Global Market Quick Take: Europe – 1 March 2024

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

Equities: Strong momentum in equities continues into the weekend with Hang Seng futures up 0.6% and both US and European equity futures are up 0.3% ahead of the market open. It has been a positive week for equities and in the last couple of trading sessions the market has begun pricing a bit loser Fed policy rate by December 2024 reversing the recent trend. Volatility remains subdued at around 13.5 on the VIX, but the flipside is equity valuations becoming dangerously high as we described in our equity update yesterday. Dell and Autodesk surged in after-hours trading, with gains of over 17% and 9%.

FX: A broad dollar index trades flat on the week and up 0.3% last month with choppy trading around the US PCE release failing to threaten any key levels. USDJPY rebounded from lows at 149.20 yesterday on BOJ Takata’s normalization comments and was back at 150.40+ levels as Governor Ueda threw cold water on tightening expectations as he said that price target was not already in sight. AUDUSD rose to 0.6510 as NZDUSD held up just below the 0.61 level with Governor Orr saying that rate cuts will not come soon. Swiss Franc led the decline yesterday, with USDCHF rising above 200DMA and threatening 0.8850. EURUSD failed to push above 1.0850 again, with regional inflation prints coming in mixed. Pair is now back at 1.08 handle, and Euro-area CPI will be on the radar today.

Commodities: The BCOM index fell 1.8% last month with all sectors in the red, led by grains (-6.7%) with sub 1% losses seen across metals, energy and softs. Biggest losers were US and EU natural gas amid mild weather, soybeans and corn, while gains were led by cocoa (33%) and cotton (15%). On Thursday crude oil continued to struggle for direction with OPEC+ meeting on the radar next week. Gold rose to a three-week high after US PCE data came in-line with expectations, keeping the rate cut expectation for later in the year alive. Base metals remain torn between weak China data and the prospects of strong demand for metals in India after a strong GDP growth of over 8% was reported. Focus is also turning to China’s “two sessions” meetings next week where growth target and policy agenda will be laid out.

Fixed income: Sovereign bonds from both sides of the Atlantic gained as US PCE met expectations, and European inflation numbers continued to decline. Since the start of the year, bond markets have priced out rate cuts until June, so disinflationary trends are now in focus. The data will lead to Federal Reserve and ECB rate cut decisions before summer. Long-term US Treasury yields fell by 3 to 4 basis points, leaving the yield curve slightly flatter, and the 10-year yields closed at 4.25%. In Europe, Bund yields fell by roughly 5 basis points to 2.41%, with other European sovereigns following suit. However, breakeven rates continue to increase, with the US 2-year breakeven up to 2.79%, the highest since March 2023, and the 2-year zero-coupon inflation swap rose to 2.445%, the highest since October. Today's focus is on the global manufacturing PMI, US ISM manufacturing numbers, and Europe's flash CPI numbers for February. ECB's Holzmann and BOE's Pill will speak today, followed by Fed's Barking, Waller, Logan, Bostic, Daly, and Kugler in the US. Our preview of next week’s ECB monetary policy meeting is available here.  On the occasion of Hungary clearing the path for Sweden’s Nato membership, we look at defense bonds here.

Macro: There was a lack of hawkish surprises in the January PCE data with both headline and core prints coming in line with expectations. Core M/M accelerated to 0.4% from 0.2%, with the headline rising to 0.3% from 0.2%. Core Y/Y eased to 2.8% from 2.9% with the Y/Y headline easing to 2.4% from 2.6%. Inflation generally has been showing signs of cooling on an annual basis, but M/M elements are showing a sign of pickup. The core PCE annualised rates rose with the 3-month rising to 2.8% from 2%, and the 6-month rising to 2.6% from 2.2%. Fed officials again warranted caution on inflation and rate cuts. Bostic (voter) said there’ll be “some bumps along the way” to the 2% price target. Mester (voter) said that right now her baseline forecasts for three cuts in 2024 still feels about right. Goolsbee (2025 voter) expressed caution about interpreting one month’s inflation report and Daly (voter) said policy is in a good place and they could cut if they needed but if they cut too quick, inflation can get stuck. US Initial Jobless Claims rose by 215k, rising from the prior 202k and above the 210k consensus. The continued claims, for the week that usually coincides with the BLS survey period, rose to 1.905mn from 1.860mn, above the 1.874mn consensus. Inflation saw signs of easing in Germany, France and Spain with falls driven primarily by energy and food prices. This could mean that Euro-area inflation today could also come in lower, but sticky services prices continue to constrain expectations around ECB easing. China’s manufacturing PMI slowed to 49.1 in February from 49.2 in January. The consistent weakness in China’s manufacturing PMI — which has been below 50 for five consecutive months — comes as Beijing is due to open the annual meeting of the National People’s Congress, on Tuesday, where it will announce its targets for economic growth and fiscal stimulus this year.

Volatility: Yesterday saw the VIX dipping to $13.40 (-0.44 | -3.18%), indicating a decrease in market volatility. Today's economic focus is on the S&P Global US Manufacturing PMI and the ISM Manufacturing PMI, with no significant earnings reports expected to impact market dynamics significantly. VIX futures decreased slightly, down to 13.950 (-0.06 | -0.42. Meanwhile, S&P 500 and Nasdaq futures are in the green, at 5114.75 (+11.00 | +0.22%) and 18146.25 (+63.50 | +0.35%) respectively. Thursday's most active stock options trading included, in order: AMD, TSLA, NVDA, AAPL, MARA, SNOW, AI, AMZN, SOUN, and META

In the news: Europe is having its worst earnings season since the onset of Covid (CNBC), China’s economy suffers blow as factory activity slows (FT), India Q3 GDP growth surges to 8.4%, exceeding expectations (Nikkei Asia), NY Community Bancorp disclosed material weaknesses in its internal controls, CEO Steps Down (WSJ)

Macro events (all times are GMT):  Manufacturing PMIs from Italy (0745), France (0750), and Germany (0755), Eurozone Manufacturing PMI (Feb) exp 46.1 vs 46.1 prior (0800), EU CPI (Feb) exp 0.6% & 2.5% vs –0.4% & 2.8% (0900), US Manufacturing PMI (Feb) exp 51.5 vs 51.5 prior (1345), COT reports from CFTC and ICE Europe covering the week to Feb. 27 (2030)

Earnings events: Thin earnings calendar today. Kuehne + Nagel has already reported Q4 results with net revenue and EBIT missing estimates.

• Friday: Canadian Natural Resources, Kuehne + Nagel

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