Quarterly Outlook
Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges
Althea Spinozzi
Head of Fixed Income Strategy
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Morning Brew 19 December 2024
Erik Schafhauser
Senior Relationship Manager
Summary: The Feds Hawkish cut spooks traders
Good morning,
For the first time in 48 years, the Dow Jones has fallen for 10 consecutive days. The S&P 500 experienced its first negative Wednesday since 2001. The USD Index has risen to its highest level in over a year, surpassing 108. Meanwhile, 10-year yields have broken above a significant trendline, reaching 4.52%.
The VIX increased by 11 points to 27, marking the largest decline for the Dow Jones since August. The Dow dropped by 2.6%, the S&P 500 by 2.95%, and the Nasdaq by 3.55%. Tesla lost nearly 10%, Apple 12.1%, and both Microsoft and Meta more than 3.5%. Trading volumes were substantial, with over 18.5 billion shares exchanged on US markets, compared to an average of 14.4 billion.
Currently, the US 500 is at 5,870, the US 30 at 42,355, and the GER40 at 19,990. The EUR/USD fell below 1.04, GBP/USD to 1.26, and USD/JPY to 156.10 after the Bank of Japan kept rates unchanged. Gold and silver prices are lower, at 2,610 and 29.55, respectively.
The Federal Reserve has shifted its stance, anticipating more growth under the Trump Administration but also higher inflation, suggesting less room to cut rates in 2025. This outlook surprised traders and triggered significant risk-off moves. Comments that the US Central Bank is not allowed to hold crypto under current legislation, with no plans to change this, have negatively impacted crypto shares.
The key question now is whether this is seen as a buying opportunity or if traders will wait until the new year. The last selloff in August lasted just a day—will this one be the same?
Today, the US GDP, Initial Jobless Claims, and Philly Fed reports might be crucial. The Bank of England, along with the Swedish and Norwegian Central Banks, would need to deliver significant surprises to move markets. Elon Musk and Donald Trump have urged Congress to vote against a funding bill, raising concerns about a potential government shutdown.
There are no Fed speakers scheduled, but there will be plenty of commentary on yesterday’s decision and outlook. The resulting sentiment will be key. Remember that tomorrow is the big expiry of futures and options!
Trade safely and cautiously!
Thursday
- Data Japan Rate Decision BOE Rate decision, US GDP, Initial Jobless Claims, Philly Fed
Friday
- Data China Rate decision US PCE Quadruple Witching Friday
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