Head of FX Strategy
Summary: Equities mixed as bonds gained on US JOLTS miss and ECB Schnabel’s dovish comments. Crypto enthusiasm over ETF launch continued, while China markets faced further disappointment as Moody’s cut its outlook. Dollar gained further and AUD was depressed on RBA under-delivering on hawkish expectations. Gold testing key support as focus turns to US ADP employment numbers today.
The Saxo Quick Take is a short, distilled opinion on financial markets with references to key news and events.
US Equities: Mixed equity performance underpinned by weak labor data in the US but ISM services still holding up well and in expansion. S&P 500 closed marginally lower but NASDAQ 100 pushed up by 0.2% as tech stocks were supported by slipping yields. Apple was up 2% as it reached the $3 trillion club once again. Bitcoin still in focus after it briefly topped $44k on ETF optimism, and continued to push crypto-related stocks higher.
Fixed income: Soft labor market data from the US JOLTS report put pressure on Treasury yields. 2yr yields were down 6bps to 4.58%, staying above Friday’s lows of 4.54% as ISM services delivered an upside surprise. 10yr yields slipped 9bps. UK gilts rallied sharply with 10yr yields falling to 4.09% and Bunds were also higher with ECB Schnabel’s comments that further rate hikes are unlikely.
China/HK Equities: Chinese equities extended their decline despite Caixin services PMI coming in higher than expectations at 51.5 in November from 50.4 previously. Moody’s downgrade of China outlook to negative from stable is further spooking debt concerns, and adding to the headwinds for the Chinese economy and pushing investors away despite the cheap valuation.
FX: The dollar gained further on Tuesday as it continued to recover from the declines of last three weeks and downside surprise from JOLTS data was somewhat reversed by ISM upside. DXY index could target 104.50 as focus turns to ADP data today. AUD was the underperformer, with AUDUSD sliding below 0.6560, AUDNZD below 1.07 and AUDJPY pushing below 96.50 to test the 50DMA as RBA fell short of expectations for a hawkish hold yesterday. EURUSD also made it way below 1.08 but yen was flattish against the USD and gained more on the crosses. USDCAD is rising back towards 1.36 and eyes on BOC rate decision today.
Commodities: Commodities extended their decline as dollar gained further. Concerns around China debt also underpinned after Moody’s outlook cut, and weighed on industrial metals. Copper was down 1.3% despite supply concerns, as China could likely continue to deter gains in metals as it continues to deleverage. Crude oil prices also slipped further with supply cuts remaining unconvincing for the markets and parts of US economic data, such as JOLTS jobs data last night, starting to show weakening demand outlook. Concerns around China’s respiratory illness are also pushing oil prices lower. Gold currently finding support at 61.8 fibo retracement around $2,009, a level that needs to hold to avoid speculative exodus.
Macro:
Macro events: BoC Policy Announcement, German Industrial Orders (Oct), EZ Retail Sales (Oct), US ADP (Nov)
In the news:
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Markets are driven by election optimism, overshadowing growing debt and liquidity concerns. The 2024 elections loom large, but economic fundamentals and debt issues warrant cautious investment.
As US economic slowdown hints at a shift away from exceptionalism, USD faces downside with looming Fed cuts. AUD and NZD set to outperform as their rate cuts lag. JPY gains on carry unwind bets and BOJ pivot.
Amid AI and obesity drug excitement, equities see varied prospects: neutral on overvalued US stocks, negative on Japan due to JPY risks, positive on Europe. European defence stocks gain appeal.
With the economic slowdown, quality assets will gain favour, especially sovereign bonds up to 5 years. Central banks' potential rate cuts in Q2 suggest extending duration, despite policy and inflation concerns.
Commodities poised for rebound. The "Year of the Metal" boosts gold and silver, copper awaits rate cuts. Grains may recover, natural gas stabilises. Gold targets $2,300-$2,500/oz, copper's breakout could signal growth.
