Global Market Quick Take: Europe – October 17 2023

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

Equities: Wall Street ended the day higher as risk sentiment improved amid efforts from US and its allies to contain the spread of the Middle East conflict. The S&P 500 was up 1.1% while NASDAQ 100 rose 1.2% despite the higher Treasury yields. Most big tech rose, excluding Apple which was under pressure due to worries of weaker iPhone 15 sales in China. Lululemon rose 10% with its expected addition to S&P 500, replacing Activision Blizzard. Earnings today from Goldman Sachs and Bank of America

FX: The dollar was weaker on Monday as it reversed last week’s gains on hopes of a diplomatic push in the Middle East. NZDUSD reversed all of yesterday’s gain as Q3 CPI came in below expectations and dropped back below 0.59 as we wrote in our FX note yesterday – test of YTD low at 0.5859 likely. AUDUSD traded above 0.6340 and EURUSD rose above 1.0550. USDJPY still stuck around 149.50 despite a jump higher in yields, with 150 serving as a clear intervention threat area.

Commodities: Brent crude trades back below $90 as fears of an escalation in the Israeli-Palestinian conflict eased while the prospect of a US deal with a Venezuela could see rising exports as sanctions are eased. Gold’s short-covering rally ran out of steam amid a renewed rise in US Treasury yields while base metals suffered further setback amid concerns about the global demand outlook. HG Copper is currently challenging key support in the $3.55 area.

Fixed Income: yield curves bear steepened yesterday on both sides of the Atlantic as markets were unwinding safe haven demand from Friday. The focus turns today on US retail sales, the 20-year US Treasury auction on Wednesday and Powell’s speech on Thursday. Yet, wages and CPI numbers in the UK will also be in focus together with China’s GDP and Japan’s inflation data. Following last week’s US Treasury auctions we remain concerned about demand, especially in light of this week’s 20-year bond sale, a tenor normally not liked by investors. As long-term  Treasuries yields remain in an uptrend we remain cautious favouring quality and the short part of the yield curve.

Macro: US Empire State manufacturing index fell less than expected in October to -4.6 from 1.9 prior and -6.0 expected. New orders and shipments dropped to -4.2 (prev. +5.1) and +1.4 (prev. +12.4), respectively.

Fed’s Harker said a ‘resolute, but patient’ stance is appropriate, and that the Fed can hold rates steady absent a sharp turn in the data. Goolsbee told the FT that improving inflation was a trend not a blip.

NZ CPI came below expectations. Q3 CPI came in at 5.6% YoY, down from 6.0% YoY prior and 5.9% expected. This was also lower than RBNZ’s projection of 6.0%. Falling inflation could provide comfort to RBNZ, and the probability of another rate hike by the end of the year dropped from over 30% to 10%.

Technical analysis highlights: S&P 500 strong resistance at 4,400. Nasdaq 100 rejected at resistance at 15,245, downtrend could resume. DAX back below key support at, bearish. EURUSD rejected at resistance at 1.0635 expect range trading. USDJPY uptrend intact. Gold rejected at falling trendline. Copper testing key support at 354.50. WTI Crude oil rejected at 88.20 resistance. US 10-year yields resuming uptrend 5% in sight

In the news: Biden to visit Israel as Gaza war sparks humanitarian crisis (Reuters), Putin visits 'dear friend' Xi in show of no-limits partnership (Reuters), Diplomats renew calls for Gaza aid; Iran warns Israel (Reuters), Country Garden Enters Final Hours to Avoid First Bond Default (Bloomberg), Ford chair warns extended strike will boost Tesla, Toyota and China (FT), Netflix may hike prices after success of password-sharing crackdown (Reuters)

Macro events (all times are GMT): German ZEW Survey (Oct) exp –9 vs –11.4 prior (0900), US Retail Sales (Sep) exp 0.3% vs 0.6% prior (1230), Can CPI (Sep) exp 0.1% & 4% vs 0.4% & 4% prior (1230), US Industrial Production (Sep) exp 0% vs 0.4% prior (1315), API’s Weekly Crude and Fuel Stock report (2030)

Central bankers speaking (all times are GMT): BOE’s Swati Dhingra (0905), ECB’s Knot (1300), Fed’s Bowman (1320), ECB’s Centeno (1400), Fed’s Barkin (1445), ECB’s Guindos & Holzmann (1700). Note the Fed blackout period ahead of the November 1 meeting starts on October 21.

Earnings events: Goldman Sachs, Bank of America, Johnson & Johnson

For all macro, earnings, and dividend events check Saxo’s calendar and Peter Garnry’s earnings update here