Global Market Quick Take: Europe – 25 January 2024

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

Equities: The Nasdaq 100 reached another record closing high, driven by Nvida and Meta while Netflix surged 10.7% after earnings and subscriber additions beat estimates. ASML reported Q4 results, showing a strong order intake with bookings at €9.2bn, compared to the anticipated €3.6bn. The CEO mentioned that the overall semiconductor industry has bottomed out and is entering the rebound phase. See Peter Garnry’s article on Netflix and ASML here. The S&P500, a broader benchmark, underperformed the tech-heavy Nasdaq, while the Dow Jones Industrial Index slid 0.3%. After the closing bell, Tesla reported Q4 revenue of $25.2 billion and adjusted EPS of $0.71, both around 3% below analysts’ projections. The company warned in a letter to shareholders that vehicle volume growth in 2024 “may be notably lower than the growth rate achieved in 2023”. Tesla shares dropped by nearly 5% in the extended hours.

FX: The dollar pushed lower earlier on Wednesday as yen gained on higher JGB bond yields and yuan recovered with PBOC expanding its measures to support the economy. However, the dollar recovered later with US PMIs indicating sustained economic resilience and Bank of Canada’s dovish surprise which led to CAD being the underperformer for the day. USDCAD rose sharply to 1.3520 and immediate resistance seen at 1.3540 ahead of the fibo resistance at 1.3623. USDJPY reached a 147.88 high overnight with the EURUSD trading steady below 1.09 ahead of ECB today and even GBPUSD gains to 1.2775 following the strong PMIs seen to be reversing on dollar recovery. US GDP today will be key and higher-than-expected growth could boost the dollar, weighing on JPY and EUR.

Commodities: China’s RRR cut boosted commodities, especially metals. Copper and iron ore were up close to 2.5% amid supply concerns underpinning the former. Gold edged lower as Treasury yields rose higher after US PMI data showed continued strength, but Silver gained 1% as it bounced off key support. Crude oil was firmer amid the stimulus announcement from China, while supply concerns due to geopolitical tensions continued and the EIA data showed a chunky fall in crude stockpiles which were down more than 9mn barrels last week. However, the EIA report could have been distorted by the recent cold ‘bomb’ in the US temporarily cut production of oil and gas due to freeze-offs – when low temperatures freeze wells and other equipment, while temporarily driving a spike in demand for fuels, especially diesel and heating oil. The grains sector traded up for a fifth day, primarily driven by reductions of a very extended short positions

Fixed income: The 10-year Treasury yield rose by 5bps to its highest level in 2024, reaching 4.18%, following the unexpected bounce of the S&P Global US Manufacturing PMI to 50.3, indicating an expansion in activities. Soft demand in a $61 billion auction of 5-year Treasury notes kept Treasuries on the defensive and led to a finish at their day highs in yields or lows in prices. The 2-year yield rose 1bp to 4.38%. Yet, the 2-year US Treasury floater received strong demand with indirect bidders taking to the highest percentage on record. We continue to favor bull steepeners.

Macro: UK January PMIs came in better than expected and improved over December, with manufacturing at 47.3 from 46.2 (exp: 46.7) and services at 53.8 from 53.4 (exp: 53.2), suggesting growth in Q1 could stay supported. Eurozone PMIs were however less robust and signaled a broad contraction. Manufacturing PMI was at 46.6 from 44.4 but services eased to 48.4 from 48.8 and could make it difficult today for the ECB to talk about delay in rate cuts. Read our full ECB preview here. US S&P Flash manufacturing PMI for January rose back into expansionary territory, printing a 15-month high of 50.3 (exp. & prev. 47.9). Services PMI remained in expansion territory accelerating to 52.9 from the prior 51.4, also above expectations (51.0), printing a 7-month high. Bank of Canada left its interest rate unchanged at 5.00%, as was widely expected. The main tweak was the removal of the language that it is prepared to raise rates further if needed although Governor Macklem didn’t rule that out. However, he said that the Governing Council's discussion about future policy is shifting from whether monetary policy is restrictive enough, to how long to maintain the current restrictive stance. The PBoC cut the reserve requirement ratio (RRR) by 50 bps and reduced the re-lending and re-discounting rates for the rural sector and micro and small businesses by 25bps. While an RRR cut had been widely anticipated, the 50bp cut and the resulting RMB1 trillion liquidity injection were larger than expected and those of the prior four cuts in 2022 and 2023. PBoC officials also mentioned persistently lowering the cost of aggregate social financing and there would be new financing rules to support property developers’ cash flows

Volatility: Volatility reversed course, with the VIX climbing to $13.14, a notable increase from the low $12s, as the market reacted to mixed earnings reports. The VVIX also rose to 80.94, and with the SKEW index crossing the 150 thresholds, the market anticipates potential significant moves. The overnight sessions saw VIX, S&P 500, and Nasdaq 100 futures remain steady. Market volatility has been stirred by varying earnings outcomes, with Netflix and ASML exceeding expectations, while Tesla fell short. Today's market dynamics could be influenced by earnings from Visa, Intel, and American Airlines, along with economic data releases such as the ECB interest rate decision, U.S. GDP, and initial jobless claims, potentially impacting volatility.

In the news: Tesla Flags ‘Notably Lower’ Growth as It Builds Low-Cost Car (Bloomberg), Microsoft hits $3 trillion market value, second to Apple (Reuters), Tech’s ‘Magnificent Seven’ Stocks Are Back on Top (WSJ), Boeing Halted From Further Max Production Increases by FAA (Bloomberg), China Boosts Stimulus by Allowing Banks to Keep Smaller Reserves (Bloomberg), China GDP: provinces set conservative 2024 economic growth targets as debt hangover bites (SCMP), China suffers first net outflow of funds in 5 years in 2023 (Nikkei Asia)

Macro events (all times are GMT): Ger Jan IFO (0800), ECB rate decision (1215), Chicago Fed Activity Index (Dec), US 4Q GDP, exp. 2% QoQ vs 4.9% prior (1230), 4Q GDP price index, exp 2.2% vs 3.3% prior (1230), US Durable goods orders (Dec), exp 1.5% vs 5.4% prior (1230), initial jobless claims exp 200k vs 187k (1230), New home sales (Dec), exp. 10% MoM vs –12.2% prior (1400), EIA’s weekly natural gas inventory (1430)

Earnings events: Busy week ahead with key earnings releases listed below. Read our earnings preview published yesterday.

• Today: SEB, Sandvik, Valero Energy, Atlas Copco, STMicroelectronics, NextEra Energy, Humana, Intel, LVMH, Visa
• Friday: Volvo, Kone, Christian Dior, Colgate Palmolive.

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