Global Market Quick Take: Europe – May 1, 2024

Key points:

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

Equities: Weakness has resumed in equities with S&P 500 futures pointing 0.2% lower and Stoxx 50 futures 1.2% lower ahead of tonight’s important FOMC rate decision. The market does not expect any change to the policy rate so everything will be about the details at the press conference. The market is clearly leaning towards higher-for-longer and potentially no rate cut, so the biggest reaction will come if Powell tilts dovish, which he could do to ease financial conditions in currency markets, but as we have stated macro conditions in the US alone do not at this point warrants a dovish tilt. Amazon was trading 3% higher in extended trading despite Q1 results missing estimates and Q2 outlook on revenue disappointed against estimates, but investors were excited about Amazon’s long-term demand outlook for AI and its investment plans.

FX: USD/JPY remains stable at 157.81, while AUD/USD holds steady at 0.6472. NZD/USD has rebounded from earlier losses following a weak jobs report and is now trading steadily at 0.5888. GBP/USD has eased by 0.1% to 1.2480, mirroring the movement of EUR/USD, which stands at 1.0658. While markets are waiting for the FOMC meeting later today, attention turned to New Zealand, where the central bank said there is risk that global interest rates might remain high for longer as inflation pressures remain a problem.

Commodities: oil prices extended their decline due to the possibility of a cease-fire in the Middle East and concerns about elevated inflation affecting US demand. Trading volumes were low in the Asia session due to public holidays. Additionally, a report showed a rise in crude inventories in the US, contributing to the downward pressure on oil prices. Iron ore prices fell by up to 1.4% following a recent surge in April, driven by signs of economic improvement in China. Other base metals, like copper and aluminum, also experienced declines on the London Metal Exchange.

Fixed income: Better-than-expected Eurozone 1Q GDP and a deceleration in disinflationary trends have shifted market expectations. After a June rate cut, the possibility of two additional cuts by the ECB this year is questioned. Bond futures reflect this sentiment, pricing in 65bps cuts versus over 72bps on Monday. Consequently, European sovereign yields rose, with 10-year Bunds and Italian BTPs closing 5bps higher at 2.59% and 3.91%, respectively. In the U.S., the Employment Cost Index (ECI) rose to the highest level observed since Q3 2022, strengthening market’s concerns surrounding sticky inflation. The yield curve bear-steepened with 2-year yields breaking and closing above 5% for the first time since November, and 10-year yields closing7 bps higher at 4.68%. Markets now anticipate only a 27bps Fed rate cut by year-end. Today, the issuance plans of the US Treasury are in focus ahead of the FOMC meeting, where the March dot plot will be challenged (for a preview, click here).

Technical analysis highlights: S&P500 bearish trend in play, key support at 4,953, above 5,146 then bullish. Nasdaq 100 rejected at key resist at 17,808 likely resuming downtrend, support at 16,963. DAX rejected at key resistance at 18,192, if close above uptrend, key support 17,620 .
EURUSD resuming downtrend possibly down to 1.05, support at 1.06. USDJPY uptrend intact, key support at 155.50. EURJPY uptrend intact, key support at 165.80. AUDJPY uptrend intact but expect sideways for a few days, below 101.35 then down to 100. USDCAD uptrend with potential to 1.3935. AUDUSD rejected at 0.6584 resuming downtrend, now below support at 0.6485, potential to 0.6360.
Cocoa sold off to key support at 7,824. Copper upside potential to 490-500, key support at 438. Gold correction possibly down to 22,55. Brent Crude oil support at 80. US 10-year T-yield correction likely, support at 4.47

Volatility: VIX ended yesterday at $15.65 (+0.98 | +6.68%), its first real up-day since the last quarterly expiry on Friday, April 19th. Volatility was pumped into the market as today is laden with lots of economic releases. The most important one will be the Fed Interest Rate Decision and its accompanying FOMC Press Conference which will be closely monitored about future interest rate decisions. This market uncertainty is clearly visible in the VIX1D which shows volatility on a very short time frame. VIX1D rose yesterday to $18.10 (+8.30 | +84.69%), an objective indicator that the market is uncertain about the outcome of the economic news releases to be published today. On the earnings front, major volatility influencers could be Mastercard (MA), Qualcomm (QCOM) and Pfizer (PFE), who release their Q1 results today. VIX futures are slightly up this morning, at 15.790 (+0.125 | +0.81%). S&P 500 and Nasdaq 100 futures slightly down, at 5062.00 (-5.00 | -0.10%) and 17512.75 (-58.50 | -0.33%) respectively. Tuesday's top 10 traded stock options, in order: TSLA, AMZN, NVDA, AMD, SOFI, TLRY, AAPL, PYPL, MSFT and META.

In the news: Japan's factory activity falls slow, PMI shows (Reuters), Bank of Japan's hawkish whispers drowned out by rowdy yen selloff (Reuters), Elon Musk fires Tesla’s entire supercharger team

Elon Musk fires Tesla’s entire supercharger team (FT), Amazon cloud sales growth accelerates as it prepares for more AI spending (FT), Why Xi Jinping is afraid to unleash China’s consumers (FT)

Macro events (all times are GMT): US April ADP employment change est. 180k vs 184k prior (12:15), US March JOLTS job openings est. 8,690k vs 8,756k prior (14:00), US April ISM Manufacturing est. 50.0 vs 50.3 prior, FOMC rate decision (18:00), BOJ Minutes of March meeting

Earnings events: Today’s key focus is Qualcomm (aft-mkt) and Mastercard (bef-mkt) – read ours earnings preview here. Analysts expect Mastercard to report revenue growth of 10% YoY and EPS of $3.23 up 15% YoY.

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