Global Market Quick Take: Europe – 7 March 2024

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

Equities: Chinese equities are still struggling to find a direction with Hang Seng futures reversing 1.4% lower after yesterday’s gains. Nasdaq 100 futures are down 0.5% this morning trading below yesterday’s lows. Overall, the market seems more fragile in technology stocks, so the Nasdaq 100 futures should be watched closely for a breakout to the downside. JD.com Q4 earnings were strong yesterday and the Chinese retailer said it might buy back shares worth $3bn pushing the shares up 16%. CrowdStrike opened strongly yesterday on better-than-expected outlook for Q1, but shares sold out throughout the entire trading session. US earnings focus today on releases from Costco (aft-mkt), Broadcom (aft-mkt), and Marvell Technology (aft-mkt).

FX: The dollar weakness accelerated as weak data coincided with a neutral tone from Powell that sent a sense of relief to markets. DXY index touched lows of 103.20 and stayed close to that level in Asia overnight. The yen got a double boost from a less hawkish Powell and rising anticipation of a BOJ pivot after Japan’s wage data surprised to the upside and BOJ’s Nakagawa hinted at positive outcome from the wage talks. Governor Ueda also mentioned “exit” in the parliamentary appearance. USDJPY slid to a 148.38 low overnight from 150+ levels seen yesterday. EURUSD rose to challenge resistance in the 1.09-area, a level that has managed to limit gains since mid-January. GBPUSD lacked traction on lack of surprises in UK budget and global equity sentiment turning choppy.

Commodities: The momentum in Gold saw it reach a fresh record high in Asia at 2161.5 amid weak US economic data and with Powell’s remarks being interpreted as mildly dovish, sending the dollar and Treasury yields lower. Crude oil extended gains after a US report showed signs of rising fuel demand heading into the summer driving season. Overall resistance above $80 in WTI and towards $85 in Brent looks firm for now.  Weaker USD also helped industrial metals, although China’s NPC policy announcements so far have underwhelmed. Chicago wheat futures tumbled to a 3-½ year low, weighed down by ample supply, and export competition from the Black Sea region.

Fixed income: The US yield curve bull-flattened yesterday, with 2-year Treasury yields mostly unchanged on the day, around 4.55%, and 10-year yields dropping 5bps to 4.10%. The ADP report of private payrolls for February, and the JOLTS report came mostly aligned with expectations. Yet, Powell’s testimony before Congress ignited the bull flattening of the yield curve with Powell maintaining the message that Federal Reserve members have been echoing in the past week: the Fed will begin cutting rates sometime this year, but the “2% inflation objective is not assured”. European sovereign yields also fell following Powell’s speech, but they ended the day flat, with Bunds closing at 2.32%. Today’s focus is on the ECB meeting, which will release a new set of macroeconomic projections displaying a downward revision in inflation for this year. We expect three outcomes for markets, two bullish for European sovereigns. For a preview ahead of the ECB meeting click here.

Macro: Fed Chair Powell reiterated the stance on keeping rates higher for longer as he testified in the House. He said that the Fed does not expect it will be appropriate to reduce the policy rate until they have greater confidence in inflation moving sustainably towards 2%. He also repeated it is likely to be appropriate to begin dialling back policy restraint at some point this year, and that the policy rate is likely at the peak for this cycle. Despite a neutral tone, the market got a sense of relief and interpreted it as mildly dovish. Fed Chair speaks again today at the Senate. Bank of Canada chose to keep rates unchanged as expected but was less dovish in their official statement and those of Governor Macklem. Macklem noted the significant impact of shelter price inflation on the Bank of Canada's decision-making process and tempered expectations regarding the timeline for achieving the 2% inflation target, suggesting it is unlikely to be met this year. He repeated that the BoC cannot put the timing of rate cuts on a calendar, adding they will not be lowering rates at the pace the BoC raised them. US jobs data showed signs of mild weakness. JOLTS in January fell to 8.863mln from 8.889mln, light of the forecasted 8.9mln. Quits rate slowed to 2.1% from 2.2%, which had been as high as 3% in 2022, showing signs of easing wage pressures. ADP still held up well, coming in at 140k for February from 111k in January and below the 150k expected, but it is a less reliable indicator. Focus turns to NFP jobs data due on Friday. UK Chancellor Jeremy Hunt’s budget announcement came with little surprises. Some personal tax cuts were announced, but income tax was not altered. The cost will be partially offset by the abolition of the “non-dom” tax regime and other tax increases. Economic growth for 2024 was forecast at 0.8 per cent. From a policy perspective, most of the measures were as expected and unlikely to be inflationary and may not affect the path of Bank of England. Japan’s wage growth accelerated in January at the fast pace since June last year, boosting expectations of a BOJ exit as early as March or April. Nominal cash earnings grew 2.0% YoY in January from vs. 1.2% expected and 0.8% in December. Real wages fell 0.6% YoY, a smaller drop than expected. Wage negotiations are likely ongoing now and the initial results should be available next week. China’s exports started the year on strong footing, offering a possible pathway for Beijing to hit its aggressive growth target this year while raising the likelihood of increased trade tensions. China’s outbound shipments rose 7.1% in the January-February period when compared with a year earlier, accelerating from a 2.3% increase in December, according to data released Thursday by Beijing’s General Administration of Customs.

Technical analysis highlights: S&P 500 top and reversal unfolding, minor support at 5,048, strong support at 4,920. Nasdaq 100 testing support at 17,808 a close below likely move to 17,300. DAX possible top and reversal, expect correction unfolding, support at 17,326. EURUSD likely to break resistance at 1,09, next resist at 1.10. USDJPY broken below support at 149.20, minor support at 147.80 and 146.95. EURJPY lower, likely to test support at 161, could drop to 160. GBPUSD uptrend, likely testing 1.2775 and 1.2828. Gold pushing towards new highs potential to 2,195-2,233. US 10-year T-yields below minor support at 4.11  

Volatility: Yesterday, the VIX nudged up to $14.50 (+0.04 | +0.28%), reflecting a slight increase in market volatility, while the S&P 500 and Nasdaq 100 indices also saw gains of 0.51% and 0.67%. The VVIX dipped to 83.11 (-0.80 | -0.95%), and the SKEW index decreased, indicating a lessening concern for outlier events, as markets interpreted Fed Chair Powell's comments as dovish. VIX futures rose to 14.95 (+0.160 | +1.08%), suggesting an expectation of higher volatility, yet S&P 500 and Nasdaq 100 futures pointed to a potential pullback, setting the stage for a possibly volatile trading day. Tuesday's trading saw active participation in stock options, with the most traded being, in order: TSLA, NVDA, AAPL, PLTR, AMD, SOFI, GOOGL, INTC, NYCB, and CRWD.

In the news: Jerome Powell Says Fed on Track to Cut Rates This Year ($WSJ), Japan sees growing momentum towards March end to negative rates (Reuters), China central banker sees full toolbox as planners vow to hit GDP goal (Nikkei Asia), EU moves to slap retroactive tariffs on electric vehicles from China (SCMP), US Urges Allies to Squeeze China Further on Chip Technology (Bloomberg)

Macro events (all times are GMT): Germany Factory orders (Jan) exp –6% vs 8.9% prior (0600), ECB rate decision (1215), US trade balance (Jan) exp -$63.5 bn vs –$62.2 bn prior (1230), US initial jobless claims, exp 216k vs 215k prior (1230), EIA’s weekly natural gas inventory report (1430).

Earnings events: Today’s earnings focus is Costco, Broadcom and Marvell Technology. Analysts expect Costco to report 7% YoY revenue growth and EPS of $3.62 up 10% YoY as the US retailer continues to outperform its peers. Analysts expect Broadcom to report revenue growth of 32% YoY driven by AI demand and VMware integration.

• Today: MTR, Techtronic Industries, Prada, Merck KGaA, Costsco, Broadcom, Marvell Technology, MongoDB, Samsara, Kroger, Continental, Vivendi, DocuSign
• Friday: Oracle, China Unicom Hong Kong, ZTE

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