Global Market Quick Take: Europe – 20 February 2024

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

Equities: Chinese equities are higher today in both mainland and Hong Kong exchanges while European equity futures are slightly lower. The US equity market opens the week today after yesterday’s close due to US holiday. Key focus today is on earnings from Walmart and Home Depot with both results out before the open of US market. The US commercial real estate market continues to be a key downside risk to monitor with loss reserves rising to this segment among US banks. US bank Capital One has agreed to acquire Discover Financial for about $35bn in what is one of the biggest financial sector deals since 2008.

FX: Quiet US markets saw the dollar trading sideways, although modest gains came through in Asia after China’s larger-than-expected rate cut to 5-year loan prime rates. Kiwi reversed from the 0.6150 highs even as more banks delayed calls for RBNZ appears to have rate cuts. AUDUSD also did not get a boost from RBA’s meeting minutes keeping the door open for further rate hikes and slipped towards 0.6520 from 0.6540. Meanwhile, CHF remained the underperformer for reasons listed here, and USDCHF is testing 200DMA at 0.8840 while EURCHF has moved above 0.95.

Commodities: China optimism fizzled with iron ore prices losing almost 5% after the PBoC left MLF rate unchanged, and even after Chinese banks cut their five-year mortgage reference rate (LPR) by the most on record (see below). HG copper prices have nevertheless managed to hold on to a $3.8-handle following last week's strong bounce despite uncertainty about global demand. Oil prices held steady near the highest level of year amid focus on Mideast tensions and time spreads showing tightening market conditions. Gold remained steady around $2,020 having managed to shrug off the latest rise in yields amid continued underlying retail and central bank demand. FOMC minutes will be the next key focus this week.

Fixed income: the Bund yield curve twist steepened yesterday, with 10-year yields rising on the back of news that the EU mandates new bonds of the same maturity. The US market opens today after President's Day. The FOMC minutes and the 20-year US Treasury bond auction tomorrow will be in focus, together with the ECB account of the January meeting on Thursday. Overall, we continue to see scope for duration extension up to 10 years but remain wary of ultra-long maturities (for more information, click here).

Macro: Bundesbank said Germany is likely in a recession as external demand is weak and consumption also remains weak, while it added there is still no recovery in the German economy and output could decline again slightly in Q1 which would put the economy in a technical recession. Sweden’s January inflation came in higher-than-expected, and there were some concerns as the CPIF YoY print rose 1% pt to 3.3%. However, this was due to base effects, and the pickup will likely be ignored by the Riksbank. Banks in China cut their 5-year loan prime rate (LPR) by 25bps to 3.95% from 4.20% while keeping the 1-year LPR unchanged at 3.45%. The cut was larger than the 10bps expected by market economists. The cut is a positive to the economy and the market as well, but it is not going to change the big picture of the economy. The move sent a constructive signal, indicating the inclination of policies to boost growth even at the expense of some potential downward pressure on the renminbi because of the cut.

Technical analysis highlights: S&P 500 uptrend but RSI divergence indicating trend exhaustion, key support at 4,920. Nasdaq 100 uptrend stretched, RSI indicating trend exhaustion, key support at 17,478. DAX uptrend potential to 17,255-17,410, key support at 16,821. EURUSD range bound 1.07-1.08. USDJPY above key resistance at 149.75, next at 152. EURJPY testing 161 resistance. USDCHF uptrend potential to 0.90. AUDUSD testing resistance at 0.6545. Gold rebounded from 1,984 and 100 DMA, resist around 2,035. 10-year T-yields above key resistance at 4.20, double bottom pattern potential to 4.38-4.44 

Volatility: With the stock markets closed yesterday for Washington's Birthday, there were no movements in the main indexes. VIX futures saw a slight increase to $15.30 (+0.35 | +2.33%), indicating a hint of rising caution. S&P 500 and Nasdaq 100 futures dipped slightly to 5007.75 (-12.00 | -0.24%) and 17705 (-39 | -0.22%) respectively. Today, the market's attention shifts towards some earnings reports, with Walmart and Home Depot scheduled to announce before the bell, and Palo Alto Networks set for after the close. In the absence of economic news, these earnings could provide some volatility in the markets

In the news: BHP First-Half Profit Steady as Inflation, Lower Prices Bite (Bloomberg), Germany likely in recession, Bundesbank says (Reuters), China’s BYD launches cheaper plug-in hybrid EV to lure customers away from petrol-powered rivals by Volkswagen, Toyota (SCMP), JD.com considers takeover bid for UK electronics retailer Currys as China’s e-commerce giants look overseas (SCMP), China boosts property funding with first cut in key loan rate since June (CNBC).

Macro events (all times are GMT): Can CPI (Jan) exp 0.4% & 3.3% vs –0.3% & 3.4% prior (1230), US Leading Index (Jan) exp –0.3% vs –0.1% prior (1400)

Earnings events: Important day ahead for US retail industry with Walmart and Home Depot reporting earnings before the US market opens. Palo Alto Networks, the most valuable cyber security company in the world, is also reporting today (aft-mkt) with analysts expecting strong revenue growth of 19% y/y and EPS of $1.30 up 496% y/y.

• Today: BHP, Air Liquide, Medtronic, Walmart, Palo Alto Networks, Home Depot, Barclays, Antofagasta
• Wednesday: HSBC, Rio Tinto, Glencore, Analog Devices, Nvidia, Synopsys, BAE Systems, Nutrien, Rivian
• Thursday: Fortesque, Zurich Insurance, Nestle, AXA, Booking, Copart, Intuit, MercadoLibre, EOG Resources, NU Holdings, Mercedes-Benz, Iberdrola, Pioneer Natural Resources, Danone, Anglo American, Wolters Kluwer, Rolls-Royce
• Friday: Allianz, Deutsche Telekom, BASF
• Saturday: Berkshire Hathaway

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