Global Market Quick Take: Europe – 8 February 2024

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

Equities: The divergence between Hong Kong equities and mainland Chinese equities with links to state-owned enterprises continues to widen in today’s session with CSI 300 up 1.6% and Hang Seng down 1.2%. US and European equity futures are pointing slightly higher as the earnings season continues to be a supportive factor for sentiment. Yesterday’s positive vibes across companies tied to the wind industry might carry those stocks and renewable energy stocks higher into next week. This morning in Europe’s pre-market, Dutch payment company Adyen reports better than expected net revenue and EBITDA margin 4%-points above estimates pushing shares 8% higher in pre-market trading. Maersk reports slightly better than expected Q4 revenue on Red Sea conflict but says that shipping oversupply will remain issue in 2024. Maersk is also spinning off its Svitzer unit and sees global container trade at +2.5-4% in 2024.

FX: Dollar traded sideways amid lack of key data in the US and Fed’s pushback mostly priced in, while choppy yield moves underpinned amid mixed NYCB headlines. The main mover overnight was USDJPY moving higher after BOJ’s Uchida said that continuous BOJ rate hikes are unlikely. CHF underperformed after SNB forex reserves rose for the second consecutive month in January, potentially raising talks about currency interventions. Meanwhile the AUDUSD was unable to push above 0.6540 as AUDNZD broke below the key 1.07 support. EURUSD maintained a slight upward bias and could be heading for a test of 1.08 with ECB’s economic bulletin in focus today.

Commodities: US natural gas slumped back below $2 for the first time since March last year as an unusually mild winter is ending, while today's inventory report is expected to show a 75 bcf draw, compared with a 5-year average decline of 193 bcf. Crude oil, however, rose for a third consecutive day amid signs of stronger demand as US gasoline inventories fell more than expected. EIA reported a decline of 3.15mn barrels last week in gasoline inventories while distillate stocks dropped by 3.2m barrels. Our Commodity Strategist discusses his views on crude oil and fuel market in this article. Gold recovered, despite recent dollar and yield strength, as strong physical demand, especially from China, continues to offset any short-term “paper” selling from ETFs and speculators in the futures market.  Corn and soybeans touch new multi-year lows on grain glut worries ahead of today’s supply and demand report from the US government.

Fixed income: Treasury yields edged modestly higher by around 2 basis points across the yield curve, with the 2-year yield and the 10-year yield settling at 4.43% and 4.12%, respectively. The auction of $42 billion of 10-year notes saw robust demand, as expected, stopping through for the first time in a year. We remain skeptical about today's $25 billion 30-year auction. To know more about our take on the upcoming US Treasury auctions, click here. In the meantime, demand for long-term sovereigns in Europe remains robust, with Belgium receiving €60 billion of demand for the sale of €5 billion 30-year bonds. Today we have the ECB Economic bulletin published, and ECB’s Vujcic, Wunsch and Lane speaking.

Macro: The narrative from Fed speakers continued to be one of pushback to imminent rate cut expectations. Kugler (voter), a new member of the Fed board, said that every meeting is live, but she broadly highlighted progress on inflation but remained in the camp that the job is not yet done. Barkin (voter) also echoed that it makes sense to be patient on rate cuts. Collins (non-voter) said the Fed is likely to cut rates later this year if the economy meets expectations, adding monetary policy is well positioned for the current outlook. China CPI and PPI tumble confirmed that deflation is firmly embedded in the economy with CPI coming in weaker than expected at -0.8% vs. -0.5%. The deceleration in prices proves that a more proactive policy stance is needed. Barring the surprise reserve requirement ratio cut of 50bps cut last month, there has been very little follow-up to make any significant changes. Real rates are too high for an economy that is struggling and dealing with high levels of debt.

Technical analysis highlights: S&P 500 uptrend to break 5K could move to 5,110. Nasdaq 100 uptrend, eyeing 18K. DAX closed above 17K, potential to 17,255-17,410. EURUSD bouncing from 1.0730 key support likely to around 1.08 before resuming down trend, below 1.0730 next support 1.0660. USDJPY having another go at key resistance at 148.80, a close above looking at +150. EURJPY likely to test 161 resist. USDCHF uptrend likely move to 0.8820resistance. AUDUSD below key strong support at 0.6520. Gold range bound 2,065 – 2K. 10-year T-yields bouncing from previous low at 3.78, key resistance at 4.20

Volatility: Volatility continued its descent, with the VIX closing at $12.83 (-0.23 | -1.76%), reflecting a quieter market mood. However, the VIX's own volatility, measured by the VVIX, saw a rise to 80.54 (+3.57 | +4.64%), indicating underlying uncertainties. Meanwhile, the SKEW-index, although slightly decreased, remains elevated at 151.41 (-1.41 | -0.92%), suggesting a sustained concern for outlier movements in the market. The optimism in the markets is palpable as the S&P 500 edges closer to the significant 5000 mark, with only a few points in the gap. Today's economic indicators, such as the Initial Jobless Claims and the 30-Year Bond Auction, may introduce some fluctuations. Overnight futures have shown minimal changes, signaling a steady opening.

In the news: Disney Earnings Top Views on Cost Cuts, Parks; Shares Climb (Bloomberg), Alibaba shares drop 5% after revenue miss, $25 billion boost to buyback plan (CNBC), NYCB names new chairman after Moody’s downgrades bank’s credit rating to junk (CNBC), US Commercial Real Estate Contagion Is Now Moving to Europe (Bloomberg), PayPal sees flat profit in 'transition year,' shares fall (Reuters), Arm forecast beats estimates as AI spurs chip upgrades, shares surge (Reuters), Ford shares surge on dividend boost, lower EV spending (Reuters), Tesla asks which jobs are critical, stoking layoff fears (Reuters), It's the Year of the Dragon. Here's your guide to the Lunar New Year (USA Today)

Macro events (all times are GMT): ECB Economic Bulletin (0800), EIA’s Weekly Natural Gas Storage Change, exp –75 bcf vs –197 bcf prior (1430), USDA’s World Agriculture Supply & Demand Estimates (1600), US Treasury 30-year auction (1700), Speakers: BoE’s Dhingra, Mann; ECB’s Elderson, Lane; Fed’s Barkin.

Earnings events: A busy earnings week is ending. Key focus in the US today is earnings from L’Oreal and ConocoPhillips.

• Today: NTT, Siemens, AstraZeneca, Unilever, Philip Morris, S&P Global, L’Oreal, ConocoPhillips, Adyen, ArcelorMittal, Maersk
• Friday: Toyota Electron, Hermes International, PepsiCo, Coloplast

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