Global Market Quick Take: Europe – 15 March 2024

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

Equities: Stronger than expected US February PPI figures yesterday at 2.8% YoY (excluding food, energy, and trade) pushed SOFR Dec 24 futures further down reflecting the market constantly lowering the amount of rate cuts expected this year. This combined with Japan finalising an annual wage hike of 5.3% vs 3.8% a year ago for the biggest union will continue to underpin inflationary pressures. Nasdaq 100 futures are down 0.2% this morning and STOXX 50 futures are flat while Asian equities were broadly lower led by Hang Seng futures down 1.7%. Adobe reported fiscal Q1 results (ending 1 Mar) that were in line with estimates and announced a new $25bn share buyback programme. However, investors were disappointed over the fiscal Q2 outlook with revenue at $5.25-5.30 vs est. $5.31 sending shares down as much as 10% in extended trading hours.

FX: The US dollar is heading for its first weekly gain in four after stronger than expected inflation data this week helped send Treasury yields surging with traders pricing in a slower pace of US rate cut. Biggest losers where the minor currencies of NOK, SEK and NZD, with AUD (iron slump below $100/t) and JPY leading the losses among the G7. EURUSD dropped to 1.0873 and USDJPY climbed to 148.66. Despite the anticipation of a BOJ pivot that ends the zero-interest rate in Japan, yen strength remains uncertain without a more hawkish BOJ stance and is largely dominated by the strength of the dollar which has recently picked up amid investors expecting a slower pace of rate cuts.

Commodities: The Bloomberg Commodity TR Index (2% YTD) trades at a three-month high with gains seen across all sectors this week. WTI and Brent reached four-month highs, breaking key resistance levels after the IEA flipped their 2024 supply/demand forecast to a deficit amid prolonged production cuts from OPEC+. Gold meanwhile remains resilient, holding onto most of its recent strong gains despite dollar and yield strength following stronger-than-expected CPI and PPI prints this week. Earlier this month, speculators amassed a major long position which is now being defended. A strong week for copper (+5%) and copper miners (7%) as prices reach an 11-month high, supported by already tight market conditions and now by the prospect for Chinese smelters cutting production. Iron ore (-30% YTD) slumped below USD 100/t as China’s property crisis will continue to keep a lid on steel demand. Uranium’s (-8% YTD) long-term upside remains intact despite recent stop loss selling from investors who got caught up in the January buying frenzy.

Fixed income: The yield curve bear-steepened yesterday on the back of a strong PPI report, which showed that producer prices might be rebounding. Ten-year yields rose by 10 bps closing at 4.29%, while 2-year yields rose by 7 bps to 4.69%. Markets' attention now turns onto next week’s FOMC meeting, the Summary of Economic Projections, and the dot plot. In December, the dot plot was showing 75 bps rate cuts this year; if an updated dot plot shows a decrease in policymakers' rate cut expectations, a cut in June becomes more improbable, putting further pressure on US Treasuries across tenors. The Bank of Japan will also be very important next week, as markets give 65% chances of policy normalization. If that were to materialize, it could be bearish for US Treasuries and European sovereigns in the long term as Japanese investors will repatriate home. Ten-year US Treasury yields have been trading rangebound between 4% and 4.25% since January until today, while 10-year Bund yields are in an uptrend. In order for a bond bull market to form, markets need to believe that above-target inflation is a problem of the past.

Macro: According to Jiji, a prominent Japanese news agency, the BOJ is preparing to terminate its zero-interest rate policy during its meeting scheduled for March 18-19. This decision is pending final confirmation based on the aggregated results of the spring wage negotiations (Shunto), which are set to be released later today by the Japanese Trade Union Confederation (Rengo). US PPI surged beyond expectations, rising by 0.6% M/M or 1.6% Y/Y in February, surpassing consensus forecasts of 0.3% M/M and 1.2% Y/Y. January's figure was revised upward to 1.0% Y/Y from 0.9% Y/Y. Excluding food and energy, the core PPI increased by 0.3% M/M and 2.0% Y/Y, also exceeding median forecasts of 0.2% and 1.9%, respectively. Notably, domestic scheduled air passenger transportation services saw a 3.5% M/M price hike. The upward revisions to PPI’s hospital and physician service costs for January could lead to a significant upward revision in January's core PCE inflation, the preferred gauge of the Fed, reducing market expectations regarding the pace of rate cuts this year. US retail sales expanded at a slower pace than anticipated, increasing by 0.6% M/M in February, while the January decline was revised downwards to -1.1% M/M from the previously reported -0.8%. Excluding auto sales, retail figures in February rose by 0.3% M/M, falling short of the expected 0.5%, and the January data was revised downward to -0.8% from -0.6%. US initial jobless claims declined to 209k, below the 218k projected by economists and the prior week’s 210k (revised down from the previously reported 217k).

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 touched 18K, uptrend intact, key support at 17,620. Below expect sell-off to 17,326-17,118. EURUSD below support at 1.09, support at 1.0870, could dip to 1.09 strong support. USDJPY heavy, could move to strong resist at 149.20. EURJPY rebounding from 0.618 retracement at 160.23, likely resuming uptrend. GBPUSD correction, support at 1.27, expect rebound from there. AUDJPY range bound 96.80- 98.20.  Gold uptrend but correction could test support at 2,134, possibly 2,115. Silver broken resistance at 24.60 potential to 26.00. WTI confirmed uptrend, resist at 82.56.  US 10-year T-yields broke resist at 4.20, strong resist at 4.35

Volatility: Yesterday saw the VIX increase to $14.40 (+0.65 | +4.73%), with a notable rise in the VIX1D to $14.28 (+2.40 | +20.20%), indicating heightened short-term market volatility. The VVIX also rose to 88.75 (+2.48 | +2.87%), reflecting growing market unease. Despite the absence of significant economic events or earnings reports, today's market is notably marked by triple witching, an occurrence often associated with increased market volatility. This morning, VIX futures edged up slightly to 15.450 (+0.045 | +0.30%). Meanwhile, S&P 500 and Nasdaq 100 futures dipped to 5212.00 (-6.00 | -0.11%) and 18218.00 (-52.75 | -0.29%) respectively, indicating a cautious market stance. Thursday's options trading was most active for TSLA, NVDA, AAPL, MSFT, AMD, AMZN, SOUN, GOOGL, MARA, and HOOD.

In the news: BOJ preparing to end negative interest rate policy at March meeting, Jiji reports (Reuters), Fed Gets More Reasons to Delay Interest-Rate Cuts (Bloomberg), Adobe Drops on Weak Forecast Fueled by AI Competition Fears (Bloomberg), Mnuchin Now Wants to Buy TikTok, Days After Leading NYCB Rescue (Bloomberg), China issues draft rules to allow companies to tap foreign debt markets (Reuters)

Macro events (all times are GMT): Can housing start (Feb) exp 227.5k vs 223.6k prior (1115), US Empire manufacturing (Mch) exp –7 vs –2.4 (1130), US industrial production (Feb) exp flat vs –0.1% prior (1215), U of Michigan sentiment (Mar) exp 77.1 vs 76.9 prior (1300), After the close: weekly COT reports from the CFTC and ICE Europe

Earnings events: Light earnings calendar today. Vonovia, Germany’s largest real estate owner, has already reported earnings with shares down 5% in pre-market trading on weak 2024 outlook.

• Today: CATL, Vonovia, Jabil

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