Global Market Quick Take: Europe – 14 May 2024

Key points:

• Equities: Low volatility ahead of ZEW and US CPI (tomorrow). Focus on Tencent and Home Depot earnings.
• Currencies: Powell speech and stronger USDJPY in focus
• Commodities: Copper at 2022 high on supply concerns, grain rally continues
• Fixed Income: Hotter-than-expected UK labour data might ignite inflation concerns ahead of the US PPI numbers.
• Economic data: US April PPI

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

Equities: US and European equity futures are flat this morning as the market awaits today’s German May ZEW figures and US April CPI tomorrow. The ZEW figures will provide clues into whether the green shoots in Europe are strengthening, and tomorrow’s US inflation report will be crucial for pricing of Fed’s rate cut pricing. On earnings, today’s key focus is on Tencent and Home Depot (bef-mkt). Analysts expect FY25 Q1 (ending 30 April) revenue is down 2% and EPS down 6% compared to a year ago.

FX: The USD started the week on the backfoot, with DXY index slipping lower to test the 105 handle before recouping some of the losses. Focus today will be on Fed Chair Powell’s speech, although he is unlikely to change the rhetoric ahead of the April inflation print due on Wednesday. Cable took out the 200DMA at 1.2541 to reach highs of 1.2569 and the labour data will be on watch today along with comments from BOE Chief Economist Pill. Any weakness could prompt some dovish repricing, but GBP remains a bigger play on dollar and equity risk sentiment. EURUSD also testing its 200DMA at 1.0790 after it reversed from highs of 1.0807. In a curious move, USDJPY broke above 156 again for the first time since the intervention two weeks back, despite BOJ tweaking its bond buying yesterday which helped to push up Japanese yields and despite dollar weakness. AUDUSD reversed gains to 0.6629 with eyes on Australia’s budget announcement later today as well as the likely China tariffs from the Biden administration. Immediate support at 100DMA around 0.6571. For more on our FX views, read this Weekly FX Chartbook.

Commodities: Crude oil has stabilized after hedge funds scaled back selling which last week saw them dump the biggest number of longs since March 2023. OPEC+ supply restraint offsetting demand softness with focus on OPEC’s monthly oil market report. Copper touched its highest level since 2022 above $4.80/lb as a powerful rally fueled by forecasts of a growing global supply deficit the prospect of further stimulus in China continues. The rally has defied typical indicators of soft demand, especially in China as investors see tight mine supply creating a shortfall of the metal as soon as this year. Gold trades lower after reaching a three-week high as the focus turns to US PPI today and Wednesday’s CPI report. The BCOM grains index reached a fresh high for the year, supported by Russian wheat losses, US corn planting delays and Brazil flooding supporting soybeans. Last week funds covered short positions at the fastest pace since 2017.

Fixed income: Yesterday was a quiet day for bond markets, with 10-year Bunds and BTPS closing 0.7bps lower at 2.5% and 3.85%, respectively. The 10-year US Treasury yield ended the day 1bps lower at 4.49%. Notably, the 10-year US Treasury yield initially dropped by 4bps during the day but pared gains after the release of the New York Fed’s 1-year inflation expectations, which rose to 3.26% from 3% the previous month—a significant increase since December. Today, the focus shifts to the PPI print for April and the NFIB’s small business optimism index in the US. In Germany, we await the ZEW survey for May. In the UK, labor data released this morning showed that wages continue to rise well above expectations, casting doubt on a potential Bank of England rate cut in August. Overall, we continue to favor the front part of the yield curve, up to five years, and remain cautious about long-duration investments.

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 reach 19K. EURUSD indecisive, range 1,0713-1,0730. GBPUSD bounced from minor support at 1,2466, must close above 1.26345 for uptrend, another break below likely to fuel sell-off to 1.2370. USDJPY rebound potential to 157. EURJPY reached minor resist at 168.75, upside potential to 170. 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. EURCHF likely to test key resist at 0.9835. Gold took out resist at 2,353 potential to +2,400. Silver upside potential to 30. Copper uptrend potential to 490-500. US 10-year T-yield correction could dip to 4.39, Key support at 4.34

Volatility: Volatility, represented by the VIX, surged yesterday to $13.60 (+1.05 | +8.37%), indicating a notable increase. This sharp rise in the VIX was not as pronounced in the VIX futures, suggesting the possibility of a technical recalibration in the VIX calculation rather than a fundamental shift in market conditions. Meanwhile, the VIX1D soared to 11.79 (+3.53 | +42.74%), reflecting escalating short-term volatility in anticipation of forthcoming economic updates such as the PPI, a speech by Fed Chair Powell, and the CPI release. No significant earnings announcements are expected today that could influence market volatility. VIX futures edged up this morning to $13.900 (+0.080 | +0.59%), while the S&P 500 and Nasdaq 100 futures saw minimal changes, recording 5244.00 (-1.50 | -0.03%) and 18278 (-17.50 | -0.09%) respectively. Yesterday's top 10 most traded stock options, in order: AMC Entertainment, Tesla, Apple, NVIDIA, ExxonMobil, GameStop, Alibaba, Amazon, Intel, and Palantir Technologies.

Macro: Fed Vice-Chair Jefferson said that the economy has made a lot of progress and inflation has retreated, reiterating the central bank’s sticky dovish bent. He noted that labor market is resilient, and economy is in a solid position, so it may be important to look for further signs of inflation abating and keep policy restrictive until then. The NY Fed survey showed a pickup in 1-year inflation expectations to 3.3% after it was hovering around 3% in the last four months. Anticipated home price growth was also higher, and focus is turning to the US CPI release on Wednesday which will be a make-or-break release for the Fed and guide its next policy move. We discussed the outlook for US inflation and what it can mean for markets in the Macro podcast for this week. Japan’s April PPI came in at 0.9% YoY, a notch higher than 0.8% expected. On MoM basis, PPI was as expected at 0.3%, higher than last month’s 0.2%.

In the news: GameStop soars in meme stock flashback as ‘Roaring Kitty’ reappears (FT), Apple gained 1.7% after finalizing a deal with OpenAI to integrate ChatGPT on the iPhone (Forbes), Anglo American turns down BHP’s improved $64b takeover bid (SMH), SoftBank posts $1.5bn quarterly profit as it shifts to AI investment (FT), Euro-Zone Economy Seen Picking Up Pace as Germany Heals (Bloomberg), Biden Aims to Show Voters He’s as Tough on China as Trump (Bloomberg).

Macro events: EU CPI (April Final), Germany May ZEW Survey (May) exp. 46.4 vs 42.9 prior (0900), US PPI (Apr) exp 0.3% % 2.2% vs 0.2% & 2.1% prior (1230), API’s Weekly Crude and Fuel Stock Report (2030), During the day: OPEC Monthly Oil Market Report, Central bank speakers: Fed’s Powell & ECB’s Knot (1400)

Earnings events: This week key earnings to watch are Tencent (today), Home Depot (today bef-mkt), JD.Com (Thu), Siemens (Thu), and Applied Materials (Thu). On Tencent earnings the focus will be on their recent buyback programme and whether it will be increased. Home Depot is the largest home improvement retailer and one of the largest stocks in the US equity market, so their outlook could move sentiment in the pre-market session.

• Today: 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