Macro: It’s all about elections and keeping status quo
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.
Head of FX Strategy
Key points:
The Saxo Quick Take is a short, distilled opinion on financial markets with references to key news and events.
Equities: Megacaps drove the S&P 500 to its best week since November on the back of stronger earnings from tech giants Alphabet and Microsoft spurring a rally across tech stocks. Alphabet surged over 10% on Friday, pushing the company's market value above $2 trillion for the first time. Earnings season continues this week with Amazon, Coca-Cola, AMD, Eli Lilly reporting on Tuesday.
In Europe, UK’s FTSE 100 also reached a fresh record high on Friday, up over 3% last week, even as the index remains cheaper than US indices. Gains were, however, led by Hong Kong’s Hang Seng index that was up 8.8% on valuation discount and China’s pledge to support HK as a financial hub. HSI tech index was up over 13% and China’s biggest EV-maker BYD reports earnings today.
FX: Despite strong gains on Friday, the US dollar DXY index ended the week marginally lower despite the expectations of the first full Fed rate cut shifting to December from a November cut seen at the start of last week. The decline in JPY accelerated post-BOJ announcement on Friday and USDJPY rose to 158+ levels just as we expected, given the usual dovish narrative from the BOJ and lack of an intervention. Yen crosses also reached record levels, with AUDJPY at a decade-highs, NZDJPY highest in 17 years, and CNHJPY knocking at the 22 handle where once 21 was considered to be the line-in-the-sand. GBPUSD making another stride above 1.25 while EURUSD still struggling at 1.07.
Commodities: Gold recorded its first weekly decline in six weeks, as expectations of Fed rate cuts faded. Silver was down over 5% for the week, despite dollar still marginally weaker. Crude oil rose last week amid lingering risks to supply. Tensions in the Middle East remain elevated despite tit-for-tat attacks between Israel and Iran not leading to any escalation in the Israel-Hamas war. Supply risks are also emerging as Russia and Ukraine target each other’s energy infrastructure. Base metals remained strong last week, with Copper up over 1% even as BHP’s bid for Anglo American failed and risk of a correction is seen. Grains sector was also in focus with Wheat prices up close to 10% for the week on weather concerns.
Fixed income: While Friday’s core PCE data cooled the hawkish risks around Fed policy, the impact was small compared to a slew of strong data seen over the last few weeks. 2-year yield was back to test 5% while 10-year was above 4.65%. Today’s focus is on quarterly financing estimates ahead of Wednesday's Quarterly Refunding Announcement and the FOMC with Powell expected to tow a more hawkish line given the data, followed by NFP on Friday.
Macro:
Macro events: Spanish Flash CPI (Apr), German Prelim CPI (Apr), EZ Sentiment Survey (Apr); Japan Market Holiday (Showa Day)
Earnings: ON Semiconductor, MicroStrategy, Paramount Global, NXP Semiconductors, Yum China, Domino’s Pizza, Logitech, China Construction Bank, BYD
News:
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