Macro: Sandcastle economics
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Summary: US equity futures point to a steady opening after the S&P 500 pulled back from an intra-day record high at 4,907 on Friday to finish the session down 0.1%, with the loss being driven by weakness in the information technology sector. Stocks in Asia gained on optimism over China’s latest measures while higher oil prices supported energy shares after separate attacks in the Middle East added further fuel to the current tensions. Key events in coming days include a Federal Reserve policy decision Wednesday, a Bank of England one Thursday, and US payroll numbers Friday.
The Saxo Quick Take is a short, distilled opinion on financial markets with references to key news and events.
Equities: Positive equity futures in Asia session (except for Chinese mainland CSI 300 Index down 1.2%) while US and European futures are flat this morning. It is the most important earnings week in the Q4 earnings season with major earnings on tap from Microsoft (Tue), Alphabet (Tue), Novo Nordisk (Wed), Apple (Thu), Amazon (Thu), Meta (Thu), Chevron (Fri)0, and Exxon Mobil (Fri). We remain optimistic on the outlook for companies, but the key question is whether US technology companies can meet the steep expectations built into prices. In focus this week is also energy prices with Brent Crude trading sharply higher compared to a week ago at $83.80/bbl driven by deadly attacks on US soldiers in Jordan linked to Iran and renewed attacks on commercial ships in the Red Sea by Houthi rebels elevating geopolitical risks.
FX: A choppy session on Friday left the dollar with another week of gains, with more volatility potentially seen this week with Fed and BOE decisions on tap, along with key data from jobs to ISM manufacturing. CHF was the outperformer with CAD and NOK being supported by firmer oil prices. USDJPY back above 148 although watch for any safety bid as worsening geopolitics underpin. The EURUSD is unable to move back above 1.09 but GBP could remain supported this week if BOE stays hawkish.
Commodities: Crude oil prices rose to near 12-week highs after separate attacks killed US troops in Jordan and hit a fuel tanker in the Red Sea, potentially signaling an escalation of tensions in the region. In addition, last week's decline in US inventories (although probably weather-led) as well as resilient US economy and China’s stimulus measures could also support prices in the short-term. Gold also got a safety bid at the open in Asia, but overall, it remains stuck with US data strength raising questions about the timing, pace and depth of incoming US rate cuts. Industrial metals softened after an initial short covering boost in response to China stimulus optimism started to fade.
Fixed income: The bond market will be closely monitoring the FOMC meeting this week, trying to understand whether a March rate cut is possible. Before that, the US Treasury Quarterly Refunding Announcement (QRA) could send jitters into the long part of the yield curve. Today, the Treasury will disclose financing needs for the next two quarters and, on Wednesday, the auction sizes for the next quarter. The Treasury has already well advertised in November that there will be an increase in debt and coupon size issuance this quarter, however we do not know yet by how much and which tenor will be increased in size. In focus will also be the Bank of England on Thursday, with its new economic projections. Bloomberg economists expect inflation to drop below 2% in summer, one year before BOE’s expectations. Any revision of inflation downward would ignite a bull-steepening of the yield curve.
Macro: US PCE data for December continued to reaffirm soft landing hopes. PCE cooled as expected with headline at 0.2% MoM and 2.6% YoY and core at 0.2% MoM and 2.9% YoY (below the 3% expected). The 6-month annualized rate eased to 1.9% with the 3-month at 1.5%, both beneath the Fed's 2% target. Also, consumer spending was strong, rising 0.7% in December, above the 0.4% forecast while the prior was revised up to 0.4%. Personal income rose 0.3%, in line with expectations, although the US savings rate declined to 3.7% from 4.1% - the lowest since 2022 – but remaining resilient enough not to spark recession concerns immediately. Market pricing of the March Fed rate cut remained unchanged at around 50%.
Volatility: On Friday volatility declined to 13.26 (-0.19 | -1.41%). Markets were in a wait and see mode, the S&P500 topping out a new intraday ATH at 4906.69, but eventually ending flat. Futures this morning are showing a similar image, with the VIX futures slightly green at 15.160 (+0.045 | +0.30%) and the S&P500 and Nasdaq 100 futures at 4914.25 (-2.00 | -0.04%) and 17547 (+20 | +0.11%) respectively. Expected moves for the coming week are a bit higher than last week. S&P500 options show an up or down movement of 1.30% (compared to 1% the week before) and the Nasdaq 100 has an expected move of +/- 1.93% (compared to 1.54% the week before). The elevated expected moves show that the market anticipates a higher volatility in the week ahead, mainly due to the many economic news releases (ADP, FOMC statement, Jobless Claims, Nonfarm Payrolls, ...) and of course all the big tech names releasing their earnings (MSFT, GOOGL, AMD, AAPL, AMZN, ...)
In the news: According to the Washington Post, Donald Trump, the former US president and the front-runner for the Republican candidacy for the US presidential election this year, is mulling a flat 60% tariff on all imports from China. Three US troops killed, up to 34 injured in Jordan drone strike linked to Iran (CNBC), US to announce billions in subsidies for advanced chips (Reuters), Intel tumbles as chipmaker falls further behind in AI race (Reuters), Top US, China Officials Discussed Setting Up Next Biden-Xi Call (Bloomberg), Brussels threatens to hit Hungary’s economy if Viktor Orbán vetoes Ukraine aid (FT).
Macro events (all times are GMT): US Dallas Fed Manf. Survey (Jan) est. -11.8 vs -9.3 prior.
Earnings events: Key earnings releases this week with US technology earnings being the key driver in equities this week.
For all macro, earnings, and dividend events check Saxo’s calendar
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