Global Market Quick Take: Europe – 5 December 2023

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

Equities: Chinese equities are in a tailspin with Hang Seng futures down another 2.7% driven by renewed weakness among real estate related stocks. The Politburo is expected to hold key meetings this month setting the policy goals for next year and these meetings will be scrutinized by investors as China is currently a drag on global growth. Yesterday’s session saw investors reversing bets on Fed policy cuts and the US 10-year yield rose cooling S&P 500 futures which are still hovering around the 4,600 level. In Europe, investors will focus on ailing Nokia which yesterday lost a deal to Ericsson on revamping AT&T’s network worth $14bn causing its shares to slide 6.5%.

FX: Dollar firmed up to start the week as Treasury yields rose and markets re-considered whether the extent of rate cuts priced in for next year could be possible. NOK underperformed amid lower oil prices, while the AUD slipped as the Reserve Bank of Australia held interest rates steady and its comments on inflation suggested a dovish tilt.  USDJPY rose back above 147 but EURJPY was steady around 159.50 as EURUSD pushed lower to test the 1.08 handle with little reaction to Lagarde’s speech. EUR bearish case is likely to build up here as noted in yesterday’s FX note.

Commodities: Broad selling seen in commodities yesterday amid a risk-off tone and dollar strength. Crude oil steadied after a three-day loss as Saudi Arabia said recent cuts would be honoured and could be extended. Yet, the market continues to move towards contango, highlighting a well-supplied market currently. Gold touched all-time highs of $2,135/oz before reversing back to $2,020 as yields and dollar rebounded, and the market took a raincheck on the number of expected 2024 rate cuts. Copper slumped but has so far managed to hold above its 200DMA a $3.8165 as supply concerns supports and China PMI beat estimates.

Fixed income: The US yield curve shifted slightly higher as markets wrapped their heads around expectations of five rate cuts next year. The Treasury sold $75 billion of three-month bills and $68 billion of six-month bills yesterday. However, the latter was poorly received by investors as it offered a yield well below the lower bound of the Fed Fund rate. The auction tailed by 1.5bps, and it recorded the smallest indirect bidders award since March. It shows that investors are not rushing to extend maturity despite bond futures indicating an imminent rate-cut cycle. Today the market will focus on services PMI, ahead of the job numbers attracting investors’ attention for the rest of the week.

Volatility: Volatility, measured by the VIX, rose $0.45 (+3.56%) to $13.08, pushing stocks lower. The VVIX rose 1.86 (+2.17%) to 87.76, showing some nervosity coming back into the markets. The Gold Volatility Index (GVZ) remained at elevated levels after the initial optimism of multiple anticipated rate cuts in 2024, to 17.13 (up from 14.24 yesterday morning). VIX futures also went slightly higher during the nightly session, up 0.150 (1.08%) to 13.950. S&P 500 and Nasdaq 100 futures continued to decline overnight to 4562.50 (-14.25 | -0.31%) and 15802.00 (-67.00 | -0.42%) respectively.

Macro: US factory orders fell more than expected in October, dropping 3.6%, flipping from a downwardly revised 2.3% gain in September. Japan’s Tokyo CPI cooled considerably with the headline out at 2.6% YoY vs. prev. 3.2% YoY and expected 3.0%. Core CPI slowed to 2.3% YoY from 2.7% previously but core-core measures, although cooled to 3.6% from 3.8%, but remained well above the BOJ’s 2% target. The Reserve Bank of Australia held interest rates steady with a neutral-to-dovish tilt in commentary amid lack of data, leaving market unimpressed as a hawkish hold was priced in. This opens the doors for dovish repricing of the RBA curve for 2024, where only one rate cut is priced in vs. Fed’s five.

Technical analysis highlights: S&P 500 eyeing 4,800. Nasdaq 100 short term correction likely, support at 15,744. DAX uptrend stretched, likely correction to 16K. EURUSD testing minor support at 1.0825, strong support 1.0755. USDJPY downtrend, minor support at 146.30 strong at 145. GBPUSD rejected at 1.2745, support at 1.2545 & 1.2445. Gold correction likely to 2,032 maybe 2,009.  WTI Crude oil range bound 72.65-79.77, Brent 77.24-83.97. Copper back below support at 382but uptrend intact. 10-year T-yields support at 4.20

In the news: Spotify to cut 1,500 jobs in third layoff round this year, shares jump (Reuters), Bitcoin Surges Past $42,000 Even as Stocks and Bonds Take a Hit (Bloomberg), COP28 Latest: Kerry Tells Big Emitters They Can No Longer Hide (Bloomberg), US funding for Ukraine set to run out by end of the year, White House warns (FT).

Macro events (all times are GMT): EZ/UK/US Composite/Services Final PMI (Nov), EZ Producer Prices (Oct) exp 0.2% & -9.5% vs 0.5% & -12.4% prior (0900), US ISM Services PMI (Nov) exp 52.3 vs 51.8 prior (1400), US JOLTS Job Openings (Oct) exp 9300k vs 9553k prior (1400)

Earnings events: Earnings releases today from Ashtead, AutoZone, Ferguson, SentinelOne, MongoDB, and Toll Brothers. Our earnings focus is on Toll Brothers reporting FY23 Q4 (ending 31 October) earnings after the US market close with analysts expecting revenue growth of -25% y/y and EBITDA of $595mn down from $735mn a year ago.

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