Global Market Quick Take: Europe – 16 January 2024

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

Equities: The US equity market was closed on Monday for a holiday. So far today, the S&P 500 and the Nasdaq 100 futures trade around 0.4% from their Friday close. This dip followed weakness on Monday in European markets, attributed to ECB officials pushing back on investors' rate cut expectations. Notably, Morgan Stanley and Goldman Sachs are set to report their results before the US market opens on Tuesday.

FX: The Bloomberg Dollar index climbed to a one-month overnight, building on Monday’s gains as Treasury futures slipped at the Tokyo open after rallying strongly last week, thereby following in the footsteps of a selloff in European debt after ECB’s Holzmann said the bank may struggle to lower interest rates this year amid lingering inflation. High beat currencies were the worst performers, with AUDUSD sliding below 50DMA and approaching a test of 0.66 support. NZD also slid to test the 50DMA at 0.6159. USDJPY rose above 146 despite escalation in the Middle East conflict, with firmer Japan PPI report this morning and CPI data on watch this week. EURUSD slid below 1.0920 despite the hawkish rate comments.

Commodities: Brent crude remains stuck below $80 showing limited reaction to another ramp up in geopolitical tensions after Houthis hit a US vessel and Iran’s IRG launched missiles at targets in northern Iraq and Syria. In North America extreme cold has reduced production of crude and demand for fuel. European gas futures fell to a five-month low amid high inventories despite reports that Qatar could pause LNG shipments through the Red Sea. Traders will be focusing on comments out of Davos along with geopolitical developments, and oil market reports from OPEC and IEA due Wednesday and Thursday. Gold failed to break key resistance in the $2060 area before trading softer amid rising yields.

Fixed income: Returning from the Martin Luther King Day holiday, Treasuries were sold in Asian trading on Tuesday, with yields approximately 6bps higher than their Friday New York closing levels. The 2-year Treasury notes are trading at 4.21%, and the 10-year Treasury notes are at 4.0%, influenced by the weakness in European government bonds following hawkish comments from ECB Governing Council member Holzmann. The focus turns to Davos, and the ZEW survey for the Eurozone today. Tomorrow US retail sales, industrial production and the import price index will be released before a 20-year US Treasury bond auction.

Macro: At the Davos meetings, ECBs Holzman and Nagel said that rate cuts were still a way off. Holzman said that the market should not count on rate cuts at all this year. Nagel was a bit more open saying it is too early to talk about rate cuts. WSJ's Timiraos wrote Fed officials are to start deliberations on slowing but not ending (QT) as soon as their policy meeting this month. Japan’s December PPI came in firm at 0.3% MoM, unchanged from last month but higher than flat expected. YoY was flat vs. +0.3% previous and -0.3% expected. This could fuel some talk of BOJ exit, but any gains in yen could be erased.

Volatility: Volatility took a brief hiatus as U.S. markets observed Martin Luther King Jr. Day, but the undercurrents were active. VIX futures rose to $14.900, a 3.01% increase, hinting at some apprehension. The S&P 500 and Nasdaq futures dipped, at 4997.75 (-18.75 | -0.39%) and 16877.00 (-92.25 | -0.54%) respectively, potentially setting a cautious tone for the trading day ahead. Today's spotlight is on Morgan Stanley and Goldman Sachs, with their earnings reports anticipated to be significant yet unlikely to stir major volatility, as reflected by their relatively low IV Rank. Interestingly, both firms saw a post-earnings IV Rank increase last quarter, bucking the common trend of post-earnings volatility contraction.

In the news: Fed Tiptoes Toward Dialing Back Key Channel of Monetary Tightening (WSJ), Apple to Pull Blood-Oxygen Tool From Watches to Avoid US Ban If Appeal Fails (Bloomberg), Microsoft Expands Office AI Copilot to Consumers, Smaller Companies (Bloomberg), Communist Party must ‘win the hearts’ of people in Hong Kong, Macau and Taiwan: Xi (SCMP), Alibaba, TikTok woo US with AI and live-streaming e-commerce at CES trade show (SCMP), Republicans Battle for Runner-Up as Trump Leads Iowa Caucuses (Bloomberg), Donald Trump wins landslide in Iowa with Ron DeSantis a distant second (FT)

Macro events (all times are GMT): Germany ZEW (Jan) exp 11.7 vs 12.8 (0900), US NY Fed Empire State Manufacturing (Jan) exp –5 vs –14.5 prior (1230), Canada CPI (Dec) exp –0.3% & 3.4% vs 0.1% & 3.1% prior (1230), Fed’s Waller speaks on economic outlook and monetary policy (1500)

Earnings events: Morgan Stanley and Goldman Sachs are set to report their results before the US market opens

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