Global Market Quick Take: Europe – 15 April 2024

 Key points:

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

Equities: Risk sentiment is surprisingly stable this morning despite Iran’s attack being well-flagged with the US government indicating the market is breathing a sigh of relief at this point. Equity futures across Asia are mostly lower with Nikkei 225 futures down 0.9% while equity futures in Europe and the US are pointing 0.5% and 0.4% higher respectively. Geopolitics have shown its ugly face again making 2024 all about elections (especially the US election in November), geopolitics (the war between Ukraine and Russia, and the conflict between Israel and Iran), and the “great escape” by the global economy extending the “higher for longer” narrative on inflation. The key events in equities, outside macro and geopolitics, are Q1 earnings with focus on ASML (Wed), Netflix (Thu), and Procter & Gamble (Fri).

FX: Dollar strength returned to the fore on Friday as Iran fears gripped markets while inflation concerns also continued to linger with higher-than-expected inflation expectations from the UoM survey and Fedspeak hinting at a patient approach to rate cuts. The DXY index rose to 106 and could remain a key safe-haven as a likely response from Israel keeps the market nervous. While FX markets showed a lack of a safety bid amid heightened geopolitical tensions over the weekend, all eyes remain on whether there will be any response from Israel and markets will likely be volatile in the day ahead to any geopolitical headlines. Any threats of an escalation will bring a safety bid for USD and gold, and to CHF and JPY to some extent. Likely gains in oil prices could also benefit NOK and CAD, while energy shock risks will be a headwind for EUR and emerging Asia currencies.

Commodities: Iran’s well-flagged attack on Israel over the weekend triggered a muted reaction overnight in Asia with Brent touching $91 before turning lower. Crude prices already included a risk premium, and unless the market faces a real disruption to supply, the risk of an upside spike towards USD 100 remains limited. All eyes on Israel, and their response. Gold trades a tad firmer after suffering a near 100 dollars correction on Friday, but with a major risk premium already priced in and the stronger dollar and rising yields not supporting, the metal may struggle to regain last week’s strong momentum before entering a period of consolidation. Watch support at USD 2320 followed by USD 2290. Industrial metals, led by aluminum and nickel trades sharply higher after new UK and US sanctions led the LME to ban Russian-origin metal produced after April 13.

Fixed income: On Friday, U.S. Treasuries rallied due to heightened demand amid escalating Middle East tensions and short covering from earlier in the week. Ten-year Treasury yields dropped by up to 8 basis points from Thursday's close, closing at 4.52%, while two-year yields fell by 7 basis points to 4.87%. European sovereign yields also declined, with 10-year German Bunds dropping by 10 basis points to 2.35%, reversing the week’s earlier gains. While the immediate market response is seeking refuge in safe havens such as government bonds, there are looming concerns about another wave of inflation. Given inflation's influence on bond performance, the possibility of a medium-term increase in yields cannot be discounted. As a result, we favor the yield curve's front end while cautious on ultra-long maturities. Looking ahead, this week's focus will be on a series of policymaker speeches in the U.S. and Europe, alongside key economic indicators such as US retail sales, UK average hourly earnings, and UKCPI figures.

Macro: US preliminary Uni. Of Michigan sentiment for April fell to 77.9 from 79.4, falling short of the expected 79.0. Current conditions and the forward-looking expectations indices fell to 79.3 (prev. 82.5, exp. 82.2) and 77.0 (prev. 77.4, exp. 77.6), respectively. Inflation expectations rose, with both 1yr and 5-10yr coming in ahead at their highest since November 2023, printing 3.1% (prev. 2.9%) and 3.0% (prev. 2.8%), respectively. There was a lot of Fedspeak, all hinting at patience on rate cuts. Bostic repeated his message of one rate cut this year, while Daly said that the Fed will maintain policy stance as long as necessary. Both are voters this year. Others like Goolsbee, Collins and Schmid, who vote in 2025, all talked about inflation concerns and advocated patience on rate cuts. ECB speak came from Kazaks and Stournaras, where the former towed the seemingly given ECB line of June rate cuts if nothing surprising occurs, while the latter reiterated his call for four rate cuts this year. China had a steeper-than-anticipated decline in export growth for March, dropping by 7.5% Y/Y in USD terms, significantly below the projected 1.9% decrease as per a survey conducted by Bloomberg. 

Technical analysis highlights: Technical analysis highlights: Correction unfolding in Equities. S&P500 key support at 5,057. Nasdaq 100 key support at 17,808 for confirmation. Uptrend if close above 18,417 DAX top and reversal, testing key support 17,900, next 17,620.  EURUSD downtrend below 1.0660 key support, expect minor correct before lower towards 1.06. GBPUSD strong support 1.2410-1.2375. USDJPY broken above resist at 151.95 upside potential to 154.25-155.30. USDCHF above resist at 0.9108, no resist until 0.9245. EURCHF correction unfolding, testing support at 0.97, next 0.9622. EURJPY rebounding from 162.50 support.  AUDUSD below support at 0.6485 support, trying to get back above. Gold top and reversal, correction likely to 2,322 possibly to 2,255. US 10-year T-yield uptrend, no resist until 4.70

Volatility: On Friday, market volatility surged as the VIX spiked to 17.31, a substantial increase of 2.40 points or 16.10%. The spike in volatility largely stemmed from geopolitical tensions, with the weekend's events between Iran and Israel likely to heavily influence market sentiment in the upcoming week. Reflecting this, all volatility indicators including the VIX1D, VVIX, and SKEW indices saw significant rises, indicating a tense market atmosphere in anticipation of further developments. Aside from geopolitical news, the unfolding Q1 earnings season will also drive market fluctuations, with many key companies slated to report this week. Among them are major players like Goldman Sachs, Charles Schwab, Johnson & Johnson, Morgan Stanley, ASML, Netflix, Procter & Gamble, and American Express. The expected moves for the coming week suggest increased market activity, with the SPX expected to vary by +/- 88.85 points (+/- 1.73%) and the NDX by +/- 353.28 points (+/- 1.96%). VIX futures have dipped to 16.820, decreasing by 0.295 points or 1.73%. In contrast, both S&P 500 and Nasdaq 100 futures are up, signaling a potential rebound or stabilization after the initial shock, with increases of +20.50 points (+0.42%) and +80.75 points (+0.42%), respectively. Friday's top 10 traded stock options, in order: AAPL, TSLA, NVDA, AMD, AMZN, META, INTC, JPM, GOOGL, and C.

In the news: Iranian notice of attack may have dampened escalation risks (Reuters), Chinese developer Vanke Says It’s Addressing Liquidity Pressure, Denies Travel Ban (Bloomberg), Metal Traders Get Ready for Fireworks After LME Russia Ban (Bloomberg), JPMorgan Chase shares drop after bank gives disappointing guidance on 2024 interest income (CNBC), LME bans Russian-origin metal after UK, US impose new sanctions (Reuters)

Macro events (all times are GMT): US Empire manufacturing (Apr) exp –5 vs –20.9 prior (1230), US retail sales (Mar) exp. 0.4% vs 0.6% prior

Earnings events: The Q1 earnings season kicks into gear this week with more than 70 earnings releases. The three most important earnings releases are ASML, Netflix, andProcter & Gamble, with CATL today as the joker being the world’s largest battery maker.

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