Quarterly Outlook
Macro Outlook: The US rate cut cycle has begun
Peter Garnry
Chief Investment Strategist
Key points:
The Saxo Quick Take is a short, distilled opinion on financial markets with references to key news and events.
Macro:
Macro events (times in GMT): Q3 GDP from France, Spain, Germany and Italy. Eurozone Prelim 3Q GDP (1000), Eurozone Oct Consumer Confidence (1000), US Oct ADP Employment Change (1215), US 3Q GDP (1230), US 3Q Personal Consumption (1230), UK Budget (1230), Bank of Japan (usually 0230-0300)
Earnings events:
For all macro, earnings, and dividend events check Saxo’s calendar.
Equities: US markets saw the Nasdaq Composite reach new record highs, rising 0.78% as investors maintained optimism ahead of this week’s big tech earnings and the upcoming US elections on November 5. Google jumped more than 5% after reporting earnings after the close yesterday as the company noted that its heavy investment in AI at its data centres is paying off with a surge in its cloud business. AMD’s earnings met expectations, but shares dipped 7% after providing unexciting Q4 guidance. In Asia, the Nikkei 225 gained 0.77%, buoyed by a weaker yen amid Japan’s ruling coalition losing its lower house majority, potentially impacting BOJ’s policy stance. Today, the focus will be on the two Mag-7 companies Microsoft and Meta reporting after the close, with Eli Lilly reporting before the market open and focus there on the growth in its obesity drug. Volkswagen has already been out reporting earnings this morning and posted its worst profit margin since the pandemic on slumping sales in China.
Volatility: The VIX fell 2.32% to 19.34, reflecting a moderation in broader market volatility expectations. The VIX1D, a measure of one-day volatility, rose by 12.76%, suggesting elevated uncertainty in the immediate term as major tech earnings and economic data approach. Today's implied moves for the SPX and NDX stand at roughly 30 points (0.52%) and 168 points (0.82%), respectively, indicating expected movement around these levels for the day. Upcoming earnings from key players like Microsoft, Meta, Eli Lilly, and Caterpillar are poised to impact market sentiment and could drive intraday volatility. In the options market, notable activity surrounds AMD, Alphabet, Ford, and Pfizer, primarily due to their recent earnings reports, as traders adjust their positions in response to corporate performance metrics.
Fixed Income: European sovereign bonds yields rose as traders anticipated increased fiscal spending in the US and UK. German 10-year real yields rose to 0.47%, their highest since July, while UK gilts dropped ahead of Wednesday’s budget, pushing the UK 10-year real yield to a one-year high at 0.82%. U.S. Treasuries ended Tuesday mostly unchanged after initially falling. A $44 billion auction of 7-year notes showed strong demand with yields dropping slightly afterward. The auction stopped through When Issued, indicating high interest, and had one of the highest bid-to-cover ratios on record. This result spurred a bond rally till the end of the day. The 10-year yield settled around 4.28%, down from an earlier high of 4.33%.
Commodities: Gold reached a fresh record near USD 2,800, supported by continued uncertainty about the US election outcome, and after mixed US economic data drove US bond yields lower. Also, the market continues to price in a 25-bps rate cut on 7 November. Gold demand climbed to 1,313 tons in the third quarter, according to the World Gold Council, with strong investment demand from the West offsetting waning appetite from Asia. Crude trades steady after two-day decline with focus on EIA’s weekly stock report while traders are split on whether OPEC+ will go ahead with a December production increase. A possible fresh stimulus boost in China gave copper brief boost. Chicago wheat rise on disappointing winter wheat conditions while harvest pressures weigh on soybeans.
Currencies: US dollar strength yesterday was partially reversed against the major currencies, with the EUR/USD exchange rate seemingly unable to punch below 1.0800 and stay there. Sterling is at the stronger end of the range versus the euro ahead of today’s important autumn budget statement with Chancellor Rachel Reeves. And huge anticipation ahead of tonight’s Bank of Japan meeting, as the market awaits guidance on how the BoJ sees the policy trajectory from here, particularly any hints on whether a rate hike at the December meeting rate could be in play.
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