker, VW, said about 70% of the investment will go to EVs and software. This highlights Saxo’s bullish view on demand increasing for industrial metals such as copper, aluminium, and lithium (essential in EVs). Next, BMW’s results on Wednesday - should also map out how they will be vying to capture market share, from Tesla and BYD
Adobe's core business revenue is expected to report one of the biggest quarter-over-quarter drops in six years. So they could flip – and announce job cuts – despite previously pledging not to make companywide cuts this year. Also, look out for commentary on Adobe’s planned takeover of Figma - as the deal is in the air.
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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.