Global Market Quick Take: Europe – 8 May 2024

Key points:

• Equities: Japanese equities down 1.6%, Disney down 10% on streaming profit woes
• Forex: Strong USD narrative is back in markets with focus back on USDJPY on BOJ comments
• Commodities: Range-bound metals await the next catalyst
• Fixed Income: UK Gilts outperform peers ahead of the BOE and US Treasuries rally amid a strong 3-year note auction.
• Economic data: German industrial production and Sweden rates decision

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

Equities: Flat US and European equity futures ahead of trading following a negative Asia session with Japanese equities down 1.6% and Hong Kong equities down 0.6%. The strong USD narrative is coming back with USDJPY above 155 and the rebound in SOFR Dec-24 futures (pricing Fed rate) is already being faded suggesting the lack of conviction in interest rate cuts. As this light on macro events and the Q1 earnings season approaching its end we see little scope for weak equities. Siemens Energy shares are up 5% in European pre-market session as turnaround plan is ahead of the plan with revenue guidance coming out above estimates driven by strength in its grid technology business. Disney shares declined 10% yesterday despite strong earnings results as comments that price hikes in its streaming services will not make the combined business profitable before in two quarters. Reddit shares gained 12% in extended trading on better-than-expected Q1 results and strong revenue outlook of $240-255mn vs est. $228mn.

FX: Forex markets were subdued amid lack of key data or events, and dollar strength prevailed. AUDUSD slid below 0.66 following a less hawkish-than-expected RBA outcome, which set the bar for a rate hike remarkably high. We argue, however, that despite risks of dovish repricing in the RBA curve, AUD could be supported by a turn lower in USD given a dovish-tilting Fed and weakening economic growth, stability in China and rebound in commodity prices. Read this article for our thoughts on AUD. Meanwhile, yen weakness returned and USDJPY traded above 155 amid further jawboning from authorities as BOJ Governor Ueda said that he does not see yen moves as having a substantial impact on trend inflation so far but there is risk impact could become significant in future. GBPUSD testing a break below 1.25 with BOE meeting tomorrow coming in focus.

Commodities: Metals traded softer on Tuesday after comments from Fed’s Kashkari (see below) once again raised speculation the FOMC may not cut rates this year. Silver holds its gains against gold supported by copper where supply tightness is being met by stronger than expected demand, particularly in China. Crude oil trades lower after the API reported across-the-board increases in US crude and fuel stockpiles but sustained geopolitical risks and extended OPEC+ production cuts will likely limit any downside selling attempts. Elsewhere, the latest EIA STEO saw it cut its forecast for 2024 world oil demand growth by 30kb/d whilst raising it for 2025 by 70kb/d to a 1.42mln. Cocoa surged more than 1000 dollars, the most since the 1960’s, driven by a forceful combo of supply concerns and low liquidity. Wheat, corn and soybeans eased back from a weather-fuelled rally ahead of USDA’s world supply and demand forecasts on Friday.

Fixed income: Gilts outperformed their peers ahead of Thursday’s Bank of England meeting, as markets anticipate a higher likelihood of rate cuts this year, with UK inflation projected to decline to 2% in the second quarter. Ten-year gilt yields dropped by 9.9 basis points to 4.12%. Meanwhile, the U.S. yield curve bull-flattened following a robust 3-year note auction and an ongoing risk-off rally that started after last week's FOMC meeting. Over the past five consecutive sessions, ten-year U.S. Treasury yields have fallen by 24 basis points to 4.47%. Despite the substantial $58 billion size, comparable to levels seen during COVID, the 3-year auction still stopped through When-Issued by 0.3 basis points. Looking ahead, the U.S. Treasury will conduct sales of $42 billion in 10-year notes and $25 billion in 30-year bonds tomorrow. While demand for today’s 10-year tenor is expected to be strong, caution remains regarding the 30-year sales tomorrow. For a preview to the upcoming US Treasury auctions, click here. Today, attention turns to German industrial production and Italian retail sales data for March. In terms of central bank commentary, we’re set to hear from Fed’s Jefferson, Collins, and Cook, alongside ECB’s Wunsch and De Cos.

Technical analysis highlights: S&P500 Likely bullish trend, but RSI needs to close above 60 for confirmation. Nasdaq 100 above key resist at 17,808, uptrend but fragile. DAX above key resistance at 18,192, potential to 19K. EURUSD resuming downtrend, likely bearish move to 1.0682.  GBPUSD resuming downtrend, support at 1.2465, below expect sell off to 1.24. USDJPY rebound potential to 157. EURJPY rebound potential to 168.75. AUDUSD rejected at strong resist at 0.6650 likely setback to 0.65. USDCHF bouncing from support at 0.90. USDCAD uptrend potential to 1.39. Gold range bound 2,280-2,353. US 10-year T-yield correction could be over, expect rebound towards 4.60. Key support at 4.24

Volatility: The VIX pursued its descent, concluding Tuesday at $13.23 (-0.26 | -1.93%), maintaining a trend of decline since the last monthly expiry on April 19th. This week is light on economic news, suggesting limited market movements ahead. Notable today are earnings releases from Uber and Airbnb, with Uber reporting before the market opens and Airbnb after the close. Overnight futures movements were negligible, showing minor fluctuations of +/-0.02% across VIX, S&P500, and Nasdaq 100 futures. Tuesday's top 10 traded stock options, in order: Tesla, NVIDIA, Palantir Technologies, Apple, Disney, Rivian, Amazon, Advanced Micro Devices, Meta Platforms, and Intel.

Macro: Fed’s Kashkari said the Fed is ready to hold rates steady for an extended period, or raise rates, if needed but inflation target remains at 2% and Fed is not ready to raise that. He said it was too soon to declare that inflation progress has stalled, and still sees rate cut as possibility this year. Next up today will be Fed Governor Lisa Cook. Jefferson and Collins also speak but expected limited update on monetary policy.

In the news: TikTok, ByteDance sue to block US law seeking sale or ban of app (Reuters), Reddit's strong forecasts spark share surge after first results since IPO (Reuters), Disney reports shrinking TV business, shares tumble (Reuters), Copper Touches $10,000 as Goldman Sees ‘Stockout’ Risk (Bloomberg), BMW Earnings Decline on Higher Carmaking Costs (Bloomberg), McDonald's and other food giants are struggling in the inflation economy (QZ).

Macro events (all times are GMT):  Germany Industrial Production (Mar) result was –0.4% & -3.3% vs exp –0.7% & -3.6%, Sweden rates decision exp a 25-bps cut to 3.75% (0730), US Wholesales Trade and Inventories (1400), EIA’s Weekly Crude and Fuel Stock report (1430)

Earnings events: Important earnings day ahead in the technology sector with key earnings from Airbnb, Uber, Shopify, and ARM. AI-related and semiconductor stocks have been one of the best performing segments this year and thus ARM earnings will be important for sentiment and especially after the strong outlook delivered at its previous quarterly earnings release.

• Today: Itochu, Toyota, BMW, Airbnb, Uber Technologies, Anheuser-Busch InBev, Shopify, Emerson Electric, Verbund, Munich Re, ARM
• Thursday: Enel, SoftBank, Brookfield, 3i Group
• Friday: NTT, Honda, KDDI, Tokyo Electron, Enbridge, Li Auto

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