Quarterly Outlook
Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges
Althea Spinozzi
Head of Fixed Income Strategy
Summary: The S&P 500 retreated on Tuesday as the 10-year Treasury yield rose to 4.06% after hawkish comments from Fed Governor Waller. Meanwhile semiconductor stock advanced, with Nvidia surging 3.1% to $563.82, reaching a new high. Morgan Stanley dropped by 4.2% after cautious comments from the management on wealth-management margins. The dollar returned to strong gains with AUDUSD breaking the 0.66 handle and USDJPY breaking past 147 to one-month highs.
Saxo’s Q1 2024 Outlook titled “What happened to the future” is now out. You can read it here.
The Saxo Quick Take is a short, distilled opinion on financial markets with references to key news and events.
US Equities: Stocks retreated on Tuesday as the 10-year Treasury yield rose to 4.06%. The S&P 500 shed 0.4% to 4,766 with 10 of its 11 sectors losing except information technology. The Nasdaq 100 was flat, closing at 16,831, supported by strength in semiconductor names on positive analyst reports. Nvidia surged 3.1% to $563.82, reaching a new high. Meanwhile, AMD jumped 8.3%. A notable weakness in Morgan Stanley, which dropped by 4.2% after cautious comments from the management on the margins of its wealth-management business for 2024.
Fixed income: After first reacting to weakness in European government bonds during Asian and European hours, Treasury yields extended their rises in the U.S. session on hawkish comments from Fed Governor Waller who said rate cuts don’t have to be “rushed”. The 10-year yield jumped 12bps to 4.06%.
China/HK Equities: The Hang Seng Index plunged 2.2% to 15,866, reaching low levels last seen in November 2022. Remarks by Hong Kong Chief Executive John Lee that the to-be-legislated Article 23 of the Hong Kong Basic Law would be “forward-looking, flexible, and able to deal with changing situations” triggered some concerns among investors. Additionally, a media report that some large mainland institutional investors were asked not to sell A shares. The report caused speculation that mainland investors would sell more stocks traded in Hong Kong to raise cash. Market sentiments have been cautious ahead of today’s GDP, industrial production, fixed-asset investment and retail sales data from China. The CSI300 Index rebounded 0.6% on Tuesday amid speculation that the “national team” bought A-share ETFs in the afternoon.
FX: Dollar returned to strong gains with the DXY index breaking above 103 to test the 200DMA at 103.45 with Treasuries falling as market’s re-assessed the aggressive rate cut pricing for this year after a pushback from Waller as well as a host of ECB officials. Aussie was the weakest of the majors, with AUDUSD pushing below the 50DMA and breaking the 0.66 handle to test 200DMA at 0.6583. Yen also suffered on the back of higher Treasury yields, with USDJPY breaking past 147 to one-month highs, and pair extended gains in the Asian morning today to 147.50. EURJPY rallied past 160 as well, and GBPJPY broke above 186. EURUSD pushed below the 1.09 mark despite the ECB pushback, while GBP was hit by wage data but held up above the 50DMA.
Commodities: Stronger dollar hurt commodities overnight, although industrial metals closed higher amid hopes of further China stimulus as reports suggested that Beijing was weighing issuance of $139bn of special bonds. China’s economic data remains on watch today. Oil prices shrugged off the Mideast tensions as macro concerns took over amid the pushback from Fed’s Waller and ECB speakers on rate cut expectations. Today’s focus includes the OPEC monthly report along with inventory data as well as US retail sales. Gold slumped on higher Treasury yields but the 50DMA at $2,018 held up.
Macro:
Macro events: UK CPI (Dec), US Import/Export Prices (Dec), US Retail Sales (Dec), US IP (Dec), US NAHB (Jan), China GDP (Q4), China Retail Sales/Industrial Production (Dec)
Earnings: Charles Schwab, US Bancorp, Citizen Financials, Prologis, Kinder Morgan, Discover
In the news:
For all macro, earnings, and dividend events check Saxo’s calendar.
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