Global Market Quick Take: Europe – 5 April 2024

Key points

• Equities: Japanese equities tumble on hints of new BOJ rate hike in second half of 2024
• FX: Dollar halts 3-day slide as stocks head south and geopolitical tensions rise
• Commodities: Best week since October led by silver, diesel, and copper
• Fixed Income: US bond yields are lower on geopolitical risks rising in the Middle East
• Economic data: US jobs report is key event today

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

Equities: Japanese equities tumbled in the Asian session as BOJ Governor Ueda hinted of next rate hike in the second half of 2024 vindicating our view from earlier this year that Japanese equities are at risk from stronger JPY due to BOJ policy pivot. Geopolitical risks are a hidden unknown in markets and difficult to quantify as Iran might escalate the situation in the Middle East after Monday’s killing of an Iranian military official. STOXX 50 futures are down 1.4% in early trading hours while S&P 500 futures are up 0.2%. Today’s key event is US March Nonfarm Payrolls with our focus more on the average hourly earnings report related to the jobs report as wage dynamics are the key risk to inflation and future policy rates.

FX: A three-day slide in the dollar was halted overnight with stock markets heading south and geopolitical tensions providing a bid ahead of today’s US jobs report. Yet, the Greenback still trades a tad softer on the week with gains in AUD and EUR being partly offset by weaker CAD and CHF. GBPUSD reversed from highs of 1.2684 to trade around 1.2620, while EURUSD trades back below 1.0840 from highs of 1.0877. Safety bid came through to yen and CHF as well, but yen reversed in Asia with focus on NFP release today. EURCHF saw sharp gains earlier in the session on Thursday to 0.9840+ on Swiss CPI coming in lower than expected, but pair dropped back below 0.9780 in the late US session. USDJPY slid to lows of 150.81 but reversed higher to 151.20 subsequently.

Commodities: The BCOM index is heading for its best week since October with all sectors except grains contributing to the gains, not least industrial metals after copper jumped to a 14-month high amid global demand optimism at a time of rising supply risks. In precious metals gold hit $2300 before profit taking emerged, with silver trading up 7% supported by industrial metal strength. Crude oil futures meanwhile reached an October high with Brent trading above $91 as the conflict in the Middle East showed signs of escalating at a time where demand remains robust, and supply is being kept tight by OPEC+.  US natural gas trades lower after a smaller-than-expected stock draw left total stocks 39% above the five-year average.

Fixed income: US Treasuries gained following an escalation in geopolitical tensions in the Middle East, resulting in yields falling by 3 to 4 basis points across the board. Notably, the ten-year yield dipped below 4.31% after previously reaching as high as 4.377%. Meanwhile, the situation has also led to a sharp increase in oil futures, now priced at $87 a barrel, prompting speculation that these geopolitical tensions could reignite inflationary pressures. In the meantime, Federal Reserve speakers flagged the idea that there might be much less than three rate cuts. Given this context, we maintain a prudent stance, preferring the shorter end of the yield curve, while exercising caution towards ultra-long securities.

Macro: Comments from the US Fed speakers lacked a coherent message, signaling the difficulty in interpreting data and putting immense focus on NFP release ahead today. Kashkari (non-voter) was the most hawkish, saying that rate cuts may not be needed this year if progress on inflation stalls. Meanwhile, Mester (voter) said that Fed could be close to the level of confidence needed to bring interest rates lower. Barkin (2024 voter) leant somewhat hawkish, noting it is smart for the Fed to take their time on rate cuts, noting the early 2024 data is less encouraging, and it raises the question of whether the outlook is shifting. Still, markets continue to expect 75% odds of a June rate cut from the Fed. US jobless claims rose to 221k in the latest week, above the 214k forecast and rising from the prior 212k to the highest level since the end of January.

Technical analysis highlights: S&P500 correction unfolding, support at 5,057. Nasdaq 100 Correction unfolding key support at 17,808 and 17,478. DAX top and reversal, correction likely to 17,900.
EURUSD likely resuming downtrend. GBPUSD resuming downtrend support at 1.25. USDJPY range bound 151.95 – 150.85. EURJPY rejected at 0.786 retracement at 164.77, support at 162.60. AUDJPY failed to close above resistance. USDCHF expect setback to 0.8955.   Gold uptrend quite stretched, expect minor correction, still upside potential to 2,350, however. Brent Crude oil above resist at 90.50, next 93.05. US 10-year T-yield spiked higher, but struggling to get upside momentum towards 4.50 resist.

Volatility: The markets witnessed a sharp rise in volatility yesterday, with the VIX jumping to $16.35 (+2.02 | +14.10%), a clear signal of growing investor concern following cautious comments from Federal Reserve officials regarding future rate cuts. This sentiment was echoed across various volatility indices, with the VVIX climbing to 90.04 (+8.96 | +11.05%) and the SKEW index to 142.49 (+3.97 | +2.87%). The standout was the VIX1D, surging to $21.41 (+11.95 | +127.04%), indicating expectations of immediate volatility, particularly in light of today's anticipated monthly jobs report. VIX futures saw a minor increase to 15.900 (+0.07 | +0.44%) in their overnight session. Meanwhile, futures for the S&P 500 and Nasdaq 100 showed modest gains to 5206.00 (+8.75 | +0.17%) and 18111.50 (+34.75 | +0.17%). Yesterday's top 10 most traded stock options, in order: TSLA, NVDA, AMD, META, AAPL, AMZN, PLTR, MU, MSFT and GOOGL, with all of Magnificent 7's in the top 10.

In the news: Tesla knocks BYD off its perch as world’s largest pure EV makers struggle to win new customers in China’s shrinking market (SCMP), Samsung flags 10-fold rise in first-quarter profit as chip prices recover (Reuters), Use of Fed Central Bank Tool Grows as Cash Stockpiling Continues (Bloomberg), US small businesses dial back hiring plans again, NFIB says (Reuters), Disney to start cracking down on password-sharing from June, CEO Iger says (Reuters), Oil heads for second weekly gain on geopolitical tension, supply concerns (Reuters).

Macro events (all times are GMT): German Industrial Orders (Feb) exp 0.7% & -10.1% vs –11.3% & -6% prior (0700), EZ/UK Construction PMI (Mar), EZ Retail Sales (Feb) exp –0.4% & -0.8% vs 0.1% & -1% prior (1000), US Labour Market Report (Mar), NFP exp. 214k vs 275k prior, rate 3.8% vs 3.9% prior (1330).

Earnings events: Quiet earnings week before the Q1 earnings season starts next week with major US financials such as JPMorgan Chase, Wells Fargo, and Citigroup reporting.

• Today: Yaskawa Electric

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