Global Market Quick Take: Europe – 15 May 2024

Key points:

• Equities: Equity futures point higher ahead of US CPI report. Earnings surprise from Commerzbank and Allianz
• Currencies: Broad dollar weakens ahead of US CPI
• Commodities: Platinum joins the rally as copper hits fresh record high
• Fixed Income: Markets are optimistic ahead of the US CPI release, making them more vulnerable to an upside surprise.
• Economic data: US April CPI

The Saxo Quick Take is a short, distilled opinion on financial markets with references to key news and events.

Equities: European equity futures are pointing higher following a positive Asian session and ZEW figures yesterday showing Europe is rebounding faster than expected. The key macro event for equities today is the US April CPI which is expected to show that inflation is still persistently high in the US economy. Rheinmetall disappointed yesterday in its Q1 results with both revenue and earnings missing estimates, but the company reiterated its fiscal year guidance as backlog of orders rose 43% YoY. In the US session, Home Depot and Alibaba disappointed on revenue while Tencent beat expectations. Home Depot revenue declined for the sixth straight quarter underscoring the impact on home improvement amid high financing rates.

FX: The DXY index saw sharp move higher on PPI beat, before quickly reversing and the USD ended the day lower ahead of US inflation release today. USDJPY extended its upside to 156.55, but the move in yen crosses was even more pronounced. NZDJPY moved to fresh highs of 94.65 since the first leg of intervention a few weeks back, while AUDJPY surged back towards 104. AUDUSD continued to rise towards recent resistance at 0.6640 despite Australia’s budget announcement yesterday not stoking inflation concerns. We discussed the tailwinds for AUD in this article. GBPUSD dropped sharply to lows of 1.2510 on dovish comments from BOE’s Chief Economist Pill who kept a June rate cut clearly on the table, but pair reversed and rose back to 1.2590 in the US session. EURUSD also back above 1.08 with focus on 1.0836 Fibo resistance.

Commodities: Saxo’s “Year of the metals” theme, highlighted in our Q1 outlook continues to gather momentum with our preferred metals: gold, silver, copper, and now also platinum showing strong gains. Copper reached a fresh record high overnight above USD 5/lb, a YTD gain of 30% as an expected future tight supply outlook attracts momentum buyers and now also short covering from traders who had sold amid current weakness in some key metrics. Platinum meanwhile has broken its year-long range above USD 1015, as investors respond to an improved technical outlook and the prospect of a rising supply deficit this year and the next. Crude oil traded lower on Tuesday amid OPEC+ struggling to keep a lid on production with several members looking for higher baselines next year, before bouncing after the API reported a 3.1m bbl weekly drop in crude stocks. OPEC maintained an overly optimistic view on 2024 demand growth at 2.2mb/d with focus on IEA's monthly report today and whether they stick to their 1.1mb/d growth target. Overall, today's CPI report will be key to several markets and their ability to force their way higher.

Fixed income: European sovereign bonds fell despite ECB’s Knot confirming a rate cut in June, as markets saw the eurozone economy recovering, evidenced by the ZEW economic expectations survey rising to its highest level in two years. The yield on 10-year Bunds increased by 3.8bps, closing at 2.54%, while Italian BTPs outperformed peers with 10-year yields rising by 2.6bps. In the US, the yield curve bull-steepened slightly, with Treasury yields dropping around 4bps across maturities, even as markets absorbed higher-than-expected US PPI prints. A downward revision of the previous month’s PPI data softened the impact, and Federal Reserve Chairman Powell downplayed the significance of the PPI data in his speech. Ahead of today's CPI data release, markets are confident that the inflation print will continue to show a disinflationary trend, although they remain vulnerable to surprises if the data is hotter than expected (for a preview on the US CPI and market expectations click here). We still favor the front part of the yield curve and remain cautious about duration, particularly as rising geopolitical tensions could entrench inflation.

Technical analysis highlights: S&P500 uptrend likely to test previous peak at 5,265, above potential to 4,400. Nasdaq 100 confirmed uptrend, potential to 19K. DAX uptrend likely to reach 19K. EURUSD testing resistance at 1.0825, could break bullish. Strong resist at 1.0885. GBPUSD bounced from minor support at 1,2466, must close above 1.26345 for uptrend, another break below likely to fuel sell-off to 1.2370. USDJPY rebound potential to 157. EURJPY likely to reach 170. AUDJPY reached 0.76 retracement at 103.90, could test previous peak at 105. AUDUSD testing strong resist at 0.6650, could break higher to 0.6738. Gold took out resist at 2,353 potential to +2,400. Silver upside potential to 30. Platinum upside potential to 1,130. Copper at all time high, uptrend stretched, only minor correction likely. US 10-year T-yield correction could dip to 4.39, Key support at 4.34

Volatility: The VIX experienced a decrease, finishing at $13.42 (-0.18 | -1.32%), while the VIX1D, which tracks very short-term volatility, surged to 16.85 (+5.06 | +42.92%). This substantial increase is typical ahead of significant economic announcements like today's CPI figures, which historically prompt market volatility. Notably, the current VIX1D level is higher compared to the days preceding past CPI releases, suggesting potential for marked price movements in today’s session. There are no significant corporate earnings expected today that could influence market trends. VIX futures have climbed this morning to 14.210 (+0.695 | +5.13%), whereas S&P500 and Nasdaq 100 futures have remained relatively stable, at 5272.75 (+3.25 | +0.06%) and 18415.00 (unchanged) respectively. Tuesday's top 10 most traded stock options, in order: AMC Entertainment, Tesla, GameStop, NVIDIA, Apple, SoFi Technologies, Amazon, Alibaba, Microsoft, and BlackBerry.

Macro: US PPI came in hotter than expected, but the details that feed into the Fed’s preferred PCE measure were not as hot and the prior measure was revised lower, softening the blow to sentiment. Both headline and core PPI rose 0.5% MoM, vs. expectations of 0.3% and 0.2% respectively. Meanwhile, US NFIB business optimism index rose to 89.7 in April from 88.5 but remains close to its average during past recessions. Fed Chair Powell stuck to his dovish tilt, calling the PPI report “mixed not hot”, and highlighting signs of cooling in the labor market. He reiterated that he doesn’t think it’s likely that the next move would be a rate hike. US CPI Preview: Stakes are high for the release of US April inflation print today after three consecutive months of upside surprise and a consistent dovish narrative out of the Federal Reserve. Consensus expects headline CPI to remain unchanged at 0.4% MoM while core could soften to 0.3% from 0.4% earlier. What makes it even more interesting is that retail sales are also reported today. Consensus expects significant softening in April retail sales print, and this will form an additional key input on where the US economy is heading. For more details on how we expect the different asset classes to react to US CPI release, read this article.

In the news: Biden hits Chinese electric cars and solar cells with higher tariffs (BBC), China vows to take ‘all necessary actions’ in response to Biden’s tariffs (CNN), Australia unveils US$6b budget surplus, touting clean energy "transformation" (CNA), Home Depot sales drop more than expected as wary customers delay big projects (Reuters), OpenAI co-founder Ilya Sutskever departs (Reuters), Alibaba shares fall 6% after the Chinese tech giant posts 86% drop in profit (CNBC)

Macro events: Eurozone Industrial Production exp 0.4% & -1.3% vs 0.8% & -6.4% prior (0900), US CPI (Apr) exp 0.4% & 3.4% vs 0.4% & 3.5% (1230), US Retail Sales (Apr) exp 0.4% vs 0.7% prior (1230), US Empire Manufacturing (May) exp –10 vs –14.3 prior (1230), US NAHB Housing Market Index (May) exp 50 vs 51 prior (1400)  IEA’s Monthly Oil Market Report (1000), EIA’s Weekly Crude and Fuel Stocks report (1430)

Earnings events: Today’s US earnings focus is Nubank and Cisco while Commerzbank and Allianz will grab the attention in the European session with both having surprised to the upside in their Q1 results released ahead of trading hours.

• Today: Nubank, Hoya, Merck, Sumitomo Mitsui Financial, Recruit, Mizuho Financial Group, Cisco, Allianz, Compass, Experian, E.ON, Hapag-Lloyd, RWE, Commerzbank
• Thursday: Meituan, Siemens, Deutsche Telekom, Walmart, Copart, Applied Materials, Deere, JD.com, Baidu, Swiss Re, KBC Group,
• Friday: Richemont, Engie

For all macro, earnings, and dividend events check Saxo’s calendar