Global Market Quick Take: Europe – 23 February 2024

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

Equities: Most equity futures are pointing slightly higher in early trading hours. After the recent run-up in Japanese equities they are now by far the best performing equity market this year up 16.8% compared to 6.7% for US equities and 7.4% for European equities. Chinese equities also continue to rebound, and traders should consider whether there is a tactical trade to be made as Chinese authorities are launching many stimulus initiatives. In single stocks, MercadoLibre shares declined 8% in extended trading after posting earnings results as earnings missed estimates; revenue growth was higher than expected. BASF is reporting worse than expected Q4 results this morning initiating new cost reductions. On the good side, BASF is saying growth is picking up in China.

FX: The dollar was sold initially on a buoyant risk sentiment but recovered in the US session on US exceptionalism story holding up well with jobless claims and PMIs coming in better-than-expected. Yen and Swiss franc weakened as Nvidia-driven equity rally brought a risk-on tone to the markets. This article discusses in detail how Nvidia’s rally has spilled over to FX markets. USDJPY rose to highs of 150.69 while USDCHF pushed back above 0.88. AUDJPY, a key barometer of global risk sentiment, rose to a decade-high of 99. NZDUSD is back at 0.62 as activity currencies rose, and RBNZ is likely to stay hawkish next week. EURUSD surged to highs of 1.0888 on strong French PMIs but pared gains later as German manufacturing came in weak. GBPUSD surged to 1.27 handle but was choppy thereafter.

Commodities: China’s recovery is seen gathering momentum with support measures seen expanding. This saw copper prices surging for a fifth straight day and closing above $3.90/lb. Copper market is likely to remain tight amid surging demand from green transformation, while supply issues have been bolstered by a potential threat of further sanctions on Russia. Read more on our Copper views here. Gold remains range-bound after failing to break resistance around $2055 but holding up well despite the global risk-on sentiment. Explore why, in this article. Overall, the commodities sector trades unchanged on the week with gains in energy and not least industrial metals offsetting losses in precious metals and softs. Note cocoa’s 10% gain is not included in this measure

Fixed income: The US Treasury yield curve twist-flattened yesterday, with front-end yields rising by roughly 4bp, while the ultra-long part of the yield curve dropped slightly by 2bps on the day. Better-than-expected jobless claims data, solid PMI data, and an ever-rising stock market forced traders to price out interest-rate cut bets for this year. Now, bond futures expect three rate cuts by December in line with the latest FOMC Dot Plot. Although the ultra-long part of the yield curve shifted down due to a large buyer of Ultra Bond contracts, yesterday’s 30-year TIPS auction confirmed investors’ bearish sentiment for the duration. The auction tailed by 2.5bp, although it offered the highest auction yield since 2010, and bidding metrics were solid. That is a sign that there is still an appetite for inflation protection but at a fair price. In Europe and the UK, better-than-expected PMI data led traders to reduce bets on interest rate cuts this year, causing a twist-flattening of yield curves. The Focus shifts on next week’s Europe CPI data for February, the US PCE deflator, and the issuance of 169 billion in 2-, 5-, and 7-year US Treasury notes.

Macro: US jobless claims fell to 201k from 213k, well beneath the 218k expected. Continued Claims for the preceding week was also hot, falling to 1.862mln from 1.889mln, beneath the 1.885mln forecast. However, market has priced in much hawkishness and is now in-line with Fed’s December dot plot in expectations around Fed policy for this year. So any hawkish data sets are likely to have little impact, but focus remains on any miss in growth-related forecasts. Fed officials largely maintained the recent narrative of waiting to see more progress on inflation before cutting rates. ECB minutes also saw officials seeing early rate cuts as a bigger risk. US S&P Global Manufacturing Flash PMI for February rose to 51.5, above the expected 50.5 and the prior 50.7. Services dipped to 51.3 from 52.5 (exp. 52.0), leaving the Composite declining to 51.4 from 52.0. Eurozone manufacturing PMI slipped further to 46.1 from 46.6 mainly due to weakness in Germany, but services PMI reached the 50-mark from 48.4 previously. UK PMIs also improved, with manufacturing up to 47.1 from 47, services steady at 54.3 but composite rising to 53.3 from 52.9 in January.

Technical analysis highlights: S&P 500 back above 5K, likely move to 5,146. Nasdaq 100 above 18K, eyeing 18,500. DAX uptrend potential to 17,255-17,410. USDJPY uptrend but struggling for momentum, support at 149.75 EURJPY uptrend likely move to 164.30. GBPJPY higher with potential to 191.75-192.65, support at 188.65. AUDJPY above 2022 peak potential to 99.40. Gold rejected at 2,035, could resume downtrend and test 2K. US 10-year T-yields uptrend, minor resist at 4.38 could move to 4.44

Volatility: Yesterday's market sentiment was overwhelmingly positive, with the VIX falling to 14.54 (-0.80 | -5.22%), reflecting a broad market rally ignited by Nvidia's remarkable earnings report. This enthusiasm propelled the equity markets to new all-time highs, influenced by Nvidia's success and its ripple effects across various sectors, including forex markets. Today, the absence of major news events or earnings announcements leaves the market's direction more susceptible to traders' reactions to recent gains, whether through profit-taking or continued buying motivated by fear of missing out (FOMO). VIX futures are slightly lower at 14.95 (-0.085 | -0.56%), indicating a mild tempering of volatility expectations. Meanwhile, futures for the S&P 500 and Nasdaq 100 show minimal changes at $5099.75 (+2.00 | +0.04%) and 18033 (-15.00 | -0.08%). Top 10 most traded (stock) options on Thursday, in order: NVDA, TSLA, AMD, AAPL, AMZN, RIVN, META, SMCI, PLTR and INTC.

In the news: Nvidia adds record $277 billion in stock market value (Reuters), US to impose sanctions on over 500 targets in Russia action on Friday (Reuters), Japan Shares Open New Chapter as Nikkei Reclaims Its 1989 Peak (Bloomberg),  Chinese tech giant Lenovo doubles down on AI after world’s largest PC maker posts first quarterly revenue growth since late 2022 (SCMP), U.S. export curbs on China won't extend to legacy chips: official (Nikkei), The companies benefiting from Europe’s defence revival (FT)

Macro events (all times are GMT): German Ifo (Feb) exp 85.5 vs 85.2 prior (0800), Commitment of Traders reports from ICE Exchange Europe and CFTC (2000)

Earnings events: Today’s key earnings release is BASF which has already reported earnings with Q4 results missing estimates on both revenue and EBIT announcing another year of cost cutting up to €1bn.

• Today: Allianz, Deutsche Telekom, BASF
• Saturday: Berkshire Hathaway

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