Global Market Quick Take: Europe – 18 January 2024

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

Equities: Stocks sank as Treasury yields rose, with both the S&P 500 Index and the Nasdaq 100 Index falling by 0.6% to 4,739 and 16,736, respectively. All 11 sectors of the S&P 500 declined. Tesla dropped 2%, while Apple fell by 0.5% after a US court of appeals declined to grant a longer pause on its smartwatches with a blood oxygen feature.

FX: The dollar's five-day run higher showing signs of running out of steam as US bond yields trades softer following their recent Fed-led jump. All majors recorded gains overnight in Asia, even the AUD despite a report showing the nation’s employment unexpectedly dropped in December. The EURUSD bounced back after finding support at the 200 DMA at €1.0850, while other currencies, especially the JPY has more work to do before attracting technical buying support

Commodities: Gold slumped to near 2000 before stabilising in Asia amid softer yields and a dollar rally showing signs of running out of steam. The strong dollar-led selloff this past week has been given some additional momentum by long liquidation from hedge funds. With the Fed signalling patience regarding the timing, pace and depth of future rate cuts movements in the greenback will be key. Focus on $2018 and $2000. Crude oil remains rangebound with Red Sea risks the main provider of support offsetting a rise in global supplies. IEA’s monthly oil market report in focus today after OPEC’s upbeat demand growth forecast was ignored given how wrong they have been in recent months

Fixed income: Treasury yields rose in response to a hotter-than-expected retail sales report, led by a 14bp jump in the 2-year yield to 4.36%. The 10-year yield climbed 4bps to 4.10%. In the futures and OIS markets, the probability of a 25bp cut at the March FOMC was trimmed to 57%, down from 63% one day earlier. The $13 billion 20-year Treasury bond auction met with tepid demand, with the awarded yield stopping at 0.8bp above the trading level at the time of the auction, and primary dealers left with a larger-than-usual portion of the auction. In the UK, hotter-than-expected CPI numbers led markets to reconsider rate cut expectations triggering a bear-flattening of the yield curve. Ten-year Gilt yields rose by 10 bps on the day closing just below 4%. If they break and close above this level, they will find resistance next at 4.2%. The focus shifts today to the ECB December’s minutes, Fed’s Bostic speech and the ten-year TIPS auction.

Macro: US retail sales were stronger than expected in December, rising 0.6% M/M, above the median forecast of 0.4% and November’s 0.3%. Excluding autos, retail sales grew 0.4% M/M in December, also stronger than the 0.2% expected in the previous month. US industrial production growth was 0.1% in December, surpassing the downwardly revised figure of 0.0% in November and exceeding the expected -0.1%. The Fed’s Beige Book, a summary of commentary on economic conditions in the 12 Federal Reserve districts, indicated some improvements. Three districts reported growth, one experienced a modest decline, and the rest noted little change. ECB President Christine Lagarde stated that while the European Central Bank may consider rate cuts this summer, she emphasized that it is unhelpful for the market to aggressively price in the timing and pace of these cuts.

Volatility: With strong US data pointing to no early rate cuts this year, yields were rising and made volatility follow, up to $14.79 (+0.95 | +6.86%). Both VVIX and SKEW indices rose along to 91.36 (+1.77 | +1.98%) and 147.76 (+7.82 | +5.59%) respectively. Indicating that the market is turning jitterish. Markets responded accordingly and turned red. VIX futures turned slightly lower overnight to $15.380 (-0.140 | -0.76%), with S&P 500 and Nasdaq futures staying 'greenish' flat, +0.02% and +0.13% respectively. No major earnings releases today and on the economic front there are the Initial Jobless Claims, Philadelphia Fed Manufacturing Index and Crude Oil Inventories which might add some volatility to the markets.

In the news: TSMC Profit Drops Less Than Feared as Chipmakers Escape Trough (Bloomberg), Apple Must Stop Selling Watches With Blood Oxygen Feature (Bloomberg), Third Commercial Ship in a Week Struck by a Drone Near Yemen (Bloomberg), China’s population fell by 2.08 million last year to 1.4097 billion people, down by 2.08 million from 1.4118 billion in 2022 (SCMP), Dimon Says China Risk-Reward Equation Has ‘Changed Dramatically (Bloomberg)

Macro events (all times are GMT): IEA’s monthly Oil Market Report (0800), US Housing starts (Dec) exp 1425 vs 1560 prior and permits exp. 1476k vs 1460k prior (1230), Phili Fed Business outlook (Jan) exp –6.7 vs –10.5 prior (1230), US initial jobless claims, exp 205k vs 202k prior (1230), EIA’s natural gas storage change (1430), EIA’s weekly crude and fuel stock report (1500)

Earnings events: Compagnie Financier, Trust Financial, Fastenal, PPG, M&T Bank, JB Hunt, Northern Trust, KeyCorp

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