Global Market Quick Take: Europe – 21 February 2024

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

Equities: Strong rally in Chinese equities with Hang Seng and CSI 300 up 2% in today’s session following more actions from policymakers such as more support for property developers to improve investor confidence. European equity futures are slightly higher (+0.1%) while US equity futures are slightly lower (-0.1%) in early trading hours. The key event today is Nvidia earnings released after the US market close. Nvidia’s earnings release and outlook are key for equity sentiment in the weeks to come as AI related stocks have been a strong driver of returns. Walmart shares gained 3% yesterday as the largest US retailer guided FY25 net sales growth of 3-4% and guided earnings growth almost in line with estimates; the market was clearly more nervous than analysts ahead of the earnings release. Home Depot was lower yesterday after earnings results but ended the day flat as the business is stabilising but still reported the fifth straight quarter of negative revenue growth.

FX: The dollar traded weaker on Tuesday with traders focusing on today’s dOMC minutes and Nvidia earnings. The CAD underperforming further on the back of softer than expected inflation print. EURUSD had a strong run higher to 1.0840 before easing back to 1.0810, and GBPUSD also eased from the 1.2660 highs to settle around 1.2620. Yen strength also reversed with USDJPY staying glued to 150 for now, while AUDUSD moved above 100DMA after a larger-than-expected cut in 5-year LPR in China.

Commodities: WTI crude oil’s third attempt since November at breaking above $80 was rejected but overall, the short-term outlook has improved with widening time spreads pointing to a tightening supply outlook. Gold and silver meanwhile remain bid supported by a weaker dollar and strong physical demand forcing speculators to reinstate recently sold positions when yields rose. Focus on emerging stress in the high yield corporate bond market and FOMC minutes today. Iron ore trades steady after losing another 5% to three-month lows amid demand concerns in China despite the LPR cut. Copper went the other way to settle at three-week high with focus on earnings from miners and the risk of supply not meeting demand. Aluminum surged on speculation a fresh wave of US sanctions against Russia may target the metal, potentially disrupting supplies.

Fixed income: Following BOE Governor Andrew Bailey’s comment that inflation doesn’t need to fall to 2% before cutting rates, Gilts rallied, driving sentiment in European sovereigns and US Treasuries. The US yield curve twist steepened with front-term yields dropping by a little over three basis points, while the ultra-long part of the yield curve moved slightly up from Friday’s close. The FOMC minutes and the 20-year US Treasury bond auction today will be in focus, together with the ECB account of the January meeting tomorrow. 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: US leading index fell 0.4% MoM in January to the lowest level since April 2020 when the U.S. was in a brief recession after the onset of the COVID-19 pandemic and related shutdowns. Euro are negotiated wages coming in softer than expected could spell relief for ECB. However, the easing from 4.7% YoY to 4.5% in Q4 is still just a continuation of trend of wages slowing from their highs and is unlikely to spell any urgent need for the ECB to cut rates. Canada’s January CPI surprised to the downside, coming in at 2.9% YoY from 3.4% prior and 3.3% expected. Trimmed core measure as well as services inflation – all cooled signalling Bank of Canada could look to a pivot. However, most G10 central banks are waiting for Fed’s signal, and may need to wait until Q2 to consider cutting rates.

Technical analysis highlights: S&P 500 uptrend but RSI divergence indicating trend exhaustion, key support at 4,920. Nasdaq 100 uptrend stretched, testing support at 17,478. DAX uptrend struggling for momentum. Could slide back, key support at 16,821. USDJPY above key resistance at 149.75, next at 152. EURJPY above 161 resistance potential to 163.30. AUDJPY testing 2022 peak could move to 99.40. Gold likely testing 2,035 resist, next at 2,048. WTI oil rejected at key resistance at 79.77. 10-year T-yields range bound 4.20 – 4.33, likely bullish move to 4.44

Volatility: Tuesday saw the VIX climb to $15.42, up 0.71 (4.83%) from its previous close, as market volatility intensified, particularly around Nvidia's highly anticipated earnings. The focus on Nvidia reflects broader market trepidation, with options traders pricing in a remarkable expected move of plus or minus $75 (10.82%) for the NVDA expiration this Friday, post-earnings. This level of anticipated swing for such a pivotal player underscores the significant impact expected on the tech sector and potentially the broader market in the days ahead. VIX futures remained nearly unchanged at $15.50 (-0.025 | -0.18%), while S&P 500 and Nasdaq 100 futures edged slightly lower to 4987.75 (-3.75 | -0.08%) and 17566 (-41.25 | -0.23%). Top 10 most traded (stock) options on Tuesday, in order: TSLA, NVDA, AAPL, AMD, PLTR, AMZN, META, MARA, SMCI and MSFT.

In the news: Amazon to replace Walgreens in Dow Jones Industrial Average (Reuters), Palo Alto Networks shares plunge after company cuts full-year billings, revenue guidance (CNBC), Home Depot sees muted 2024 as demand recovery takes longer (Reuters), Walmart beats Wall Street’s holiday expectations as e-commerce sales soar (CNBC), Copper, gold to get 'largest immediate' boost from Fed easing, Goldman says (Reuters)

Macro events (all times are GMT): EZ Flash Consumer Confidence (Feb) exp. -15.5 vs –16.1 prior (1400), FOMC Jan Minutes (1800), API’s weekly crude and fuel stock report (2030). Speakers: Fed’s Bostic, Bowman; BoE’s Dhingra.

Earnings events: The most important earnings release for equity sentiment is today with Nvidia reporting FY24 Q4 (ending 31 Jan) earnings after the US market close. Analysts expect revenue of $20.4bn up 237% y/y and EPS of $4.60 up 614% y/y. With the latest run up in equity prices driven by strong sentiment in AI related stocks this earnings report could define where the market goes in the coming weeks. For more information read our Nvidia earnings preview from yesterday.

• Today: 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