Global Market Quick Take: Europe – 23 January 2024

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

Equities: Hang Seng futures are up 2.7% in today’s session following comments by China’s Premier Li Qiang asking authorities to implement forceful measures to shore up investor confidence with a figure such as RMB 2trn being floated. European and US equity futures are slightly higher as sentiment remains positive. The earnings season kicks into gear today with key earnings from Netflix and already in European pre-market Swedish-based Ericsson has beat estimates on dividends and operating margin, but Q4 net revenue is a lot weaker than estimated dragged down by lower growth outside China.

FX: A softer dollar within relative tight ranges is what the currency market has given us so far as traders focus on key events later in the week, including the New Hampshire Primary today, followed by Bank of Canada on Wednesday and ECB on Thursday along with US GDP data followed by PCE on Friday. The Bank of Japan left its policy rate unchanged as an expected drop in core inflation to 2.4% remains above the BOJ target of 2%. The DXY 103 support level in focus with the EURUSD still stuck in a 1.0850 to 1.10 range. AUDUSD however reversed its drop to get back to the 0.66 handle on the announcement of China’s stock support package, and 50DMA at 0.6656 could be key.

Commodities: While markets focused on Mideast tensions, geopolitical risks escalated on another front after Ukrainian drones attacked Russian oil facilities on the Baltic coast, raising the stakes in the two-year long war. Tensions in the Red Sea remain elevated and will likely for now keep a floor under the oil market while gas prices continue to tumble, with stock levels expected to be elevated as spring approaches. Silver slumped below $22.50 on technical selling with gold still supported as markets pushed back Fed rate cut expectations. Copper at risk of a short squeeze as China makes further attempts to support its ailing economy. The most shorted grains market since 2019 trades higher for a third day on short covering led by wheat and soybeans.

Fixed income: In the absence of comments from Fed officials during the blackout period ahead of the January 30-31 FOMC meeting, and with no major economic data to move the market, Treasuries finished a lackluster session mixed, with the 2-year yield 1bp higher at 4.39% and the 10-year yield falling by 2bps to 4.11%. On economic data, the focus will be on the GDP first estimate on Thursday and the PCE deflator on Friday.

Macro: The Bank of Japan maintained its short-term interest rate at -0.1% and YCC settings, while cutting FY 2024 inflation forecast to 2.4% from 2.8% in October. FY 2025 core CPI forecast was slightly increased, but not enough for the market to interpret this as a hawkish outcome and Governor Ueda’s press conference will be skimmed for any further hints. We still think BOJ has no exit policy, as discussed in this article and any move in April or July will remain very modest. Chinese policymakers were said to consider a 2 trillion-yuan ($278 billion) package of measures to stabilize slumping equity markets in Hong Kong and mainland China, culminating on Monday when the CSI300 hit a five-year low and the HSI Index slumped to a near 19-year lows. Still more details are needed, including how exactly to raise the fund and what kinds of stocks the stabilization fund aims to buy

Volatility: Volatility further eased as the VIX slipped to $13.19, despite the markets retreating slightly from their intraday peaks. Both the VVIX and SKEW indexes saw declines to 79.17 and 146.01, yet the elevated SKEW suggests the potential for a notable downward move remains. VIX futures continued to trend down, reaching 14.00, in alignment with a muted but positive stance in S&P 500 and Nasdaq 100 futures, which are showing a slight uptick. Today's session could be stirred by Johnson & Johnson and Procter & Gamble's pre-market earnings, with investors watching for impacts on market volatility. As the week progresses, the focus will stay on the possibility of further gains or retracements influenced by economic releases and the slew of earnings reports on the horizon.

In the news: China’s Premier Orders More Measures to Arrest Stock Rout (Bloomberg), Bitcoin falls to $40,000, lowest level since bitcoin ETF launch (Reuters), China's 'lackluster recovery' not having strong effect on US economy -Brainard (Reuters), Fed Should Stop Quantitative Tightening, Reduce Interest Rates Soon, Bill Gross Says (Bloomberg), Accounting investigation under way at Archer Daniels Midland and its top financial executive has been placed on leave (AP), Gilead's Trodelvy fails to meet main goal in lung cancer trial (Reuters)

Macro events (all times are GMT): New Hampshire Primary, US Richmond Fed Mfg index (Jan) exp -6 vs -11 prior (1400), API’s weekly crude and fuel stock report (2030)

Earnings events: Busy week ahead with key earnings releases listed below. Read our earnings preview published yesterday.

• Today: GE, J&J, P&G, RTX, Lockheed Martin, 3M, Netflix, Intuitive Surgical, Ericsson
• Wednesday: SAP, ASML, Freeport-McMoRan, Abbott Laboratories, Tesla, CSX
• Thursday: SEB, Sandvik, Valero Energy, Atlas Copco, STMicroelectronics, NextEra Energy, Humana, Intel, LVMH, Visa
• Friday: Volvo, Kone, Christian Dior, Colgate Palmolive.

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