Global Market Quick Take: Europe – 2 January 2024

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

Equities: Equity futures are pointing higher on the first day of trading in the US and Europe while Chinese equities slipped 1.9% in Honk Kong trading following a less optimistic New Year speech from Xi Jinping and fresh data suggest factory activity declined in December. In European trading, ASML will be in focus as the US President pushed ASML to cancel shipments of equipment to China before new export rules go into effect suggesting 2024 will be another year of friction between the US and China over semiconductor technology. The first couple of weeks of the new year will reveal investor positioning and give clues about what the market thinks about 2024.

FX: The Bloomberg dollar index has opened its 2024 account trading a tad firmer following its worst annual performance since 2020.  Gains in thin trading were led by yen weakness against most of its major peers after a powerful earthquake hit 315 kilometres northwest of Tokyo on Monday. Prior to that, the anticipation of a reversal in policy divergence between the US and Japan in 2024— with the Fed cutting rates and the BoJ abandoning its ultra-loose policies—propelled the Yen to strengthen to nearly 140.00 against the dollar last week. For now, USDJPY remains anchored within the 140-145 range.

Commodities: The Bloomberg Commodity TR index suffered a 7.9% setback last year, led by losses in natural gas, nickel, wheat and corn, and only partly offset by strong weather-related gains in softs and a 13% gain in gold on Fed cut optimism. The 2024 account has opened with gains in energy with US natural gas up 5% while crude oil and fuel products have received a geopolitical boost after Iran sent a destroyer to the Red Sea in response to to US Navy sinking three Houthi militants’ boats. Gold meanwhile trades just below the December 27 record closing high at 2077.5 with focus on geopolitical developments and US data releases later this week. Copper trades back above $3.90 following mixed but overall weak signals from the China’s manufacturing sector

Fixed income: Treasuries finished mixed last Friday, with the 2-year yield falling 3bps to 4.25% while the 10-year yield adding 4bps to 3.88%. Returning from the holidays, investors this week are most likely to focus on the series of labor market data releases in order to gauge how soon the Fed will start cutting rates, starting with the JOLTS job openings data (consensus: 8,863k; prior: 8,733k) on Wednesday, followed by initial jobless claims (consensus: 215k, prior 218k) and ADP private employment (consensus: +115k; prior: +103k) on Thursday, and then finally the most-watched nonfarm payrolls (consensus: +170k; prior: +199k), unemployment rate (consensus: 3.8%; prior: 3.7%), and hourly earnings (consensus: 0.3% M/M or 3.9% Y/Y; prior: 0.4% M/M or 4.0% Y/Y) on Friday. We maintain our call for the first cut to come in Q1 and the tendency for the yield curve to steepen.

Macro: The manufacturing and service sectors both remain in contraction in China in December. China’s official NBS manufacturing PMI unexpectedly declined to 49.0 in December from 49.4 in November, softer than 49.6 forecasted by economists. The decline brought this key barometer of manufacturing activity to its seven-month low and marked its third month of contraction after a brief rebound back into expansion in September. Non-manufacturing PMI increased to 50.4 in December from 50.2 in November, modestly below the 50.5 expected. However, the service sub-index remained at 49.3, signalling contraction while the construction sub-index increased to 56.9 from 55.0.

Technical analysis highlights: S&P 500 uptrend stretched, RSI divergence, support 4,697. Nasdaq 100 short term correction likely, support 46,552. DAX top and reversal pattern, support at 16,528 and 16,060. EURUSD rejected at 1.1130, testing 1.10 support. USDJPY below 141.70 support trying to get back above, could rebound to 144. GBPUSD rejected at 1.28 resistance. Gold potential to 2,100 but uptrend stalling and could slide lower. 10-year Treasury future rejected at 113 8/32 expect correction to 111 12/32, yields back to 4%

In the news: Powerful quake rocks Japan, nearly 100,000 residents ordered to evacuate (Reuters), Oil Rises as Iran Warship Enters Red Sea Following Boat Attacks (Bloomberg). ASML Holding NV canceled shipments of some of its machines to China at the request of US (Bloomberg), Ant Completes Process of Removing Jack Ma’s Control (Bloomberg). BYD likely overtook Tesla in Q4 2023 as the world’s largest battery EV maker (Bloomberg).

Macro events (all times are GMT): Italy, France and German Manufacturing Dec PMI’s, Eurozone Manufacturing PMI (Dec), exp 44.2 (0800), UK Manufacturing PMI (Dec), exp 46.4 (0830), US Manufacturing PMI (Dec), exp 48.4 vs 48.2 prior (13:45)

Earnings events: Next important earnings releases are on Thursday from RPM International, Walgreens Boots Alliance, Conagra Brands, and Lamb Weston.

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