Speaker 1Welcome to the Saxo Market Call. Before we get started, it's important we emphasize that the views and opinions expressed in this podcast are those of the host and guests and do not constitute investment advice or recommendations. All information provided is for educational and entertainment purposes only. Hey everyone, it's Tuesday, 20th of October, 2026. Getting a late start here in the podcast studio. So much is going on. Of course, the geopolitical backdrop is very much top of mind here. We have this clear break between the U.S. and Ukraine, or at least the Trump administration or Trump himself and Ukraine. That doesn't seem to be getting any closer to being resolved, and the question is whether this is mushrooming into some kind of broader break with Europe. Don't know. Putting it out there. And then we have, I saw this rumor for the first time today by Michael Every's tweet or post on X that Kim Jong-un rumors that he might be dead. That is something to track as well. But in any case, the key thing here for markets is that the crude oil price is, of course, back on the rise. And it's not just the front end. The back end is coming up quite aggressively. This is kind of an issue that snuck up on me. I hadn't really noticed that forward curve. We've talked about it before, how staggeringly cheap forward crude was relative. We've talked about it before, how staggeringly cheap forward crude was relative to the elevated front months here with this dramatic assumption that these energy supplies would sort of normalize over a reasonable timeframe. So what you're seeing is, of course, we have December Brent up at 111.5 almost this morning just before I came in here. And we have West Texas Intermediate December catching up there to a large degree. We'll have to get Olin here very soon to talk about why that catch up is happening. 107 plus on WTI. Then look at the forward contracts. So if we recall, well, actually, I don't recall the actual top in the crude oil price since this Iran war broke out. But it was maybe around where we are now or slightly higher. But the year forward contract, so 13 months from the spot month, is up at 87, almost $88 per barrel. The previous high was around 82. So that forward crude price now is getting up to new highs and dramatically so for the cycle. Again, this assumption. This is not really feeding much into bonds because we have some really wobbly risk sentiment and some pretty crazy swings in this market. I mean, the podcast I left you with on Friday, we'd had that sort of dramatic recovery. I said this is a line in the sand. Clearly, things like the AI trade and the so-called broad AI index that Goldman Sachs has surviving a test of the 200-day moving average. And then things just collapsed. That was the Thursday session I was covering on Friday. But things collapsed then, of course, on Friday in ugly fashion. And then yesterday, we get this weird session with not particularly strong, but some of the key trades did sort of try to post a comeback, but just not quite. If you look at the broad AI, still well below its 200-day moving average. We have key things that are the earnings are incoming, but a very, very heavy divergences internally in the US market. So the NASDAQ 100 was up over a percent, the S&P up 0.4%, but the median stock was down, S&P 500, Eagleweight down three-tenths of a percent. Russell 2000 up very slightly, but still looks very heavy. If you have a look at the chart, still far below its 200-day moving average. The semiconductor index, again, posting together with, well, not together with everything. There was a lot of divergence even within the AI trade, but it was at 1.6%. That vibe not being felt at all by the rest of the world. And we're down in the futures in the US, but also Cospi heavy, Nikkei heavy, Europe looking terrible today once again. So risk sentiment is still very much on tilt. It makes sense with crude oil prices doing what they're doing. And the disquiet linked, of course, in Europe to the French situation where things did quiet down last night. They got ahead of the risk of more blood in the streets and mayhem in the streets with these curfews, etc. But we are seeing the spreads closing at a new cycle high on a daily close. We did see an intraday high. I think it was 159 basis points was the intraday high we saw at one point. But we saw a new high for the close at around 148 on the spread between Germany and France tenure yield. And it's pushed up as high as 153 in today's trade. Germany, Italy, that is also up, but it has not yet breached the prior high close around 115 basis points is what I've seen. basically gasoline, I assume also diesel. But yeah, those are just the highlights of the many companies reporting this week. Okay, I bet jumping all over the place was in a rush this morning to get things put together for today's podcast. So we have, of course, in the sovereign spread situation, we need to continue to track. Are we in some kind of downward spiral? I do have a couple of good links for you in the podcast episode description on why France is in the situation it is in. A lot of it linked to this issue of funding these very, very expensive pensions for the state and that the allocation within the spending has been tilting more and more towards basically old people who are unfairly able to retire early relative to the rest of Europe. I mean, here in Denmark, for my generation, the retirement age is set to 69 years old, and I think it rises to at least 70 for younger people. And France, they couldn't even get this latest pre-scheduled increase in the age from 62 to 64. They couldn't get the budget passed last year without kicking this can down the road. So it's still 62 years old in France. But in any case, the cost of those old folks' pensions is rising as a percentage of overall outlays, and therefore the outlays for other budget items, including education and otherwise, is shrinking in relative terms. So there's good coverage of that as well as just a straightforward Bloomberg article on, look, this country has to cut spending. It's going to be very ugly to watch how this goes down because something in absolute terms must change. This is not about an ECB bailout beyond maybe some liquidity operations just to ease any kind of really emergency situation. And then we have, as some have pointed out, we have one of the leading candidates, and with no chance, I don't believe, of ever becoming the next French president, Jean-Luc Mélenchon, who's saying we should cancel hundreds of billions in French debt. That is not a good look for anybody holding debt, if anything like that were ever to come to light. So it's an ugly situation. I'm not sure how it really improves, and especially with the yields still relatively high. It is helping that they're coming down, but it may not help enough. And if the yields are coming down because of safe haven seeking in German bonds and US treasuries, that's not necessarily a good look for or a good development for French debt. And of course, in the opposite direction, if yields continue higher, that's also bad. So there has to be a behavior change. There has to be a really strong signaling, probably both from France and from the EU, some kind of commitment, some more serious attempt to, you know, to, you know, to attempt to chop the budget for the 2027 proposal. All these ingredients are needed, I think, to get ahead of this situation. Elsewhere, in terms of credit strain, the high yield spread index that we track, it saw another notch higher. It's peaked out at 331 basis points on Friday. That's just four basis points shy of the March high of 335 basis points. Again, still not very high stress levels. In terms of nominal yields, this is a quite high levels given where the yields have gone for treasury. So when you add 335 basis points on top of that, that's quite a bit. And we tightened a couple of basis points yesterday, but it is an indicator I will continue to track and report on. And with the overall rise in yields of late, not a huge surprise to see that that September NAHB housing survey, sort of, you know, an indicator on traffic and interest in new houses. Hit a new low for the cycle and below the worst level during that spike during the pandemic of 29. This is the lowest level since 2012. And, you know, there were a few years where it was every single month lower than this, but that was essentially the worst part of the housing crisis and post-bubble dynamics there in the U.S. from, let's call it, was it late 2007 or mid-2007, all the way through to that 2012 timeframe. And the absolute low was hit a reading of eight on January of 2009. So obviously the housing market in the U.S. more or less frozen. And, you know, with these mortgage levels, prices that will need to become much lower for housing that's on the market to clear. If you get a proper recession, higher unemployment rate, that's when the pricing mechanism starts to really kick in and price discovery becomes something more significant and becomes one of these self-reinforcing loops would be the risk because when, when employment is, when you're at relatively full employment and listings just sit there on the market for a long time, you don't get necessarily the actual pricing indicator showing how weak the market is. It's when the forced selling starts to happen because people don't have any choice, but to default on mortgages. And then you get these clearing prices that those housing prices are really heavily impacted. All right. That is a short one for today. There's so much going on here. It does feel very, very dodgy out there with where we are technically. Is the sentiment finally wobbling on this AI trade or are we going to get through this earning season? And we have one big more further blast of buying pressure, passive allocations, saving the day because all the active sellers out there are just too small and can't drive this thing lower and rock the overall sentiment. I really don't know. Just things are really on tilt right now. Things not feeling too solid. Oh, and the one thing I forgot to end, to talk about was an economist cover. You wonder how the editor-in-chief of The Economist or any of these, or Barron's or any of these major financial publications ever allows these types of headlines to be created. But it's the October 8th to 10th, 2026 cover for The Economist, Will Bonds Blow Up? One of those classic, of course, contrarian indicators, if it works, that it's time to rotate into bonds. It's certainly been, it was a good timeframe for the bond market bottom. It's been a good time frame for the bond market bottom, and a top in yield so far. Let's see if that remains the case, but certainly a classic indicator that maybe the bottom could be in for bonds, at least for a time. We'll see. All right, again, that's it for today. Do stay careful out there, and I'll be back soon with the next Saxo Market Call. This has been the Saxo Market Call podcast. Thanks for joining today's episode. We're always happy for your feedback and questions of all kinds. To reach out, you can drop us an email at marketcallatsaxobank.com. That's marketcallatsaxobank.com. Saxo, serious trading worldwide. We'll see you next week.
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