Global Market Quick Take: Europe – 27 May 2024

Key points:

• Equities: Quiet session expected today with focus on IFO
• Currencies: EUR in focus this week on German inflation figures on Wednesday
• Commodities: Edge higher in quiet trading, led by silver and platinum
• Fixed Income: Friday’s Eurozone CPI and US PCE readings are in focus.
• Economic data: Germany IFO, US and UK markets closed

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

Equities: Positive session in Asia with Japanese equities up 0.8% while US and European equity futures are flat this morning ahead of why is expected to be quite a session with US and UK holiday. The big equity story on Friday was the 15% decline in Workday shares as the company announced a fiscal year revenue outlook that disappointed slightly against estimates. In private equity markets, Elon Musk new company xAI announced a $6bn series B founding round increasing the competition in the AI industry and clearly aimed against OpenAI. Today’s IFO figures from Germany are the only meaningful macro event today and on Wednesday the big macro event of the week will be May preliminary Germany inflation figures given last week’s upside surprise to UK inflation figures changing the market’s pricing of when the BOE will cut its policy rate.

FX: The US dollar closed the week marginally higher despite coming under pressure on Friday after easing price concerns from the UoM sentiment report boosted sentiment. Overall, the bullish sentiment, according to speculators in the futures market has cooled with the gross dollar long against eight IMM futures down 40% during the past four weeks. AUDUSD was the weakest currency in the week, as it slipped from 0.67 handle but found support at 0.66, while NZDUSD performed much better on a hawkish RBNZ decision and remains above 0.61. No respite for JPY still as well and USDJPY was around 157 handle this morning despite Japanese 10-year yields hitting a 12-year high on Friday. Japan seemingly continued to push against excess FX volatility at the G7, but that remains insufficient to counter yen bears with carry trading remaining popular. EURUSD around 1.0850 as Eurozone inflation is eyed this week while GBPUSD was an outperformer last week as it climbed higher to 1.2740 as rate cut expectations were pushed out. GBPJPY was the most popular trade on Saxo’s platforms, as it rose to test a break above the 200-mark, the level from which it reversed in April following suspected intervention.

Commodities: Led by silver and platinum, most metals have started the week with gains following last week’s rollercoaster ride that saw record levels reached in gold and copper before delating only to rise again on Friday after the U of Mich survey found consumers had lowered their inflation expectations. This week, Thursday’s PCE print will give the next clue about inflation and how it may impact the FEDs thinking on rates. Reserve and speculation about China reducing gold purchases. Crude oil trades higher after once again finding technical support ahead of $80 in Brent and $75 in WTI as the market awaits the next move from OPEC+. Recent weakness has been attributed to concerns about the Fed's stance on interest rates and its potential impact on economic growth and oil demand, as well as concerns about gasoline demand as the "driving season" begins. Grains and softs recorded strong gains last week, led by wheat (7.2%), cotton (6.2%) and coffee (5.7%). To read more about our commodity views, go to the Commodity Weekly article from Ole Hansen or this thematic podcast focusing on the trends in metals.

Fixed income: The term “fiscal unsustainability” is gaining traction among policymakers. On Friday, Waller stated that the r*, the neutral long-term policy rate, might be higher than previously anticipated due to unsustainable fiscal spending. Janet Yellen also expressed concerns over the sustainability of U.S. debt, given that interest rates appear likely to remain elevated for an extended period. Last week, bond futures markets shrugged off 8bps in rate cuts this year, now pricing in 33 bps of rate cuts by year-end. This affected the short end of the yield curve, causing yields on 2-year US Treasuries to rise by 14 bps, closing the week at 4.93%. Meanwhile, in Europe, markets are anticipating a 25 bps rate cut in June, with a 60% chance of another cut in September, and a total of 58 bps in rate cuts for the year, 9 bps less than at the start of the week. This has resulted in a bear-flattening of the yield curves. This week's focus is on Euro area inflation readings, expected to be 0.2% month-on-month and 2.5% year-on-year, with a 2.7% core reading. Among a long list of ECB speakers, Isabel Schnabel and Klaas Knot's speeches will be closely watched ahead of these readings. Friday will feature sovereign credit rating reviews for France and Italy. In the US, the spotlight is on Friday’s PCE deflator, anticipated to be 0.3% for the headline and 0.2% for the core.

Technical analysis highlights: Top and reversal pattern in US Indices, correction in the cards: S&P500 support at 5,194. Nasdaq 100 support at 18,464, but could drop to 18,170. DAX uptrend potential to 19K. EURUSD bounce from 100 DMA, likely test of resistance at 1.0885. GBPUSD uptrend potential to 1.28. USDJPY uptrend potential to 158.45, but short-term correction could be seen. EURJPY uptrend stretched, expect correction. AUDJPY range bound 102.80-104.60. EURCHF eyeing 1.00. EURGBP key support at 0.85. Gold correction could dip to 2,314 but expect rebound. Silver rebounding from 30, likely resuming uptrend. Platinum rebounding from 1,015 support, likely resuming uptrend. Copper correction to 475 likely over, expect rebound. If below 475 then sell-off to 460. US 10-year T-yield bouncing from 4.30 key support. Resist at 4.53

Volatility: The VIX experienced a turbulent week, with a sudden rise on Thursday followed by a decline on Friday, closing at $11.93 (-0.84 | -6.58%). Similar fluctuations were observed in the shorter-term VIX indices (VIX1D and VIX9D). Expected moves for the major indices, derived from options pricing, indicate decreasing values. The S&P 500 has an expected move of plus or minus 39.71 (+/- 0.75%), down from +/- 50.18 (+/- 0.95%) the previous week. The Nasdaq 100 shows an expected move of plus or minus 210.83 (+/- 1.12%), compared to +/- 281.26 (+/- 1.51%) the prior week. U.S. markets are closed today for Memorial Day. Key volatility drivers for the upcoming week include CB Consumer Confidence, GDP, Initial Jobless Claims, and Core PCE Price Index data. Notable earnings reports are expected from Salesforce, HP, Costco, Marvell, and MongoDB. This morning, VIX futures are at 13.400 (-0.025 | -0.20%), while S&P 500 and Nasdaq 100 futures are at 5319.00 (-2.50 | -0.05%) and 18860.75 (-15.75 | -0.08%) respectively. Friday's top 10 most traded stock options, in order: Nvidia, Tesla, Advanced Micro Devices, Apple, Amazon, Meta Platforms, GameStop, Alibaba, AMC Entertainment, and Coinbase.

Macro: The final print of the University of Michigan survey for May saw headline sentiment rising to 69.1, up from the prelim 67.4 with both current Conditions and forward-looking Expectations rising. Conditions rose to 69.6 from 68.8, while Expectations rose to 68.8 from 66.5. The market was especially relieved by cooling inflation expectations. The 1 year-ahead eased to 3.3% from 3.5% while the 5yr eased back to 3.0% (exp. 3.1%). This week's PCE release will be the next big inflation test for markets. Industrial profits at large Chinese companies increased 4% from a year earlier in April, thereby reversing the 3.5% drop in March that ended seven straight months of increases. Profits rose as a government push for equipment upgrade lifted demand and exports returned to growth, giving a boost to the economy. This week's PCE release on Thursday will be the next big inflation test for markets.

In the news: Hedge funds sell US stocks at fastest rate since January (Investing), Japan, at G7 meet, renews push to keep yen bears in check (Investing), Oil steady as investors weigh U.S. rate fears, firmer seasonal demand (CNBC), The Bond Market Is Sending a Message. Investors Should Listen (MarketWatch), The SEC’s T+1 settlement rule will transform stock trading: Here’s what you need to know (MarketWatch), Nvidia's split of soaring stock could boost retail investor appeal, Dow chances (Reuters)

Macro events: US and UK holiday, Germany May IFO Survey est. 90.4 vs 89.4 prior (0800)

Earnings events: This week’s main earnings focus is Salesforce (Tue), Costco (Thu), and Dell Technologies (Thu) with the important earnings from a market impact being Costco. Analysts expect Costco to report revenue growth of 8% YoY and EPS $3.69 up 8% YoY.

• Tuesday: Bank of Nova Scotia, HEICO, Adevinta
• Wednesday: Bank of Montreal, National Bank of Canada, Salesforce, Agilent Technologies, HP, Pure Storage, Nutanix, Okta, U-Haul, Dick’s Sporting Goods, Viking
• Thursday: Canadian Imperial Bank of Commerce, Royal Bank of Canada, Costco Wholesale, Cooper Cos, Dell Technologies, Marvell Technology, Veeva Systems, MongoDB, Zscaler, NetApp, Ulta Beauty, Dollar General, Hormel Foods, Best Buy, Burlington Stores

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