Global Market Quick Take: Europe – 13 May 2024

Key points:

• Equities: Flat equity futures, Chinese technology earnings, and Maersk jumping
• Currencies: USD sees marginal gains, JPY weakness is back, and focus on CNH
• Commodities: Comeback to gold as geopolitical risks are back. Copper trend continues.
• Fixed Income: Inflation and Federal Reserve speakers on focus.
• Economic data: Japan April PPI

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

Equities: Flat equity futures with Stoxx 50 futures up 0.1% and Nasdaq 100 futures up 0.2%. This week is about ZEW tomorrow which is about confirming or not European green shoots and on Wednesday US April CPI which is expected to show persistent inflation in the US economy. The earnings season is no longer driving markets but there are still some key earnings to watch this week such as Tencent (Tue), Alibaba (Tue), Home Depot (Tue), JD.com (Thu), Siemens (Thu), and Applied Materials (Thu). Otherwise, the news that the Chinese government is planning big issuances of longer-term bonds to boost fiscal policies might change the sentiment in equities and commodities this week. In European pre-market, Maersk is up 7% with a delayed reaction on rising shipping rates due to last week’s Danish national holiday.

FX: The US dollar managed to end last week in marginal gains again, as declines in the Japanese yen returned. Fed speakers broadly maintained a neutral narrative into the CPI reading due this week, which could be a make-or-break input for Fed expectations. USDJPY tested a break above 156 again, erasing much of the intervention-driven gains in the yen. BOJ trimmed its bond buying compared to last month, likely aimed at pushing Japanese yields higher and supporting JPY and this saw USDJPY dipping to 155.50 although the move was erased. AUDUSD continues to struggle at 0.66 and focus this week will be on whether China recovery continues and Australia’s budget announcement due Tuesday. GBPUSD is just above 1.25 after a dovish BOE but a strong GDP report last week, and jobs data is out tomorrow with June rate cut still just 50% priced in. EURUSD remains sub-1.08 with EURGBP struggling to move above 0.8620. USDCAD moved lower to 1.3640 on strong Canadian jobs report but the price move did not stick. USDCNH rose above 200DMA to touch 7.24 after soft April credit data over the weekend questioned loan demand and government support measures, fuelling speculation of further rate cuts. US-China trade war risks also on watch as new Biden tariffs on China EVs, semiconductors, solar and other key sectors are due Tuesday. For our Weekly FX commentary, read this article.

Commodities: Brent crude remains in a trading range with negative momentum might extending down to the $80/brl. The next big events are the OPEC+ meeting on 1 June with internal pressure in the group to constrain supply to keep prices elevated and the planned series of longer-term Chinese bonds issuances to fund a bigger fiscal boost. Gold had a strong performance last week pushing above $2,350 again with hedging flows against geopolitical risks coming back into the market. Copper remains in a strong uptrend trading around the 466.30 level this morning with potential for a new all-time high closing price this week and especially if the Chinese government chooses to boost its economy through fiscal measures.

Fixed income: European sovereigns declined towards the end of last week, echoing a similar downward movement in U.S. Treasuries. This trend was influenced by a variety of macroeconomic factors and statements from central bank officials. In the United States, a disappointing preliminary consumer sentiment index from the University of Michigan and unexpectedly high short- and long-term inflation expectations reinforced concerns that inflation may be sticky. This concern drove the yield on 2-year U.S. Treasury notes to a weekly peak of 4.86%, marking an increase of 8 basis points over the week. Despite ECB’s minutes suggesting potential interest rate cuts starting in June, market expectations for rate cuts by year-end had moderated by Friday, leading to a slight rise in 10-year Bund yields, which ended the week up a couple of basis points at 2.51%. In the UK, despite h expectations for a significant drop in inflation in April, which spurred a rally in Gilts last week, Bank of England Chief Economist Huw Pill issued a warning against overly optimistic views on inflation trends. The market's attention this week will pivot to U.S. inflation data, with Producer Price Index (PPI) figures due on Tuesday and Consumer Price Index (CPI) data on Wednesday, alongside retail sales figures. Additionally, comments from Federal Reserve Chair Jerome Powell and Governor Philip Jefferson, among other Fed speakers, will be closely monitored. In Europe, the focus will be on Tuesday's ZEW economic sentiment survey from Germany and labor market data from the UK.

Technical analysis highlights: S&P500 uptrend likely to test previous peak at 5,265. Nasdaq 100 above key resist at 17,808, uptrend but fragile, RSI needs to close above 60 for momentum. DAX uptrend likely to break 19K. EURUSD indecisive, range 1,0713-1,0730. GBPUSD bounced from minor support at 1,2466, another break below likely to fuel sell-off to 1.2370. USDJPY rebound potential to 157. EURJPY rebound potential to 168.75. AUDJPY reached minor resist at 103.05 could push higher to 103.90. AUDUSD rejected at strong resist at 0.6650 likely setback to 0.65. Gold took out resist at 2,353, potential to +2,400. Silver upside potential to 30. US 10-year T-yield correction could dip to 4.39, Key support at 4.34

Volatility: Volatility, measured by the VIX, declined last week to $12.55 (-0.14 | -1.10%), marking nearly a 7% drop from the start of the week. The VVIX, which tracks the volatility of the VIX itself, fell to 73.26 (-0.51 | -0.69%), its lowest point since early 2023. This week's expected moves mirror the previous week's, with the S&P 500 expecting swings of +/- 60.51 (or +/- 1.16%), and the Nasdaq 100 anticipating +/- 270.93 (+/- 1.49%). Although these figures are similar to last week, the release of pivotal CPI data on Wednesday could inject additional volatility. Also influencing market sentiment will be other economic reports like the PPI, a press conference from Fed Chair Powell, Retail Sales data, Initial Jobless Claims, and the Philadelphia Fed Manufacturing Index—each potentially shaping expectations for interest rate cuts later this year. The earnings season is winding down, with key reports from Home Depot (HD), Cisco (CSCO), Walmart (WMT), Applied Materials (AMAT), and Deere (DE). VIX futures stand at 13.450 (-0.100 | -0.75%), while S&P500 and Nasdaq 100 futures are positioned at 5251.00 (+4.75 | +0.09%) and 18282.50 (+37.50 | +0.21%) respectively. Last Friday's top 10 most traded stock options, in order: Tesla, NVIDIA, Apple, Amazon, Advanced Micro Devices, Palantir Technologies, Marathon Digital Holdings, Google, GameStop, and Meta Platforms.

Macro: Last week, US jobless claims for the week of 4 May shot up to 231k from 209k previously, coming in above expectations of 215k. This is the highest figure since August 2023, and the largest weekly increase since January, which was weather related, and is a signal that labour market in the US is clearly cooling down after NFP also missed expectations last week. Meanwhile, Fed's Daly (voter) noted Q1 inflation data has left considerable uncertainty about the next few months of inflation, she acknowledged that policy is restrictive, but it may still take time to bring inflation down. Her comments were neutral, much like Powell’s last week. As expected, the Bank of England kept rates unchanged at 5.25%, while the vote split shifted dovish to 7-2 as Dave Ramsden joined Swati Dhingra to vote for a cut. Governor Bailey said that the MPC will need to lower rates in the coming quarters and rates may need to be cut by more than currently priced in by the market. Market pricing for June rate cut has increased slightly to over 55%, and inflation data will be the single biggest catalyst from here for further dovish repricing of the BOE curve. UK Q1 GDP is out today, followed by labour data on May 14 and CPI on May 22.

In the news: China fires starting gun on $140bn debt sale to boost economy (FT). Putin taps civilian economist to run defense, replacing Shoigu in surprise move (Reuters). The Gas Giant That Has Quietly Taken Over Europe (Bloomberg). European banks' Goldilocks rally tempts back buyers... and bears (Reuters). Exclusive: Shein steps up London IPO preparations amid U.S. hurdles to listing (Reuters)

Macro events: NY Fed 1-year Inflation Expectations (15:00), Japan April PPI MoM est. 0.3% vs 0.2% prior (23:50)

Earnings events: The earnings season is no longer impacting markets in a big way and the conclusions after Q1 earnings are that the outlook remains positive and that margin pressures are small causing minimal impact on earnings growth. This week key earnings to watch are Tencent (Tue), Home Depot (Tue), JD.Com (Thu), Siemens (Thu), and Applied Materials (Thu).

• Monday: SoftBank Group, Alcon
• Tuesday: Tencent, Sony Group, Home Depot, Alibaba, Veolia Environnement, Euronext, Bayer, Rheinmetall
• Wednesday: Nubank, Hoya, Merck, Sumitomo Mitsui Financial, Recruit, Mizuho Financial Group, Cisco, Allianz, Compass, Experian, E.ON, Hapag-Lloyd, RWE, Commerzbank
• Thursday: Meituan, Siemens, Deutsche Telekom, Walmart, Copart, Applied Materials, Deere, JD.com, Baidu, Swiss Re, KBC Group,
• Friday: Richemont, Engie

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