Global Market Quick Take: Europe – 26 February 2024

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

Equities: A weak start with equity futures across the board slightly lower. After last week’s Nvidia and AI bonanza it is worth reflecting this week whether equity markets are getting dangerously high. We are the most worried about US equities and investors should begin thinking about reducing equity exposure to technology stocks or outright reduce equity exposure while increasing diversification through bonds. This focus will be on today’s Hungary vote on Sweden NATO membership, earnings from Salesforce and Snowflake on Wednesday, and Eurozone inflation on Thursday and Friday.

FX: The first albeit small weekly dollar retracement in eight last week highlighting a greenback currently struggling to find a direction. Fed speeches continue to lean hawkish but risk sentiment remaining upbeat following the Nvidia-driven AI rally last week. USDJPY rose to highs of 150.80 and Japan’s CPI will be on watch tomorrow where clear disinflation signals could mean more pain for the yen. EURUSD still holding up above 1.08 despite the dovish comments from Lagarde and the focus this week will be on the inflation print.

Commodities: Crude oil’s three-day drop extended to near three dollars overnight amid lack of fresh catalysts with Middle East tensions and OPEC+ production cuts offsetting any demand worries. For now, the price action is mostly technical driven with profit taking emerging following last weeks failed attempt to break higher. Focus this week on comments from industry executives who meet at the International Energy Week in London that runs from Tuesday to Thursday. Ahead of US core PCE data this week, gold managed to close at a two-week high after US Treasury yields dipped from a December high and the dollar eased. Industrial metals continue to focus on whether momentum will pick up in China. A key grains index closed at a fresh three-year low on Friday weighed down by ample global stocks and the prospect of a bumper harvest in South America, but a near record short held by funds raising the risk of temporary short squeezes.

Fixed income: A speech from Lagarde on Friday boosted positive sentiment in European sovereign bonds. The president of the ECB said that euro-area wage numbers are reassuring and that the ECB is independent of moves at other central banks. Therefore, markets increased the odds of rate cuts this year. The German Bund gained with 10-year yield dropping by 8bps to 2.6%, the biggest daily decline since mid-December. At the same time, the BTP-Bund spread tightened 3bps to 144, the lowest in more than 2 years. The bond rally in Europe led to gains in the long part of the US Treasury yield curve also, with the 10-year yields ending the day also 8bps lower, around 4.25%, although the FOMC minutes and poorly performing auctions drove yields higher in the week. With the recent rise in yields, the 2-year Treasury offers an appealing entry point, while the long end remains vulnerable to supply-demand dynamics (for more, click here). Yet, this week might see long-term yields lower, and the end-of-month rebalancing of the bond index will lead funds to drop out maturities of less than one year and add debt issued during the past month.

Macro: Fed’s Waller (voter) said there is no rush to start cutting rates as inflation progress in being monitored. Lisa Cook (voter) also said that she was optimistic inflation is cooling but wants to see more evidence of getting close to 2% target before discussing rate cuts. Focus now shifts to January core PCE, Fed’s preferred inflation gauge, due out this week. ECB’s Lagarde said that Q4 wage numbers are encouraging as pay growth slowed to 4.5%. She also stressed that the ECB is independent, hinting that it may not wait for the Fed to cut rates first. Focus on inflation data this week with Japan CPI on Tuesday, US PCE Deflator on Thursday and Eurozone CPI on Friday.

Technical analysis highlights: S&P 500 uptrend stretched after reaching 5,110. Nasdaq 100 in exhaustion mode after reaching 18K. DAX uptrend potential to 17,506. USDJPY above resistance at 149.75 but struggling to keep upside momentum to next resist at 152. GBPUSD rejected at minor resistance at 1.27. EURJPY reached 161.30 target potential to 163.20. AUDJPY spiked to 99.00 could see minor correction but uptrend intact. AUDUSD likely to resume downtrend below support at 0.6520. Gold closed Friday at 2,035 but indicators bearish, if below 2,015 downtrend resuming. 10-year T-yields key support at 4.20

Volatility: The VIX declined to $13.75 (-0.79 | -5.43%), reflecting a continued positive market sentiment. Alongside, the VVIX and SKEW indices saw reductions to 78.86 (-2.02 | -2.50%) and 144.00 (-1.91 | -1.31%) respectively, signaling a decrease in market volatility and outlier event anticipation. This week's expected moves in the SPX and NDX have slightly decreased to +/- 53.55 (+/- 1.05%) and +/-285.79 (+/- 1.59%) respectively. Looking ahead, economic reports such as Consumer Confidence, GDP, Core PCE, Initial Jobless Claims, and ISM Manufacturing PMI, along with Salesforce's earnings, will be key volatility drivers. After the first overnight trading session this week, VIX futures rose modestly to $14.500 (+0.07 | +0.48%), while S&P 500 and Nasdaq 100 futures saw minor pullbacks to 5089.25 (-12.25 | -0.24%) and 17938.00 (-53.00 | -0.30%). Top 10 most traded (stock) options on Friday, in order: NVDA, TSLA, AMD, AAPL, RIVN, META, AMZN, SMCI, CVNA, and SQ, with Nvidia notably exceeding 3.1 million contracts.

In the news: Buffett Says ‘Eye-Popping’ Results Unlikely With Record Cash (Bloomberg), How a Shifting AI Chip Market Will Shape Nvidia’s Future (WSJ), Nikkei average gives boost to BOJ's case for monetary tightening (Nikkei Asia), BYD Unveils $233,450 EV Supercar to Rival Ferrari, Lamborghini (Bloomberg), How Trump defeated Nikki Haley in her home state of South Carolina (Reuters)

Macro events (all times are GMT): US Jan new home sales exp. 684k vs 664k prior (15:00), US Feb Dallas Fed Manf. Activity -14.0 vs est. -27.4 (15:30), Japan Jan National CPI YoY 1.9% vs est. 2.6% (23:30).

Earnings events: Another earnings week ahead with the Q4 earnings season nearing its end. The three key earnings releases to watch this week are Salesforce, Snowflake, and Anheuser-Busch InBev.

• Monday: Workday, ONEOK
• Tuesday: Bank of Nova Scotia, Bank of Montreal, Sempra, Constellation Energy, Republic Services, Lowe’s, Munich Re, AutoZone, American Electric Power
• Wednesday: Oversea-Chinese Banking, Holcim, Royal Bank of Canada, TJX, Salesforce, Snowflake, Monster Beverage, Universal Music, Reckitt Benckiser
• Thursday: Alimentation Couche-Tard, Anheuser-Busch InBev, CRH, NetEase, Canadian Imperial Bank, Dell Technologies, Autodesk, London Stock Exchange
• Friday: Canadian Natural Resources

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