Market Strategist
Summary: Risk aversion picked up on Friday amid fears of escalation in Israel and Gaza. Haven demand led to gains in dollar, Swiss franc, bonds and gold, while stocks were sold-off. Oil rose over 5%. Geopolitical fears also included announcement of expanding US curbs on China’s chipmaking and overshadowed the strong start to the US earnings season with big banks reporting strong results but with a downbeat outlook.
The Saxo Quick Take is a short, distilled opinion on financial markets with references to key news and events.
US Equities: US stocks sold-off on Friday amid deteriorating consumer sentiment data from the UoM survey and the risks of escalation in the Middle East conflict soured sentiment. This overshadowed upbeat quarterly earnings from some of the largest U.S. banks. Big tech sold off, bringing NASDAQ 100 down 1.2% while S&P 500 was down 0.5%. Wells Fargo rose 3% and JPMorgan closed up 1.5%, but Citigroup lost steam, ending down 0.2%. Boeing ended down 3% amid issues in quality of 737 Max aircraft.
Fixed income: Treasuries bull-flattened on Friday amid safe-haven demand from the Middle east conflict, despite the overhang of disappointing auctions last week. The jump in oil prices however saw Treasuries easing late in the session, however Fed Harker’s comments and softer UoM survey supported.
China/HK Equities: HK stocks were down 2.3% on Friday while CSI 300 slid over 1% after China’s September inflation data showed concerns about weak demand. Relief from reports that China is considering forming a state-backed stabilization fund to shore up confidence in the stock market was short-lived. Markets will likely react to geopolitical worries as well as reports that US will tighten curbs on China’s access to advanced chipmaking.
FX: Risk aversion seen in the FX markets on Friday amid concerns of widening conflict in Gaza. Dollar extended gains, as did Swiss franc. EURCHF slid below 0.95 to dip to its lowest level in over a year, although bid in JPY was far more contained as USDJPY still trades above 149.50. Risk currencies were hit badly on Friday and NZDUSD plunged below 0.59 handle, although a recovery was seen this morning on reports of opposition’s win in the weekend elections, as we discussed in this FX note.
Commodities: Oil prices jumped higher by over 5% on Friday amid concerns of escalating tensions in the Middle East and especially with Iran’s foreign minister saying that others in the region were prepared to act. Gold also jumped over 3% to break to highs of ~$1930 on safe haven demand and due to the respite coming from long-end yields. Silver jumped 4% to over $22.50.
Macro:
Macro events: US Empire State Manufacturing exp -6.0 vs. +1.9 prior, China PBoC MLF exp 2.5% vs. 2.5% prior.
In the news:
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Bond. Long Bond(s)
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Steen Jakobsen,
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Is a bond bull market ahead? Inflation still poses a risk for investors, but the moment for increasing duration to your portfolio may be approaching towards the end of the year, when central banks might be forced to cut interest rates.
Althea Spinozzi,
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Charu Chanana,
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Peter Garnry,
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Ole S. Hansen,
Head of Commodity Strategy
As the pandemic showed, even the US Treasury can experience seismic shifts. With the government increasing the pace of issuing bonds to support fiscal spending, the complex Treasury market and regulatory constraints could spark a liquidity event.
Redmond Wong,
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The tide has turned for bonds. Given the current yields, bonds have become an attractive investment, with added benefits including lower risk than stocks, increased diversification and a steady stream of income unaffected by economic changes.
Peter Siks,
Investment Coach
