Quarterly Outlook
Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges
Althea Spinozzi
Head of Fixed Income Strategy
Summary: The rally in equities and bonds faded on Friday amid a pushback to Powell pivot from some Fed members including Williams. PMIs also continued to highlight a divergence in US and Eurozone economies, pushing EUR back to 1.09 as dollar recovered slightly. German Ifo will be in focus today. Hang Seng rose over 2% on China easing property curbs, although commodities came under some pressure but Gold still holding up above $2k.
The Saxo Quick Take is a short, distilled opinion on financial markets with references to key news and events.
US Equities: The Nasdaq gained 0.5% to close at 16,623, marking an all-time high, while the S&P500 was nearly flat. Costco surged 4.5% after reporting earnings beating estimates and announcing a special dividend. Intel added 2.2% after announcing new microchips for PCs and data centres.
Fixed income: The 2-year Treasury yield rose 6bps to 4.44% after Fed officials pushed back on discussion of imminent rate cuts. However, yields at the long end of the curve continued to decline, with the 10-year yield falling 1bp to 3.91% and the 30-year yield down 3bps to 4.01%.
China/HK Equities: The Hang Seng Index surged 2.4% to 16,792 last Friday after Shanghai and Beijing eased down payment requirements, mortgage rate floors and some other rules for home purchases. CR Land and Longfor gained around 6%. JD.COM surged 7%. China’s activity data was mixed in November with industrial production improving more than expected but retail sales and fixed asset investment disappointed. The rally waned somewhat in the afternoon amid chatters speculating that the recent Central Economic Work Conference had set the fiscal deficit target for 2024 at 3%, lower than market’s anticipation. The CSI 300 pared all the gains in the morning to close 0.3% lower.
FX: Another down-week for the US dollar as Fed Chair Powell adopted a dovish tone but other major central banks such as ECB and BOE stuck a relatively hawkish tone, although trends reversed slightly on Friday amid some pushback from Fed officials. A surprise rate hike from Norges Bank pushed NOK to be the outperformer on the G10 board. USDNOK moved below 10.50 for the first time in four months. BOJ comes next, and USDJPY traded flat around 142 with risk of a pushback on hawkish expectations likely to threaten a move back towards 145. EURUSD returned to sub-1.09 levels after failing at the 1.10 resistance and 200DMA at 1.0830 may be a key test, watch German Ifo due for a release today. GBPUSD was also back at sub-1.27 levels although AUDUSD held on the 0.67 handle.
Commodities: Dollar gains on Friday amid the Fed members’ pushback to the Powell pivot weighed on the commodity complex. Oil prices however closed higher for the week for the first time in 8 weeks amid risk on following the dovish FOMC and attacks on ships in the Red Sea. Gold also pared some gains on Friday but ended the week higher and continues to hold up above $2k begging the question whether a Santa rally could come. Copper remains in focus amid supply concerns and China easing property curbs, and China’s LPR announcement will be key this week.
Macro:
Macro events: Fed’s Goolsbee, German Ifo, ECB’s Lane & Schnabel.
In the news:
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