Global Market Quick Take: Europe – September 7 2023

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

Equities: Sentiment was already in yesterday’s session before a stronger than expected ISM Services figures for August lifted long-term US bond yields and probability of a November rate hike to almost 50/50. Defensive sectors outperformed cyclical sectors taking the relative performance into positive for defensive sectors in September. In Asia, Hang Seng futures are giving up recent gains on the worse-than-expected Chinese exports figures in August.

FX: The Bloomberg Dollar index trades at fresh six-month high as US growth outperformance continues to be the theme following yesterday’s strong ISM services print. Still, EURUSD is holding above 1.07 with an even bigger rise in Eurozone yields after ECB Knot’s comments (see below). In contrast, GBP has been hit by comments from BoE Governor Bailey that UK rates are near the peak. GBPUSD slid to 1.2480 while EURGBP reached a 0.8585 overnight. The USDCNH trades up again to 7.332 despite China’s export slump easing last month

Commodities: Brent crude holds above $90 after Russia and Saudi Arabia extended current production cuts to yearend, and after China’s import of crude reached 12.47mb/d last month, the second highest level this year. Ahead of today’s EIA stock report the API said stocks dropped 5.5mb last week. Meanwhile, Copper slid amid Europe’s data miss with German factory orders falling well below expectations. Gold eased as Treasury yields rose on strong ISM print in the US raising the prospect of the Fed keeping rates higher for longer.

Fixed-income: Treasuries sold off further, pushing yields higher, particularly impacting the front end. The session extended the recent rise in yields as over USD14 billion in new corporate bond issuances and a 1.8-point increase in the ISM Services PMI to 54.5 set the tone. The 2-year yield increased by 6bps to 5.02%, while the 10-year yield rose by 2bps to 4.28%

Volatility: Above average options volume on AMC Entertainment Holdings yesterday with volumes 3 to 4 times as high as the previous days, with a 1.43 put/call ratio, indicating that the market does not digest the news on the new stock offering as positive. As inflation worries rise again, the VIX rose slightly to 14.45, VIX futures point to a continuation of that trend today.

Macro: US ISM services for August broadly beat expectations. Headline 54.5 (prev. 52.7, exp. 52.5) with both new orders and employment higher. Inflationary gauge of prices paid rose to 58.9 (prev. 56.8). Final S&P Global PMI was however a touch lower than the preliminary at 50.5 from 51.0, so sharply at odds with the ISM read and as such adding to the need for caution in interpreting the ISM result. The Bank of Canada stayed on hold at 5% as expected saying the economy had shifted into a weaker phase and labour market pressure have eased, but that it remains concerned about the persistence of underlying inflation and is prepared to raise rate again should conditions not improve.

In the news: China’s exports fell 9% y/y in August making it the fourth consecutive month of declining exports – full story in the FT. New fast smartphone from Huawei is creating a buzz among Chinese consumers threating some of Apple’s business – full story in the WSJ. TSMC predicts that constraints on AI chips will last up to 18 months – full story on Nikkei Asia. China’s ban on using iPhone at certain government agencies could be expanded – full story on Bloomberg.

Technical analysis: S&P 500 rejected at 4,540, correction unfolding, key support 4,340. DAX downtrend key support at 15,482. US 10-year yields testing key resistance 4.28, could make new high 4.48. USDJPY uptrend eyeing 150. GBPUSD has strong support at 1.2550.

Macro events: Ger Industrial Production (Jul) est. -0.4% vs –1.5% prior, Eurozone GDP (2Q F), est. 0.6% vs 0.6% prior, US Initial Jobless Claims est. 234k vs 228k prior

Earnings events: DocuSign reports after US market close FY24 Q2 (ending 31 July) with est. EPS $0.66 vs -0.22 a year ago, revenue growth expected at 9% y/y.

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