Quarterly Outlook
Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges
Althea Spinozzi
Head of Fixed Income Strategy
Key points:
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The Saxo Quick Take is a short, distilled opinion on financial markets with references to key news and events.
Equities: The S&P 500 rallied out of the gate but relinquished much of those advances as a downtick in consumer sentiment hit a half-year nadir, notably as inflation expectations hardened at an ascension of 3.5% over the forthcoming annum, marking a semiannual peak. U.S. equities could be bracing for stronger gusts of resistance on the horizon, with the New York Fed's report on household debt and credit poised to potentially sway market sentiment, complemented by a scrutinized unveil of Walmart's financial performance. The persistent buoyancy of the American consumer has been a linchpin of stateside market outperformance, yet the recent dampened confidence metric might trigger a reassessment of the durability of this consumer-driven dynamism.
The week ahead zeroes in on a marquee lineup of earnings, with investor spotlights trained on SoftBank's reveal on the 13th of May. The stage then sets for a high-stakes succession with Tencent and Alibaba, alongside Hon Hai Precision and Sony, all stepping into the earnings arena on the 14th. The momentum carries over to the 16th as we eye disclosures from Baidu, JD.com, and Walmart in a heavyweight trifecta. Finally, Applied Materials wraps up the week's critical financial unveilings on the 17th, poised to potentially recalibrate market narratives.
FX: The US dollar managed to end last week in marginal gains again, as declines in the Japanese yen returned. Fed speakers broadly maintained a neutral narrative into the CPI reading due this week, which could be a make-or-break input for Fed expectations. USDJPY testing a break above 156 again, erasing much of the intervention-driven gains in the yen, and BOJ is now signaling another rate hike. AUDUSD continues to struggle at 0.66 and focus this week will be on whether China recovery continues and Australia’s budget announcement. GBPUSD is just above 1.25 after a dovish BOE but a strong GDP report last week, and June rate cut is still just 50% priced in despite some very clear signaling like the ECB. EURUSD remains sub-1.08 with EURGBP struggling to move above 0.8620. USDCAD moved lower to 1.3640 on strong Canadian jobs report but the price move did not stick.
Commodities: Gold prices rose by $34.70, or 1.48%, to close at $2,375.00 per ounce. Meanwhile, Silver prices increased by 1.5% to reach $28.77 per ounce, marking the highest level since April 19. Over the past week, silver prices have risen by 6%. U.S. crude oil futures settled at $78.26 per barrel, marking a decrease of $1.00, or 1.26%, and Brent Crude futures settled at $82.79 per barrel, down $1.09 or 1.3%. These movements followed remarks from U.S. central bank officials indicating the potential for prolonged higher interest rates, which could dampen demand from major crude consumers. Additionally, increasing U.S. fuel inventories ahead of the summer driving season exerted pressure on oil prices. Natural gas saw a more than 5.1% increase this week, settling at $2.252 per million btus.
Fixed income: Heading into the Friday close, there was a marked uptick in Treasury yields, fueled in part by escalating inflation expectations as reflected in the University of Michigan's sentiment data for both 1-year and 5-year horizons. Specifically, the benchmark 10-year yield broke through the 4.5% threshold, while the 2-year yield advanced by 5 basis points to close at 4.86%. Weekend figures indicated a contraction in China's new credit issuance in April, marking the first decline of its kind, as the pace of government bond sales decelerated. The aggregate financing metric receded by approximately 200 billion yuan compared to March.
Macro:
Macro events: New Zealand Services PMI
Earnings: Softbank, Hang Seng Bank, Bilibili, Wynn Macau, Sony, Tencent Music Entertainment
News:
For all macro, earnings, and dividend events check Saxo’s calendar.
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