Global Market Quick Take: Europe – 8 March 2024

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

Equities: S&P 500 futures rose to a new high yesterday as sentiment remained strong with the technology sector gaining 1.9%. US and European equity futures are flat in early trading while Hang Seng futures gained 1.3% in the Asian session. Today's key event is the US February Nonfarm Payrolls figures which are expected at 200k vs prior of 353k. However, our focus will be on hourly earnings as this figure is more important for margin pressure and inflation dynamics. Yesterday’s big story was Novo Nordisk providing updates on Wegovy (its obesity drug) at its capital market day which included new strong data and then the drug maker announced surprisingly good results in a phase 1 trial of a new weight-loss pill. Novo Nordisk shares rose 8.3% extending the lead as Europe’s most valuable company.

FX: The dollar is heading for a broad weekly decline, most notably against gold but also against the AUD and not least the yen which got multiple boosts, from a dovish Powell to a strong wage growth print to BOJ’s Nakagawa hinting at strong wage talks and some unions reporting wage growth of over 6%. USDJPY has retreated below 148 to its lowest level since early-Feb and may have further to go as traders reduce exposure to one the most favorite short trades in the past three years. The EURUSD rallied to 1.0950 with inflation projections reduced by the ECB, as rate cut expectations remain measured and dollar weakness supported. GBPUSD reached a fresh high for the year above 1.28, while the AUDUSD continued its recent strong run of gains, rising above 0.6630.

Commodities: Gold extended its gains as Powell’s comments continued to tilt dovish. Focus turns to NFP data today and a miss in headline can fuel further gains in gold from its record highs of $2165 yesterday. While investors are still pulling metal out of gold-backed ETFs, momentum chasing hedge funds as well as central banks remain strong buyers, led by the PBoC who added to its gold reserves for a 16th straight month in January. Crude oil trades higher supported by encouraging demand outlooks in US and China, but overall remains range bound with Brent heading for its tightest weekly range since Sept 2021. Copper reached its highest close since late December on growing signs of supply tightness and the prospect of robust demand in China into the spring months.

Fixed income: Yesterday, European sovereign bonds gained across all tenors after the ECB's macroeconomic projections were released. The projections showed a downward revision of inflation from the previous meeting in December, predicting that inflation will reach the target in 2025, while it is expected to be close to the target by the end of this year. Growth was also revised downward for this year and the next, boosting long-term maturities. ECB President Christine Lagarde signaled that policymakers might be ready to cut rates in June, matching market expectations. While European sovereign yields dropped roughly 2bps on the 10-year tenor, 10-year Gilt yields rose by 4bps as markets digested the Debt Management Office Gilts sale announcement, which is going to put pressure on Gilts together with active QT (for more about it, click here). Treasuries closed the day mixed with the front part of the yield curve sliding by 2bps, and 10-year yields higher by 1.5bps as Jerome Powel said that the Fed is not far from cutting rates but needs to be sure inflation is on the way to 2%. Today, the focus is on the non-farm payrolls, which are expected to be around 200k. We believe that QT tapering might come as soon as the next FOMC meeting, as the Bank Term Funding Program (BTFP) expires and the RRP facility continues to fall (for more, click here).

Macro:  Fed Chair Powell appeared in the Senate on Thursday, repeating his prepared remarks he gave on Wednesday to the House. He also added that the Fed is “not far” from being confident enough to cut rates, and pushed back on the idea that surge pricing will fuel inflation. ECB left rates unchanged, but Christine Lagarde indicated the ECB may ease in June, with 2% inflation in sight by 2025. The ECB’s latest economic projections put 2024 inflation at 2.4%, down from 2.7% in December, and thereafter inflation is seen at 2.0% and 1.9% in 2025 and 2026 respectively. Market pricing saw a slight dovish shift, with 100bps of rate cuts priced in now for the year. NFP preview: US jobs data will be a key focus today. January print was hot at 353k, but consensus expects February print due today to be at 200k. Focus will also be on private payrolls with its 3m average at 249k in January. Recent labour market indicators and anecdotal evidence suggests that job growth could come in lower, and market is looking for more dovish hints after Chair Powell’s testimony this week. Softer-than-expected headline growth could mean that markets will increase rate cut expectations. This can be positive for equities (unless soft landing assumption is challenged). Yields and dollar could plunge lower, pushing yen and gold to extend their rally. Hot NFP print again will bring focus back on competitive pivots for central bank, reaffirming that ECB may cut before the Fed. This could be negative for equities and yields and dollar are likely to go higher. EURUSD could reverse back below 1.09 and USDJPY could retrace to 148.50. China's exports demonstrated robust growth, rising by 10.3% year-on-year in RMB terms or 7.1% in USD terms during the initial two months of the year, surpassing initial expectations. Despite the positive data, reactions were subdued, as the NDRC director had already disclosed a 10% YoY growth in China's exports in RMB terms during an NPC press conference the day before. Notably, trade with Import growth also exceeded expectations, with a 6.7% increase in RMB terms or 3.5% in USD terms.

Technical analysis highlights: S&P 500 top and reversal cancelled, support at 5,048, 5,2050 likely. Nasdaq 100 bounced from support at 17,808, potential to 18,500. DAX eyeing 18K. EURUSD likely to test 1.10. USDJPY could drop to 146.95. EURJPY bouncing back above 161 key support. GBPUSD uptrend, likely taking out 1.2828, eyeing 1.29-1.30. USDCAD sell-off testing key support at 1.3440 AUDUSD above resistane at 0.6425. Gold pushing towards new highs potential to 2,195-2,233. US 10-year T-yields testing minor support at 4.07, could spike to 4%  

Volatility: On Thursday, the VIX slightly declined to $14.44 (-0.06 | -0.41%), with corresponding drops in the VVIX and SKEW indices by -1.18% and -0.49%, signaling a mild decrease in market volatility expectations. Notably, the VIX1D surged to $14.65 (+3.22 | +28.17%), exceeding the VIX, which suggests an anticipation of short-term volatility among market participants. VIX futures saw a decrease overnight to 14.460 (-0.155 | -1.08%). Thursday's most actively traded stock options were, in order: TSLA, NVDA, AAPL, RIVN, PLTR, META, AMD, GOOGL, INTC and NYCB.

In the news: Powell says the Fed is ‘not far’ from the point of cutting interest rates (CNBC), Biden takes on Trump and Republicans in fiery State of the Union speech  (Reuters), Tesla supplier Panasonic weighs more battery investment in Kansas (Nikkei Asia), TikTok crackdown bill unanimously approved by US House panel (SCMP), Broadcom revenue beats estimates as AI powers demand, investors still unimpressed (Reuters), Japan Inc set to offer bumper pay hikes, paving way for BOJ stimulus exit (Reuters)

Macro events (all times are GMT): Ger Industrial Production (Jan) exp 0.6% vs-1.6% (0645), Can change in employment (Feb) exp. 20k vs 37.3k and 5.8% vs 5.7% prior (1230), US jobs report (Feb) exp NFP at 200k vs 353k prior, and unemployment rate unchanged at 3.7% (1230). Weekly COT reports from the CFTC and ICE Europe (2000)

Earnings events: No key earnings releases today.

• Today: China Unicom Hong Kong, ZTE

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