Global Market Quick Take: Europe – 25 April 2024

Key points:

• Equities: Technology stocks are headed on 15% decline in Meta shares over rising costs
• FX: Yen hits fresh 34-year low with record CNHJPY potentially causing unease in Beijing
• Commodities: Spotlight on copper given chance of a mega miner merger deal
• Fixed Income: Focus on the $44bn 7-year US Treasury auction and preliminary US GDP data for Q1.
• Economic data: US Q1 GDP, initial jobless claims, and Japan April CPI (tonight after US close)

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

Equities: Big reversal in sentiment with Japanese equities down 2% and Nasdaq 100 futures pointing 1.4% lower ahead as Meta shares declined 15%. Meta Q1 results delivered against expectations and the Q2 revenue guidance range was within analyst estimates, but it was the 2024 guidance on higher costs related to big AI investments that negatively surprised investors. In addition, the Reality Labs segment, which covers its bets on metaverse and AR/VR headset, missed Q1 revenue estimates highlighting that the new computing platform is not taking off. This morning in Europe we have seen several good earnings results from AstraZeneca, Unilever, Hermes, and BASF highlighting that things are turning around in Europe.

FX: The dollar was modestly higher on the back of higher yields, but not enough for the DXY index to break above the 106 mark as attention turns to US preliminary GDP for Q1 and initial claims data today. Strong labor market, with payrolls at 303k in March, along with a pickup in the manufacturing cycle and a still-strong consumer suggest the US GDP could surprise to the upside, which is likely to boost the dollar and put the activity currencies (AUD, NZD, GBP) on the backfoot. USDJPY is also a big focus, having breached the key 155 level to fresh 34-year highs but an intervention at this stage may be futile with US GDP next and refunding announcement as well as the Fed meeting next week likely to push Treasury yields higher. AUDUSD made a round-trip to 0.6530 highs as 200DMA provided resistance following a higher-than-expected Q1 CPI yesterday. AUDJPY breached the psychological resistance at 101 to reach fresh record highs of 101.37. USDCNH continued its ascent as well and rose to 7.2739 before turning lower in Asia today and CNHJPY at record highs at 21.40+ could invoke a response from Chinese authorities.

Commodities: Brent crude has settled into a wide six-dollar range with mixed signals keeping crude rangebound for now. While prompt spreads in both WTI and Brent point to tightness, refinery margins, especially for diesel remain under pressure. A supportive 6.4m bbl stock drop reported by the EIA was offset by slowing end user demand for both gasoline and diesel. Commodities will be watching today’s US GDP and could weaken should the print further weaken the conviction on Fed rate cuts. Gold remains in correction mode but holding above $2300 ahead of key support in the $2250-60 area. Copper trades near cycle high as the potential of a mega-deal between BHP and Anglo-American highlights the importance and expectations for copper given its key role in the green transition and increased demand via AI roll outs. Wheat futures touched a January high, as dry weather raise concerns in key growing regions and Russian attacks in the Black Sea area threatened to disrupt supply chains.

Fixed income: European sovereign bonds ended the day lower yesterday after ECB's Nagel stated that the ECB couldn't commit to interest rate cuts post-June, echoing sentiments expressed by other ECB members last week. Similarly, in the UK, BOE's Pill expressed the need for greater conviction that price pressures are tamed. Therefore, bond markets pushed back against aggressive rate cuts this year, causing yields to soar broadly. Italian BTPs underperformed peers amid Fitch's warning about mounting concerns regarding the country's escalating debt. Ten-year BTPs rose by 15bps closing the day at 3.99%, 10-year Bund yields increased by 9bps closing at 2.59%, and 10-year Gilt yields climbed by 10bps to 4.33%. In the US, the yield curve experienced a bear steepening fueled by better-than-anticipated durable goods orders and a weak, record-sized 5-year US Treasury auction that still garnered strong demand but tailed When-Issued by 0.4bps, contributing to firming yields higher. The 10-year US Treasury yields closed 4bps higher at 4.64%. The focus turns to the upcoming $44 billion 7-year U.S. Treasury auction, which has the potential to spur volatility (for a preview, click here), along with preliminary U.S. GDP figures tomorrow and the PCE deflator on Friday. ECB’s De Cos, Villeroy, Cipollone, and Nagel speak today.

Macro: Australia’s Q1 CPI came in higher-than-expected at 1.0% QoQ (prev: 0.6%, exp: 0.8%) and 3.6% YoY (prev: 4.1%, exp: 3.5%). Gains were broad based as trimmed mean rose 4.0% YoY vs. 3.8% expected. This has given room to ‘higher-for-longer’ positioning, with the RBA preaching patience on inflation. The Federal Budget due in May could be key as well, and focus will be on the breadth of 'cost of living' support measures and how that can further fuel inflationary pressures. For now, it appears that the market will see no urgency to price in RBA rate cuts for this year. German Ifo numbers for April signaled small improvements in the economy. The headline rose to 89.4 from 87.8 (vs. 88.8 expected) as both current conditions (88.9 from 88.1) and the expectations index (89.9 from 87.7) increased.

Technical analysis highlights: S&P500 minor resistance at 4,080, downtrend intact, bullish above 4,146. Nasdaq 100 key resist at 17,808. DAX rejected at key resistance at 18,192 
EURUSD correction testing 0.382 retracement at 1.0710, could push higher to 1.0777. GBPUSD correction likely up to 1.2553. USDJPY reached 155.30, likely pushing higher to 158.35. EURJPY uptrend with potential to 168. USDCAD still downside risk to 1.3620 but correction could be over, uptrend potential to 1.39. AUDJPY upside potential to 102. Gold hovering around key support at 2,319, above 2,350 likely resuming uptrend. US 10-year T-yield upside potential to 4.70-4.75

Volatility: VIX halted its sharp decline, edging up to $15.97 (+0.28 | +1.78%). The VVIX rose slightly, while the SKEW index dipped, reflecting a mixed sentiment. Meta's earnings beat expectations but provided a weaker Q2 outlook, causing its shares to plummet by over 15% after-hours. This development is likely to influence market volatility today, especially as investors await crucial earnings from Microsoft and Alphabet after the close. VIX futures climbed to $16.100 (+0.475 | +3.04%), indicating heightened volatility expectations. S&P 500 and Nasdaq 100 futures reflected investor caution, dropping to 5068.00 (-39.50 | -0.78%) and 17418.25 (-246.25 | -1.39%) respectively. Wednesday's most traded stock options included TSLA, NVDA, AAPL, META, BA, AMD, F, AMZN, SNAP, and RIOT.

In the news: Meta shares sink on higher AI spending, light revenue forecast (Reuters), Ford Beats Sales Estimates on Strong Demand for Work Trucks (Bloomberg), Boeing reports first revenue drop in 7 quarters as deliveries decline (Reuters), UBS Analyst Who Took On Evergrande Now Bullish on China Property (Bloomberg), TikTok CEO expects to defeat US ban: 'We aren't going anywhere' (Reuters), BHP proposes takeover of Anglo American in mining mega-deal (FT)

Macro events (all times are GMT): German GfK Consumer Sentiment (May) exp –26 vs –27.4 prior (0600), US GDP (Q1) exp. 2.5% vs 3.4% prior, US Core PCE Price Index QoQ exp 3.4% vs 2% prior (1230), US Initial Jobless Claims exp 215k vs 212k prior (1430), EIA’s weekly Natural Gas Storage Change, exp 84bcf vs 50bcf prior (1430), Speakers: ECB’s Schnabel

Earnings events: Today is the big earnings day with several key earnings with the most important ones being Microsoft, Alphabet, and Caterpillar in the US and Airbus, AstraZeneca, Sanofi, and BNP Paribas in Europe. After yesterday’s disappointment from Meta there will undoubtedly be an extra focus on Alphabet earnings tonight after the market close. Read our earnings preview for this week here.

• Today: Kweichow Moutai, Airbus, AstraZeneca, Caterpillar, Union Pacific, Microsoft (aft-mkt), Alphabet (aft-mkt), T-Mobile, Intel, Merck & Co, Comcast, Neste, Sanofi, BNP Paribas, Dassault Systemes, STMicroelectronics, BASF, Deutsche Bank, Keyence
• Friday: Chevron, Exxon Mobil, AbbVie, TotalEnergies

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