Global Market Quick Take: Europe – 15 November 2023

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

Equities: S&P 500 futures rallied 1.9% yesterday and have continued higher this morning trading around the 4,519 level as slightly lower than estimated US inflation in October fuelled a rally across bonds and equities. The move seems a bit overstretched and based on few observations. Inflationary pressures are still a key concern for policymakers and the market may have got a bit ahead of itself. Key earnings to watch today are Tencent, Infineon Technologies, and Target. The big gainers yesterday among of equity themes were new biotech, bubble stocks, and green transformation related baskets.

FX: The USD sold-off on soft CPI report boosting the case for rate cuts from the Fed. Biggest gains came in SEK which was up 2.4%, and our momentum chart in yesterday’s FX Watch had shown the most positive trend in SEK. Although Swedish CPI came in cooler than expected on both headline and core metrics and that also resulted in some dovish repricing of the Riksbank. NZDUSD rose over 1 big figure to move above 0.60 and AUDUSD rose above 0.65. GBPUSD rose to 1.23 on the labor data but extended gains to 1.25 on US inflation print, and UK CPI will be on watch today. EURUSD moved above 1.0850 while USDJPY slid below 150.50 as Treasury yields slumped close to 20bps although some gains returned following the sharp contraction in Q3 GDP.

Commodities: Oil prices ended the day broadly unchanged with differing views from IEA and OPEC clouding the outlook for 2024, with IEA talking about a 2024 surplus amid weakening demand and production growth in the US and Brazil beating forecasts. EIA inventory data for two-week period will be on watch today. Gold rallied after the soft US CPI to touch resistance at $1970, while the beaten down metals of silver, platinum and palladium rallied strongly. Copper also jumped but remains rangebound despite the PBoC injecting the largest amount of cash since 2016.

Fixed income: lower than expected US CPI numbers provoked a fast steepening of the yield curve with yields dropping from 15 to 25bps across tenors. The 3-month SOFR curve is now showing expectations for the Federal Reserve to cut rates by 100bps next year and up to 50bps in July. While it’s more probable that the next Fed action is going to be a cut than a hike, we cannot forget that inflation remains well above average and the economy quite resilient. That leaves room for the market to push back on rate cut expectations for next year, giving space for the yield curve to bear-steepen again. Ten-year yields broke below 4.5% entering bearish territory. The focus is whether they will keep falling amid today’s retail sales and next week’s 20-year auction.

Volatility: After the release of the better than expected CPI-numbers, the VIX, already at low levels, continued to go down to $14.16 (-0.60 or -4.07%). The favorable CPI-numbers caused the stock markets go higher with the S&P 500 and the Nasdaq ending +1.91% and +2.13% respectively, moving well outside the expected moves for the week (around +80 versus +/- 50 points expected for the S&P500). The CBOE SKEW-index (the OTM sibling of the VIX-index) rose to 138.38 (+3.11 or +2.30%). The overnight session shows a modest continuation of yesterday’s trend: VIX futures down to 15.50 (-0.245 / -1.42%), S&P500 and Nasdaq futures moved +12.50 / +0.28% and +56.50 / +0.35% respectively. Options volume in the S&P500 index (SPX) was almost 39% higher than on average, with more than 4.3 million contracts traded. Which is relatively high compared with options volume in the SPY etf, which was ‘only’ 11% higher than on average. This might be an indication that big money is backing up the recent stock market move.

Technical analysis highlights: S&P 500 resistance at 4,540. Nasdaq 100 likely to test 16K. DAX above 15,575 resist, next 16K. EURUSD broken resistance at 1.0765, could test 1.0945. USDJPY rejected at 151.94, key support 149. GBPUSD could move to 1.26. Gold likely to bounce to 1,980. Crude oil Reversal: Brent potential to 84.80, support at 78.20. WTI potential to 81, support at 73.85. US 10-year T-yields bearish support at 4.36

Macro: US October CPI came in below expectations with the Y/Y easing to 3.2% from 3.7%, beneath the 3.3% forecast, while the core metrics were also soft, rising 4.0% Y/Y, beneath the prior and expected 4.1%. Gasoline and car prices drove much of the decline, but rents inflation also resumed its downtrend. Fed speakers tried to maintain a neutral stance, saying there is more work to be done, but market is now pricing in 100bps of rate cuts next year. German ZEW expectations rose to 9.8 in November from -1.1 in October with current conditions little changed at -79.8. This was the fourth consecutive month of improvement and signals that a bottom may have been in place for Germany. Japan GDP data reported this morning showed a sharp contraction. GDP shrank by 2.1% annualized in Q3 vs. estimate of -0.4% due to falling business spending and higher imports as a weak yen underpinned. The International Energy Agency (IEA) said the oil market should return to surplus in early 2024 even if Saudi Arabia extends its production cuts that have tightened supplies this year. According to Bloomberg, citing "people familiar with the matter," China's central bank plans to inject at least RMB 1 trillion at low-interest rates via policy banks to support urban village renovation and affordable housing programs.

In the news: US House approves government funding bill with bipartisan support (FT), Amazon Reaches Deal to Run Shopping Ads on Snap (The Information), Tencent, Alibaba Earnings Hold Key to $44 Billion China Tech Run (Bloomberg), Home Depot shares rally on earnings beat, even as home improvement sales level off (CNBC), Renault seeks to charge up investors for EV unit IPO (Reuters), China's factory output, consumption beat forecasts but property still a drag on economy (Reuters)

Macro events (all times are GMT): UK CPI (Oct) exp 0.1% & 4.7% vs 0.5% & 6.7% prior and core 5.8% vs 6.1% prior (0700), EZ Trade Balance (Sep), US PPI Final Demand (Oct) exp 0.1% & 1.9% vs 0.5% & 2.2% prior (1330), US Retail Sales (Oct) exp –0.3% vs +0.7% prior (1330), EIA’s weekly crude and fuel stock report 1530) 

Earnings events: Key earnings results from Tencent, TJX, Cisco, Palo Alto Networks, Target, Infineon Technologies, JD.com, and Experian. Our focus is on Chinese internet giant Tencent with analysts expecting revenue growth of 11% y/y and EBITDA of CNY 54.8bn up from CNY 48.3bn a year ago.

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