Global Market Quick Take: Europe – September 6, 2023

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

Equities: S&P 500 is hovering around the key 4,500 level this morning and a firm break lower could take the index to the 4,400 level. Most industries were declining in yesterday’s session except for software and carmakers (Tesla shares rose 4%). Arm IPO pricing of its shares was further lowered to $47-51 indicating weak demand for Arm shares as equity valuation remains high. The increasing focus is also on energy which could go back into inflation figures and pressure equities through margin pressure and higher for longer narratives on policy rates.

FX: The dollar trading near a 6-month high on rising Treasury yields. USDJPY rose to fresh YTD highs of 147.82, largely ignoring verbal intervention. USDCNH spiked to 7.3278 but eased to 7.3130 following PBOC’s stronger fixing and calls for broader property sector reforms. AUDUSD touched a 10-month lows of 0.6358 amid broad risk-off, miss in China PMI and RBA standing pat. Next support at 0.63. USDCAD below 1.3650 as oil prices rose but risks for BOC meeting today are tilted dovish.

Commodities: Brent crude returned to the $90’s after Russia and Saudi Arabia extended current production cuts to yearend. The implied tightening that goes with this longer than expected period is likely to support, potentially not raise, prices post the peak summer demand season and into the refinery maintenance period which sees crude demand drop. US inventory report delayed until Thursday. Meanwhile, gold trades back below $1930 on rising Treasury yields and recent dollar strength, while copper remains resilient despite fresh yuan weakness.

Fixed-income: US 10-year Treasury yields trade up 15bps this week, driven by approximately USD 37 billion in corporate bond issuances and rising crude oil prices adding fresh inflation concerns.

Volatility: VIX ended a little higher for the first time in 7 days, even though it trended down during the trading day. At 14.01, the Vix is still very low, Vix futures point towards a small uptick. Stocks with unusual options volume: Airbnb saw a 3-fold increase, with more calls to puts being traded after the news that ABNB is about to be included in the S&P500. While options volume in Walt Disney (DIS) is normalizing again, implied volatility is still moving up, after the debacle with cable provider Charter.

Macro: The strong USD combined with higher US interest rates are increasingly a problem for emerging markets and today both Japanese and Chinese policymakers hinted that action would be taken if the strong USD trend continues. Also, Fed’s Waller, typically a hawk, hinted at a pause for the September meeting.

In the news: Brewing disagreement in domestic Chinese politics might have been the reason for Xi not attending the upcoming G20 meeting in New Delhi this weekend – full story in Nikkei Asia. Japanese investors are increasingly looking at gold amid fears over inflation – full story in the FT. Study from San Francisco Fed show that higher interest rates could impact economy for 12 years – full story on Bloomberg. Oil hits $90 for the first time in 2023 as Saud Arabia and Russia extend cuts – full story on FT

Technical analysis: S&P 500 rejected at resistance at 4,527, expect set back, support at 4,340. USDJPY resuming uptrend eyeing 150. EURUSD downtrend, support at 1.0690. GBPUSD strong support at 1.2550.

Macro events: Bank of Canada rate decision (1400 GMT) 5% vs prior 5%. ISM Services Index for August (1400 GMT) est. 52.5 vs prior 52.7. Federal Reserve Beige Book (1800 GMT)

Earnings events: UiPath reports after US market close FY24 Q2 (ending 31 July) with est. EPS $0.03 vs last year -0.20, revenue growth expected at 17% y/y.

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