Global Market Quick Take: Europe – 1 February 2024

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

Equities: Mixed session in Asia with Nikkei 225 futures down 1.2% and Hang Seng futures up 0.6% as Chinese authorities pledged more stimulus to the economy. STOXX 600 equity futures are down 0.6% adjusting to lower US equity futures overnight as the FOMC message of pushing back on a March cut jolted equities. Qualcomm earnings result and outlook were positive suggesting many key sectors were improving from cars to smart phones. In Europe, this morning a string of worse than expected results from ING, BNP Paribas, and Sanofi are hurting sentiment while Shell is delivering strong Q4 earnings and more buybacks.

FX: Powell’s pushback against March rate cut expectations saw the dollar end marginally higher after a choppy session before making further inroads overnight in Asia, led by AUD weakness. The exception being the yen which rose on Wednesday, due to a sharp slide in US Treasury yields and some haven demand following the dismal New York Community Bancorp (NYCB) report. AUJPY is one of the biggest losers, piercing through 100DMA at 96.32 with support at 95.66 now coming into view, as the AUDUSD continues to trade soft after Q4 CPI miss opened the scope for dovish RBA pricing. The EURUSD remains stuck near 1.08 with a downside break putting the December low at 1.0725 into focus

Commodities: Brent and WTI slumped back to support at 80 and 75.5 respectively after EIA reported a weekly inventory rise while production recovers following the mid-January freeze-off. The Middle East has once again faded but could flare up again amid a US promised response to Jordan attacks. Powell’s pushback to March rate cut reversed earlier gains in precious metals but overall, the drop in yields and regional banking sector focus limited the losses with gold in need of a break above 2055 to support an upside extension. Overall, January was a relatively strong month for gold which despite a 2.1% rise in the dollar only fell 0.7%.

Fixed income: Treasury yields fell in New York morning on an unexpectedly small increase in ADP employment in January, coupled with renewed concerns about the health of regional banks, pushing the 10-year yield back below 4% to trade around 3.96%. After the FOMC statement and Powell’s hints at the presser suggested that a March cut was not yet on the table, the 10-year yield bounced but capped at 4% at multiple attempts. Investors took note of Powell’s optimism about the disinflationary trend, pledged not to wait around to see the economy turn down, and his confirmation of a discussion of tapering quantitative tightening at the meeting. The 10-year yield dropped by 12bps to 3.91%, closing at a low, signaling strong buying towards the market close. Today, Eurozone PMI, CPI, and unemployment data will be released. Faster than- disinflationary trends and a continuous deterioration of PMI data might ignite markets' bets of upcoming ECB rate cuts. We continue to see the yield curve to bull-steepening on both sides of the Atlantic, which call for duration extension.

Macro: The Fed left rates unchanged at 5.25-5.5%, and the statement tilted hawkish with a line added that said they won't ease until they have more confidence in (lower) inflation. Powell’s presser started on a less hawkish note as he said that data doesn't need to turn down for cuts but just needs to keep on doing what it's doing. However, he said that it's unlikely they will have enough confidence on inflation to cut in March, pushing back the market that was still expecting a March rate cut with about 40% odds. US ADP disappointed as it saw 107k jobs added in January, beneath the 145k forecast and 158k prior. This puts the focus on Friday’s NFP report, and although it may not be a good gauge for NFP, weak data could bring the market back to increasing the odds of a March rate cut. The Q4 Employment Costs index also eased to 0.9% from 1.1%, beneath the 1.0% forecast, indicative of slowing wages. The Politburo of the Chinese Communist Party held its first meeting in 2024 reiterating a continuation of the prevailing economic policies and without mentioning any timeline for the much anticipated Third Plenum meeting.

Technical analysis highlights: S&P 500 correction unfolding, support at 4,793. Nasdaq 100 correction unfolding support at 16,970. DAX rejected at 17K. Likely correction to 16,500. EURUSD downtrend. Could dip to 1.0730 key support. USDJPY dipped y’day below support at 146.65 but closed above. EURJPY key support at 158.55. GBPUSD range bound 1.2610-1.2775. AUDUSD key strong support at 0.6520. Gold strong resistance at 2,064.  WTI Crude oil strong resist at 79.77. Brent strong resist at 84.75.. 10-year T-yields below support at 3.91, could drop to 3.75  

Volatility: The VIX rose sharply to $14.35 (+1.04 | +7.81%). With the magnificent 7 disappointing, markets turned anxious. Unsurprisingly all other volatility-related indices followed suit: the VVIX and SKEW up 6.47% and 1.00% respectively. Other VIX indices in the volatility term-structure show that the VIX1D is almost as high and the VIX9D is even higher than the VIX itself, clearly showing that the markets expect more volatility in the immediate future. After the FOMC statement, volatility took another jump when Powell left a hawkish undertone, saying the first rate-cut won't probably be in March. And with 3 behemoths reporting tonight after the close we'll surely see more fluctuations today and tomorrow. VIX futures did pause overnight and are now at 14.820 (-0.055 | -0.36%). S&P 500 and Nasdaq 100 futures are also taking a break after their sharp decline yesterday: 4874.50 (+4.00 | +0.08%) and 17267 (+24.75 | +0.13%) respectively.

In the news: US bank stocks sink after New York Community Bancorp cuts dividend (Reuters), Fed plans 'in-depth' talks on balance sheet run-off in March: Powell (Reuters), Qualcomm profit forecast beats estimates amid AI push, shares gyrate (Reuters), Novo Nordisk expects double-digit growth as it boosts Wegovy supplies (Reuters), China gold purchases soar 30% on economic anxiety (Nikkei Asia), U.S. deploys three carriers in Asia, maintaining China focus (Nikkei Asia), The EV future takes a hybrid detour (Politico).

Macro events (all times are GMT): Riksbank policy rate decision (08:30) est. 4% vs prior 4%. Eurozone preliminary Jan CPI (10:00) est. 2.7% vs prior 2.9%. BoE policy rate decision (12:00) est. 5.25% vs prior 5.25%. US Initial Jobless Claims est. 212K vs prior 214K. US Jan ISM Manufacturing (15:00) est. 47.2 vs prior 47.4.

Earnings events: Key earnings today from Apple (aft-mkt), Amazon (aft-mkt), and Meta (aft-mkt). Given the results from Alphabet we expect both Amazon and Meta to show strong earnings results tonight, but the caveat is of course that expectations for the outlook might be too high to deliver on. Qualcomm’s earnings result yesterday indicates that things have turned corner in many industries including smart phones, so while the previous quarter might be a transition quarter the outlook from Apple could surprise to the upside. The key unknown factor in Apple’s result is the recent price hikes on its various services and how those price hikes are bolstering operating income while the iPhone business remains subdued.

• Today: Apple, Roche, Amazon, Meta, Merck, Shell, Honeywell, Sanofi
• Friday: Keyence, ExxonMobil, AbbVie, Chevron, Regeneron Pharmaceuticals, Bristol-Myers Squibb

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