Global Market Quick Take: Europe – 16 February 2024

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

Equities: Strong session in Asian equity markets with Nikkei 225 and Hang Seng futures up 1.2% and 2.4% respectively with also European equity futures pointing 0.6% higher ahead of trading hours. US equity futures are flat. Sentiment remains strong carried a continuous optimistic news flow around the AI boom. Applied Materials announced earnings after the US market close reporting a beat on both top and bottom line in Q4 and a guidance for the current quarter above consensus estimates as the memory chip market continues to rebound. The equity market is becoming more and more frothy with the VIX Index below 15 for several months and a one-way interpretation of the news flow. We remain optimistic for equities in medium-term, but we also see an emerging picture of what could become a short-term plunge in equities.

FX: The dollar trades near unchanged on the week after the strong CPI-led rally earlier in the week fizzled out following a weak retail sales print. EURUSD gained on the back of dollar weakness but reversed from the 100DMA resistance seen just below 1.08 with talks of a likely ‘tweak’ in ECB policy statement at the March 7 meeting to create a stage for a June rate cut, reaffirming our view that competitive pivots will be the key story for FX markets in the next few weeks. Sterling recovered from the recession news but has so far been unable to get above the 1.26 handle, while USDJPY holds above 150 with intervention risks keeping sellers at bay for now. The CHF is the worst performer this week as SNB rate cut bets are likely to pick up, as discussed in this article.

Commodities: Oil prices gained on the back of risk-on mood in markets and despite a gloomy demand outlook from the IEA. OPEC+ supply cut adherence has kept the oil market bid, while tensions in Middle East also escalated with Hezbollah strikes at Israel. Silver’s strong bounce in response to broad industrial metal strength helped gold recover back above the $2000-mark after being pushed lower in a reaction to firmer US CPI. Focus turns to PPI today, but we expect precious metals to remain stuck until there is clarity on the start of Fed rate cuts, as discussed here. Industrial metals trade higher on the week with broad gains triggered by short covering in anticipation of a post-Lunar New Year holiday pick up in construction activity in China

Fixed income: US Treasury yields ended yesterday from 1bps to 3bps lower across the yield curve after the release of mixed economic data. The move was ignited by softer-than-expected January retail sales data but contained by an unexpected drop in initial jobless claims. In the Asia session, US Treasury yields resumed their rise on the back of Bostic’s comments that it may take “some time” for inflation to get to 2% and that he doesn’t see rate cuts before the third quarter of the year. In Japan, BOJ governor Ueda says to parliament that he expects a gradual rise in real wages, sounding less dovish, putting back into the spotlight the possibility of monetary policy normalization in Japan in the coming months. Today, markets await PPI data, which are expected to rebound from -0.1% in December to 0.1% in January. Overall, we see scope to extend the duration up to 10 years but remain wary of ultra-long maturities (for more information, click here).

Macro: US January Retail sales disappointed with a M/M decline of -0.8%, well beneath the -0.1% consensus and below last month’s +0.4%. Retail Sales ex-autos was down 0.6% (exp. +0.2%, prev. +0.4%) and the super core, ex gas and autos, came in at -0.5% (prev. +0.6%). While seasonality and weather may have had an impact, it is worth watching how sticky inflation can impede consumer confidence and consumption trends in the US. US Initial jobless claims (w/e 10th Feb) fell to 212k from 220k (exp. 220k) and continued jobless claims (w/e 3rd Feb) lifted to 1.895mln (prev. 1.865mln, exp. 1.88mln). UK followed Japan to fall into a technical recession. Q4 GDP came in weaker-than-expected at -0.3% QoQ after -0.1% in Q3. BOE’s Mann, however, said that GDP data is backward-looking and forward-looking data all look good.

Technical analysis highlights: S&P 500 closing gap uptrend potential to 5,110. Nasdaq 100 uptrend, eyeing a return 18K. DAX uptrend potential to 17,255-17,410. EURUSD in downtrend but bouncing from 1.07, support at 1.0660. USDJPY above key resistance at 149.75 next is 152. EURJPY likely to break 163.30. AUDJPY above resistance at 97.81 potential to test 2022 peak at 98.55. Gold bouncing from 100 DMA at 1.984 but downtrend could take it to 1,974. 10-year T-yields bouncing from key support at 4.20, upside potential to 4.38

Volatility: The VIX further declined to $14.01 (-0.37 | -2.57%), with both the VVIX and SKEW indices also experiencing drops, marking a continued ease in market volatility. The SKEW index notably returned below the 150-threshold to 148.90, indicating a slight decrease in the market's expectation for outlier movements. On a day light on economic and earnings news, attention turns to February's Expiration Friday, historically associated with increased volatility. VIX futures edged up in the overnight session to 15.100 (+0.080 | +0.54%), while S&P 500 and Nasdaq 100 futures showed slight to no adjustments. Activity in the options market was robust, with the most actively traded stock options being, in order: TSLA, AAPL, NVDA, META, MARA, AMD, LYFT, PLTR, SMCI, GOOGL, highlighting areas of focused investor interest and speculation, particularly with TSLA's volume (3.2M) seeing a notable rise from the previous day.

In the news: Alphabet Drops After Report OpenAI Developing Search Product (Bloomberg), Elon Musk's Tesla ownership has soared to 20.5% (Business Insider), Applied Materials sees quarterly revenue above estimates on AI boom (Reuters), Coinbase Shares Climb After Unexpected Return to Profitability (Bloomberg), A small but rapidly growing number of U.S. adolescents began treatment with Novo Nordisk's weight-loss drug Wegovy (Reuters), Nvidia Has Stakes in Arm, SoundHound, Biotech Firm Recursion (Bloomberg), Meta Encourages Advertisers to Ditch iPhone in Latest Spat with Apple (WSJ), OpenAI Develops Tool to Create Realistic AI Videos (WSJ), Druckenmiller bets on the world’s two largest gold producers (Kitco), GM, Ford chiefs open to EV partnerships to compete with China (Nikkei Asia), China Holiday Travel Surge Hints at Consumer Spending Pickup (Bloomberg).

Macro events (all times are GMT): US PPI (Jan) exp 0.1% & 0.6% vs –0.1% & 1% prior (1230), US housing starts and permits (Jan) exp. 1460k & 1512k vs 1460k & 1495k prior (1230), US Feb Uni. of Michigan Sentiment (1400). Speakers: ECB’s Schnabel; Fed’s Daly, Bostic, Barr; BoE’s Pill

Earnings events: Today’s key earnings releases are Eni (bef-mkt), Sika (bef-mkt), and Swiss Re (bef-mkt).

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