Global Market Quick Take: Europe – 12 March 2024

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

Equities: Another strong session in Hang Seng futures up 3% touching the highs from the first trading day of the year driven by gains in Tencent (+4%), Xiaomi (+11%), Meituan (+4%), and JD.com (+8%). There is no real news flow driving the rally in Chinese equities so it could be a hint of emerging repositioning in the market. S&P 500 futures are up 0.3% in early trading hours and STOXX 50 futures are up 0.5%. Today’s key event is the US February inflation report at 12:30 GMT expected to show further slowdown in the core inflation, but if there is a surprise to the upside, we could see a significant worsening of risk sentiment – read our US inflation event analysis. Oracle reported Q3 fiscal quarter revenue of $13.2bn in line with estimates and operating income of $5.8bn beating estimates. However, it was the remaining performance obligations figure that jumped to $80bn vs est. $59bn on big cloud orders that got shares to rally 11% in extended trading as it indicates that Oracle is beginning to see growth picking up from cloud demand.

FX: The dollar saw mild gains, but the DXY index faced resistance at 103. Japanese yen was the outperformer in G10 on Monday, before a dovish-sounding BOJ Govenor overnight helped send USDJPY back above 147.50. US CPI up next and further boost to soft landing hopes today can propel yen again, before focus shifts to results of wage negotiations later in the week. Equity sentiment turning sour weighed on the closely correlated sterling and GBPUSD was the worst performer of the day as it slipped to 1.28 handle and EURGBP bounced higher from 0.85 support. The EURUSD suffered a mild setback on Monday before inching back to 1.0940 in Asia. A fresh iron or slump weighed on the AUDUSD taking it lower to test the 0.66 handle. Bitcoin (XBTUSD) eased from fresh record highs of 72K+ as ETF demand frenzy and fears of coin supply shortage underpin.

Commodities: The gold rally shows signs of cooling ahead of the US CPI release today, and with last week's surge primarily driven by aggressive buying from funds, the risk of a setback on a strong print is elevated while a soft print could trigger additional momentum buying towards USD 2200.  Iron ore futures stabilized following a +6% slump on Monday as stockpiles in Chinese ports were the highest in a year, signaling pressure in real estate and manufacturing sectors. Copper meanwhile trades back above USD 3.90 but needs a break above USD 4.00 to attract fresh demand, with rangebound crude holding a modest gain ahead of US inflation, as well as monthly oil market reports from OPEC and EIA.

Fixed income: Yesterday's New York Fed's Survey of Consumer Expectations showed the 5-year inflation expectation rising to a six-month high of 2.9%. Yet, the labor market appears to be cooling, with the mean probability of losing one's job in the next year rising to 14.5%, the highest since April 2021. US Treasuries fell, and the yield curve bear-flattened, with 2-year yields rising by 6bps to 4.54% and 10-year yields rising by 2bps to 4.10%. Today, the focus is on US CPI numbers and the US Treasury selling $39 billion in 10-year notes following the report. Although yesterday's demand for the 3-year US Treasury auction was solid, higher-than-expected CPI might contribute to weaker bidding metrics at today's 10-year auction. The consensus is that headline CPI will come at a monthly 0.4%, keeping the year-on-year figure at 3.1%, unchanged from last month. Core CPI is expected at 0.3% MoM, contributing to a year-on-year drop of 0.2% to 3.7% YoY. Although the Federal Reserve is focused on PCE data, a surprise on the upside might be market moving, contributing to a selloff across tenors. Overall, we remain constructive on sovereign bonds versus corporate and emerging markets credits and see reason to extend the duration up to the ten-year tenor. We believe that QT tapering might come as soon as next week’s FOMC meeting, as the Bank Term Funding Program (BTFP) expires and the RRP facility continues to fall (for more, click here).

Macro: US CPI preview: Markets will be watching the US inflation release for February today. Headline CPI is expected to come in firm at 3.1% YoY and slightly stronger on a MoM basis at 0.4% from 0.3% in Jan. Core CPI is expected to soften to 3.7% YoY from 3.9% and 0.3% MoM from 0.4% in Jan. Saxo’s Strats team expect the market is positioned for a softer or mildly hot print, that will reaffirm soft-landing hopes, and this could bring Nasdaq 100 up as much as 1%, USDJPY lower to test Feb lows of 145.90 and broadly support commodities like silver, copper and Gold. An upside surprise could mean as much as 3% correction in Gold. For more details, read this article. Japan’s February PPI was also stronger than expected and prior prints as it came in at 0.6% YoY (vs. 0.2% prior, 0.5% exp) and 0.2% MoM (0.0% prior, 0.1% exp). BOJ’s Ueda speaks in the parliament today at 0200 GMT.

Technical analysis highlights: S&P 500 & Nasdaq 100 Bearish Engulfing top and reversal pattern. Key support for S&P 500 and 17,808 for Nasdaq 100. DAX key support at 17,620., below expect sell-off to 17,326-17,118. Hang Seng testing resistance at 17,135, likely break higher with potential to 18.200.
EURUSD rejected at 0.618 retracement at 1.0970, expect minor correction but likely to push higher. USDJPY likely bouncing from 200 DMA. EURJPY rebounding from 0.618 retracement at 160.23, could resume uptrend. GBPUSD uptrend but minor correction potential to 1.2945-1.30. USDCHF range bound 0.8740-0.89. Gold likely correction to 2,134-2,115 before next bullish move. Silver rejected at resistance at 24.60, could see setback to 24 before resuming uptrend 

Volatility: Yesterday saw the VIX climb to $15.22 (+0.45 | +3.26%), with a notable intraday peak above 16, ahead of the eagerly awaited CPI data release. This anticipation was starkly evident in the VIX1D, which skyrocketed to $19.19 (+6.65 | +53.40%), far surpassing the standard VIX and signaling market participants' expectations for significant near-term volatility. Both the VVIX and SKEW indices experienced upticks, to 88.97 (+2.41 | +2.78%) and 142.27 (+1.09 | +0.77%), mirroring the market's uncertainty over impending corrections versus buying opportunities. Despite technical indicators hinting at a possible correction, market dynamics continue to unfold unpredictably. This morning, VIX futures receded slightly to 14.800 (-0.095 | -0.64%), while S&P 500 and Nasdaq 100 futures turned positive, marking at 5204.00 (+18.25 | +0.35%) and 18321.00 (+104.75 | +0.57%), suggesting a hopeful stance among investors for the session ahead. Top 10 most traded stock options on Monday, in order: TSLA, NVDA, AAPL, AMD, META, MARA, PLTR, ORCL, AMZN and PFE.

In the news: Jamie Dimon Warns US Recession ‘Not Off the Table’ Yet (Bloomberg), Biden Budget Seeks More Aid for Families, Higher Taxes on Wealthy Households, Corporations (WSJ), White House Forecasts Somewhat Higher Interest Rates (WSJ), Xiaomi Surges Most in Year After Setting Up Showdown With Tesla (Bloomberg), OPEC, IEA at most divided on oil demand since at least 2008 (Reuters), Reddit Launches Long-Awaited IPO With $748 Million Target (Bloomberg)

Macro events (all times are GMT): US CPI (Feb) exp. 0.4% & 3.1% vs 0.3% & 3.1% prior (1130), EIA Short-term energy outlook (1500), API’s weekly crude and fuel stock report (1930), During the day: OPEC’s Monthly Oil Market Report.

Earnings events: There are no key earnings today that can move market sentiment.

• Today: Generali, Archer-Daniels-Midland
• Wednesday: Inditex, Foxconn, Snam, Geberit, Lennar, Volkswagen, Adidas, E.ON, Dollar Tree, Williams-Sonoma, UiPath
• Thursday: AIA Group, East Money Information, Ping An Bank, Hapag-Lloyd, Verbund, Adobe, Ulta Beauty, Wheaton Precious Metals, Bollore, Dollar General, RWE, Swiss Life, Rheinmetall
• Friday: CATL, Vonovia, Jabil

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