Quarterly Outlook
Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges
Althea Spinozzi
Head of Fixed Income Strategy
Summary: The S&P 500 touched the 5k mark, driven by gains led by tech stocks, and the Nasdaq 100 also closed at record highs. In after-hours trading, Disney rose by more than 6%, and Arm Holdings surged by 38%, fueled by strong earnings, while Softbank is set to report today. However, China sentiment moderated again as there was a lack of follow-through on support measures, and focus will be on the inflation report today. Bond markets were choppy amid mixed NYCB headlines and a strong 10-year auction, keeping the dollar sideways. On the currency front, AUDNZD, however, broke below the key 1.07 support.
The Saxo Quick Take is a short, distilled opinion on financial markets with references to key news and events.
US Equities: The Nasdaq 100 and the S&P 500 reached new highs, closing 1% and 0.8% higher at 17,755 and 4,995, respectively, driven by broad-based gains. In after-hours trading, Walt Disney surged by 6.6% after reporting earnings that surpassed expectations. Arm Holdings also experienced a notable surge of more than 25% after raising its full-year guidance and offering upbeat comments on the outlook of the semiconductor industry.
Fixed income: Treasury yields edged modestly higher by around 2 basis points across the yield curve, with the 2-year yield and the 10-year yield settling at 4.43% and 4.12%, respectively. The auction of $42 billion of 10-year notes saw robust demand.
China/HK Equities: The Hang Seng Index pulled back from yesterday’s strong gains as skepticism persisted regarding the sustainability of a state intervention-driven rally in the mainland A-share market. The Hang Seng Index slid 0.3% to 16,082, and the Hang Seng Tech Index dropped by 1.6%. In the mainland, the CSI300 Index extended its gains, rising 1% to 3,344, and The Shanghai Composite Index added 1.4% to 2830. Today marks the last trading day of the A-share market before the six-trading-day-long Lunar New Year holiday.
After the Hong Kong market closed, Alibaba reported results largely in line with analyst estimates. For the December quarter, revenue rose 5.1% Y/Y to RMB260.3 billion, while adjusted net income fell 4% to RMB48.2 billion, and adjusted EPS dropped by 2% to RMB0.19 per ADS. The e-commerce giant also announced an increase in its share buyback program by USD 25 billion, bringing the total outstanding commitment to USD 35.3 billion over the next three years, or nearly 18% of the market cap. However, investors expressed concerns about the management’s remark regarding a substantial increase in investments in the Taobao and Tmall segments. Alibaba’s ADS dropped by 5.9% to USD 73.64, equivalent to a 3.9% decline versus the closing level in Hong Kong on Wednesday.
FX: Dollar traded sideways amid lack of key data in the US and Fed commentaries mostly priced in, while choppy yield moves underpinned amid mixed NYCB headlines. CHF was the G10 underperformer after SNB forex reserves rose for the second consecutive month in January, which sparks potential talk of currency interventions. USDCHF surged to YTD highs of 0.8750 with EURCHF zooming past 0.94. Kiwi retained its strength following a jump above 0.61 post employment data release yesterday, while AUDUSD unable to push above 0.6540 as AUDNZD breaks below the key 1.07 support. EURUSD maintained a slight upward bias, but stalled at 1.0780 for now and ECB’s economic bulletin will be in focus today.
Commodities: US natural gas closed below $2 as winter demand slowed and heating season is seen coming to a close. Crude oil, however, rose for a third consecutive day amid signs of stronger demand as US gasoline inventories fell more than expected. EIA reported a decline of 3.15mn barrels last week in gasoline inventories while distillate stocks dropped by 3.2m barrels. Our Commodity Strategist discusses his views on crude oil and fuel market in this article. Gold was steady amid gyrations in yields, and is still awaiting a clearer rate cut path to start showing strength.
Macro:
Macro events: US Treasury 30-year auction, China CPI (Jan) exp. -0.5% YoY vs. -0.3% prev., ECB Economic Bulletin, RBI and Banxico Policy Announcements. Speakers: BoE’s Dhingra, Mann; ECB’s Elderson, Lane; Fed’s Barkin.
Earnings: L’Oreal, AstraZeneca, S&P Global, Siemens, Philip Morris, ConocoPhillips, Unilever, SoftBank, NTT,
In the news:
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