Global Market Quick Take: Europe – 28 May 2024

Key points:

• Equities: Muted sentiment ahead of US consumer confidence and Salesforce earnings
• Currencies: Dollar softens on upbeat risk sentiment
• Commodities: Silver rally re-ignites wheat hit fresh highs
• Fixed Income: Focus on ECB speakers and a 2- and 5-year US Treasury auction
• Economic data: ECB’s inflation expectations, US consumer confidence

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

Equities: Markets are coming back to life today following yesterday’s US and UK holiday with slightly negative session in Asia and European equity futures pointing 0.1% higher this morning. Today’s key macro focus is US May consumer confidence after yesterday’s German May IFO figures disappointed against estimates adding a small bump on the road back to growth recovery.

FX: Risk sentiment remained upbeat, pushing the US dollar lower in a quiet session. Unsurprisingly, gains were led by the risk-sensitive commodity currencies and GBP, while JPY and CHF underperformed. NZDUSD surged to 0.6150 while AUDUSD tested a break of 0.6660, helped by a recovery in the yuan after PBOC’s firmer fixing. USDCNH reversed from Friday’s highs of 7.2632 and traded below 7.26. GBPUSD moved above the 76.4% fibo retracement, unfazed by election news, and was last seen at 1.2770. Next target likely to be the 1.28 handle. USDJPY traded just below 157 with AUDJPY inching above 104.40 and GBPJPY breaking above 200. EURUSD was choppy on ECB Lane’s comments who tried to balance out rate cut expectations beyond June, but remains around 1.0860 ahead of the well-anticipated June rate cut. To read more on our FX views, go to our Weekly FX Chartbook published every Monday.

Commodities: Brent trades higher for a third day with WTI joining after being closed yesterday, driven by technical buying after finding support ahead of USD 80 last week, improved growth and demand outlook and not least raised geopolitical tensions ahead of Sunday’s OPEC+ meeting. Meanwhile, gold trades back above USD 2,350 per ounce, supported by silver which surged 4.5% on Monday as traders rushed back in after support held in the key USD 30 area on Friday. Copper also resumed its rally after China stepped up its efforts to rescue its property market, and after the recent correction was arrested before causing any technical damage below USD 4.74 key support. Wheat reached a 9-month high in Chicago, and 1-year high in Paris as production around the world continues to get slashed amid adverse weather. A 12 mn tons downgrade from Russia this past month alone, equalling the amount Egypt, the world's top importer, will buy this year.

Fixed income: With the U.S. and UK markets closed yesterday, ECB speakers were in focus. Bonds in Europe surged after ECB Governing Council member Villeroy suggested potential rate cuts in both June and July, while ECB’s Lane supported a June rate cut. Markets are currently anticipating 25bps rate cut next week, and no chance of another rate cut in July. Italian BTPS outperformed peers, with 10-year BTP yields dropping 6bps to 3.83%, and 10-year Bund yields falling 4bps to 2.55%. This week's focus includes Euro area inflation readings, expected at 0.2% MoM and 2.5% YoY, with a 2.7% core reading. Additionally, sovereign credit rating reviews for France and Italy are scheduled for Friday. In the U.S., attention is on Thursday’s GDP second reading and Friday’s PCE deflator, anticipated at 0.3% MoM for the headline and 0.2% MoM for the core. Today, markets will look at the 2- and 5-year US Treasury note sale and wait to hear from Fed's Mester, Cook and Kashkari, ECB's Knot and BoE's Haskel.

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 likely to test resistance at 1.0885, a break above next 1.0930 and 1.10 GBPUSD uptrend potential to 1.28. USDJPY uptrend potential to 158.45, but short-term correction could be seen. EURJPY potential to 171 but uptrend stretched, expect correction. AUDJPY likely to pushing to 105  EURCHF eyeing 1.00. EURGBP key support at 0.85. Gold correction could dip to 2,314 but expect rebound. Silver uptrend potential to 32.50 and strong resist at 34.40. Platinum rebounding from 1,015 support, uptrend potential to 1,130. Copper bouncing from 474.50 key support, resuming uptrend. US 10-year T-yield bouncing from 4.30 key support. Resist at 4.53

Volatility: With US markets closed for Memorial Day, there is no new VIX data available since yesterday. Last week saw significant volatility, culminating in the VIX closing at $11.93 (-0.84 | -6.58%) on Friday. This marks a substantial drop, indicating reduced market anxiety as we head into a new week. Similar patterns were observed in the shorter-term VIX indices, reflecting short-term stability. Expected moves for the S&P 500 and Nasdaq 100 have declined, suggesting a quieter week ahead in terms of market fluctuations. Key economic indicators to watch this week include CB Consumer Confidence, GDP, Initial Jobless Claims, and the Core PCE Price Index. These reports will provide insights into the economic outlook and potential market movements. Additionally, notable earnings from Salesforce, HP, Costco, Marvell, and MongoDB will be in focus. VIX futures are currently at 13.350 (-0.075 | -0.57%), while S&P 500 and Nasdaq 100 futures show positive movements at 5327.50 (+6.00 | +0.11%) and 18918 (+42 | +0.22%) respectively, reflecting a cautiously optimistic start to the week.

Macro: Germany's headline IFO business climate came in unchanged at 89.3 in May, with current assessment lower at 88.3 from 88.9 but expectations up at 90.4 from 89.7. China set up its third state-backed investment fund worth USD 47.5bln to boost the semiconductor industry. More steps were also seen to address the challenges in the property sector. Shanghai adjusted the minimum down payment ratio for first-home buyers to no less than 20% and for second-home buyers to no less than 30%, while it cut the lower limit for interest rates on first-home mortgages to LPR minus 45bps. Furthermore, Shanghai is to establish and improve the housing system, explore buying housing through state-owned platform companies and other entities, as well as optimize the supply of housing security. The ECB should not rule out lowering borrowing costs at both its June and July meetings, Governing Council member Villeroy said on Monday, pushing back against fellow monetary officials who are uncomfortable at the idea of consecutive cuts. Villeroy told Germany’s Boersen-Zeitung newspaper that he favors “maximum optionality” after next month’s “done deal” reduction in the deposit rate, which he said can only be derailed by a shock.

In the news: Japan net external assets hit record high in 2023, remains world's top creditor (Reuters), China sets up third fund with $47.5 bln to boost semiconductor sector (Reuters), US stock futures inch higher in slim trade as PCE data approaches (Investing), The time is ripe to cut interest rates next week, European Central Bank’s Rehn says (CNBC), Wall Street Moves to Fastest Settlement of Trades in a Century (Bloomberg), Israeli Airstrike, Egyptian Guard’s Death Ratchet Up Tensions (Bloomberg)

Macro events: ECB Inflation Expectations (Apr), exp 1 year at 2.9% vs 3% prior, and 3 year unchanged at 2.5% (0800), Canada Industrial production (Apr) exp 0.9% vs 0.8% prior (1230), US Consumer Confidence (May) exp 96 vs 97 prior (1400), USDA’s weekly corn and soybean planting progress and crop conditions (2000). Fed Speakers: Fed’s Mester, Bowman, Kashkari, Cook, Daly

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.

• Today: 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