Global Market Quick Take: Europe – 23 April 2024

Key points:

• Equities: US equities rebound, strong earnings from SAP and Novartis, Tesla earnings tonight
• FX: A fresh 34-year high in USDJPY
• Commodities: Institutional selling accelerates gold correction; wheat jump on soil dryness
• Fixed Income: Dovish policymaker statements boost European sovereigns, 2-year US Treasury auction in focus
• Economic data: PMI April preliminary figures from Eurozone, UK, and US

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

Equities: Hong Kong equities are up 1.7% in Asian trading and Japanese equities are 0.4%, while equity futures in Europe are pointing 0.4% higher and US equity futures are flat after rebounding from its lows on Friday. SAP, Europe's largest software company, reported earnings last night, meeting estimates on revenue and reaffirming its outlook for fiscal year revenue in addition to record growth rates in its cloud business fueled by demand for AI, shares are up 3% in pre-market trading. Novartis is also reporting earnings this morning beating estimates and raising fiscal year guidance on revenue and core operating income driven by robust growth in new blockbuster drugs in the US market. Today’s key macro events impacting equity markets are Eurozone, UK and US April preliminary figures (see calendar below) with expectations looking for Eurozone growth rebound to continue.

FX: The US dollar index (DXY) remains rangebound after being rejected at 106.40 on Monday with lack of key data and Fed speakers while focus is on corporate earnings. USDJPY traded to a fresh 34-year high of 154.85 and BOJ meeting on Friday as well as a risk of intervention remains with comments from Japanese authorities hinting that they are ready to intervene. Even as commodities were softer with geopolitical concerns not escalating over the weekend, activity currencies were the front runners on Monday with the positive risk sentiment pulling equities out of a deep slump for now. NZDUSD rallied to 0.5920+ levels, AUDUSD above 0.6450 while USDCAD slipped all the way to the 1.37 handle. EURUSD traded around 1.0650 despite some dovish ECB comments (see below). The sell-off in GBPUSD was sharper as pair tested lows of 1.23 but recovered as US equities turned higher. As noted in this Weekly FX Chartbook, sterling has a high correlation to equity sentiment and still-long positioning could make it vulnerable in the face of further USD strength. PMIs from US, Eurozone and the UK on the radar today.

Commodities: Gold trades lower for a second day following its biggest one-day drop in almost two years. Having rallied USD 450 since mid-February, the risk of a potential painful correction has been growing, especially following recent dollar and yield strength and 2024 rate cut projections approaching zero. Hedge funds hold the key in terms of the risk of further long liquidation with focus on support at USD 2290 ahead of the key USD 2255-60 area. Silver, down 10% from the recent peak, is looking for support around USD 26.93. Crude oil is showing signs of stabilising following a round of funds selling driven by reduced Middle East risks with focus turning to refinery margins and weekly stock report from the EIA. Wheat futures in Paris and Chicago strengthening their current uptrends after jumping on Monday in response to Russian attacks on a Ukraine tank terminal and dry weather conditions in Russia and the U.S. Plains potentially limiting the yield outlook.

Fixed income: European sovereigns rallied after comments from Mario Centeno suggested that the ECB might consider cutting interest rates by more than 100 basis points this year. Consequently, Italian BTPs outperformed their peers, with 2-year yields declining by 8 basis points to 3.45% and 10-year yields dropping nearly 9 basis points to 3.83%. The German yield curve steepened, with 2-year Schatz yields falling by 3.5 basis points to 2.95% and 10-year Bunds decreasing by 1.4 basis points to 2.48%. We still favor short-term Italian BTPs over German Schatz; to know more, click here. In the U.S., the yield curve twisted, with 2-year yields declining by 1.7 basis points to 4.97%, while 10-year yields remained flat at around 4.61% by the end of the day. The focus turns to the upcoming 2-, 5-, and 7-year U.S. Treasury auctions (for a preview click here), along with preliminary U.S. GDP figures and the PCE deflator on Friday. ECB’s Panetta and Nagel and BOE’s Pill and Haskel speak today.

Macro: ECB’s Mario Centeno said the central bank may cut borrowing costs by more than 100 bps in 2024, though colleague Christodoulos Patsalides said the rate decision is data dependent without a set path. China’s loan prime rates were kept unchanged yesterday with the one-year loan prime rate kept at 3.45% and five-year LPR also unchanged at 3.95%. The weakness in the Chinese yuan, which continues to test the 2% trading band limit continuously, may have been a key factor to resist further easing for now, but that doesn’t rule out further rate cuts in China in Q2.

Technical analysis highlights: S&P500 could see minor rebound from support at 4,953, support at 4,845. Nasdaq 100 could rebound from support at 16,963, a close below sell-off to 16,500. DAX bouncing from support at 17,620, could test 18,000. 
EURUSD range bound between 1.06 and 1.07. GBPUSD below support at 1.2375, no support until 1.2225. USDJPY uptrend potential to 155.30. EURJPY resistance at 165.18 likely to be tested, break above potential to 166.30. AUDJPY testing resist at 100.02, break above likely leading to 100.81 AUDUSD rebound likely to 0.6500. Gold below support at 2,319, correction down to 2,255 likely. Silver below support at 27.60, could drop to 26.40. Copper top and reversal pattern correction to 430-420 in the cards. US 10-year T-yield uptrend likely to reach 4.70-4.75

Volatility: Yesterday, volatility continued to decrease with the VIX closing at $16.94 (-1.77 | -9.46%). Both the VVIX and SKEW indices also showed declines, reflecting reduced market stress. The economic calendar is light today, but earnings releases from major companies like Visa, Tesla, and General Electric are expected, with Tesla's report likely to trigger notable market movement. VIX futures edged lower to 16.400 (-0.070 | -0.42%), while S&P 500 and Nasdaq 100 futures remained relatively stable at 5046.25 (-1.25 | -0.03%) and 17331.75 (-18.25 | -0.11%) respectively. Yesterday's top 10 traded stock options, in order: TSLA, NVDA, AAPL, AMD, AMZN, RIOT, MARA, PLTR, BAC, and F.

In the news: China offers support for HK stock exchange as city’s market hits 4-year losing streak (Fortune), Copper output at Chile's Codelco set to rise this year, CESCO says (Reuters), EU threatens to suspend TikTok Lite’s money-for-views program over addiction fears (CNBC), Investors price in growing chance of another Federal Reserve interest rate rise (FT), Asia is most climate disaster-impacted region, UN meteorological agency says (Reuters)

Macro events (all times are GMT):  Eurozone April PMIs, Manufacturing exp 46.5 vs 46.1 prior, Services exp. 51.8 vs 51.5 prior (0730), UK April PMIs, Manufacturing exp. 50.4 vs 50.3 prior, Services exp. 53 vs 53.1 prior (0830), US April PMIs, Manufacturing exp. 52 vs 51.9 prior, Services exp. 52 vs 51.7 prior (1345),  US new home sales (Mar) exp 670k vs 662k prior (1400), Richmond Fed Manufacturing (April) exp –8 vs –11 prior (1400), APIs weekly crude and fuel stock report (2030)

Earnings events: Tesla is the big earnings release today reporting after the US market close with analysts expecting the first revenue decline since the pandemic as the EV industry is struggling with slowing demand, overcapacity, and falling prices. Read our earnings preview from yesterday here.

• Today: PepsiCo, Danaher, Visa, Tesla, Texas Instruments, Novartis, General Electric, Phillip Morris, Deutsche Boerse
• Wednesday: Meta, IBM, ServiceNow, Thermo Fisher Scientific, DSV, Kone, Orange, Eni
• Thursday: Kweichow Moutai, Airbus, AstraZeneca, Caterpillar, Union Pacific, Microsoft, Alphabet, T-Mobile, Intel, Merck & Co, Comcast, Neste, Sanofi, BNP Paribas, Dassault Systemes, STMicroelectronics, BASF, Deutsche Bank, Keyence
• Friday: Chevron, Exxon Mobil, AbbVie, TotalEnergies

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