Global Market Quick Take: Europe – October 19 2023

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

Equities: US and European equity futures trade lower following major losses in Asia overnight. On Wednesday, the S&P 500 fell 1.3% and the Nasdaq 100 declined 1.4% as Treasury yields continued to surge. The heightened geopolitical tension in the Middle East and the declines in the share prices of Tesla ahead of earnings also weighed on the indices. Following the earnings, the postmarket saw Tesla slump 4% while Netflix jumped 12% on a new subscriber rush and price hikes.

FX: The dollar trades stronger overnight, but not to the extent one would expect given the renewed and strong gains in Treasury yields with 10-year yields at new highs near 5%, and up close to 50 bps during the past five trading sessions. Chair Powell’s comments today will be key to assess whether he follows other board members’ views on financial tightening or stays neutral on geopolitical concerns. AUDUSD reversed from highs of 0.6393 printed after China’s data beat as risk sentiment remained weak and China housing and local jobs data also disappointed today. Other activity currencies also fell, NOK and CAD both falling despite higher oil prices. AUDNZD broke above 1.08 but still far from 1.10 to confirm an uptrend. The EUR trades within its well-defined downtrend with a break above 1.06 needed to change direction.

Commodities: Oil jumped higher again on Wednesday amid geopolitical concerns ramping up following the hospital bombing in Gaza and official inventory data showing largest US hub stocks at 9-year lows. Once again, however, the opening gap was closed, highlighting the difficulty of entering long positions based on a not yet realised supply disruption.  Recovery in China’s economic data also supported copper which is holding onto support at 3.545 while gold rose to fresh three-month highs amid safe-haven buying despite the surge in Treasury yields, in the process leaving silver and platinum behind, potentially raising the risk of an unsustainable rally. 

Fixed Income: Long end yields continue to surge higher with the 10-year yield reaching 4.96%, highest since 2007, and a 35 bps jump this week alone, while the 2-year has added 19 bps to trade at 5.24%. The combination of US economic data strength and Fed members talking about high for longer has been the trigger with stop loss selling and hedging activity doing the rest. The 20-year Treasury bond auction results showed decent investor demand and it briefly halted the selloff before yields climbed again. Traders in the SOFR futures market have cut 2024 rate cut expectations to just 63 bps from closer to 100 last week.

Volatility: Volatility (VIX) rose 7.49% yesterday towards 19.22 as nervousness in the markets rose following new highs in the US 10-year yields and uncertainty about corporate earnings and geo-political events. VIX futures rose slightly overnight to 19.70, leaving the S&P500 & Nasdaq futures nearly unchanged (-0.25%).

Macro: Fed’s Waller said it is too soon to tell if more policy rate action is needed and they can wait, watch, and see before making definitive moves on the policy path. UK inflation data came in slightly hot. September CPI was above expectations at 6.7% YoY vs. 6.6% expected. Core inflation was also marginally ahead of expectations at 6.1% YoY from the 6.0% estimate. Read more in our FX note from yesterday.

Technical analysis highlights: S&P 500 strong resistance at 4,400. Nasdaq 100 rejected at resistance at 15,245. DAX back below key support at. EURUSD testing falling trendline, retesting of resistance at 1.0635? USDJPY uptrend intact. Gold above falling trendline, likely moving higher.  Copper bouncing from key support at 354.50. WTI Crude oil testing key resistance at 88.20, a close above bullish trend resumed. US 10-year yields likely to test 5%

In the news: Biden’s Whirlwind Israel Trip Fails to Calm Fears of Wider Middle East Conflict (Bloomberg), US airline investors worry the travel boom may be coming in for a landing (Reuters), China's Xi warns against decoupling, lauds Belt and Road at forum (Reuters), Netflix to raise prices after best subscriber gain in years (Bloomberg)

Macro events (all times are GMT): US Initial Jobless Claims exp. 210k vs 209 prior (1230), US Existing Home Sales (Sep) exp 3.89m vs 4.04m prior (1400)

Central bankers speaking (all times are GMT): ECB’s Valimaki (0800), ECB’s Visco (1000), Fed’s Jefferson (1300), Fed Chair Powell (1600), Fed’s Goolsbee (1720), Fed’s Barr (1730). Note the blackout period ahead of the November 1 FOMC meeting, after which no FOMC member can make public comments, begins on October 21.

Earnings results: Tesla: Q3 EPS came in at $0.66, missing the Bloomberg consensus estimate of $0.74. Revenue of $23.35 billion was slightly below expectations. Its share price fell 4.8% during the regular session and dropped by another 3.9% in the extended hour trading after the release of Q3 results. Netflix: Q3 revenue of $8.53 billion was in line with expectations while EPS of $3.73 beat the consensus forecast of $3.49. The net addition of 8.76 million subscribers surpassed the Bloomberg consensus estimate of 6.2 million. The streaming company’s share price slid 2.7% during the regular session but surged as much as 13% after the release of Q3 results in extended trading.

Earnings events: American Airlines, Alaska Airlines, Blackstone, AT&T, Philip Morris, TSMC

For all macro, earnings, and dividend events check Saxo’s calendar and Peter Garnry’s earnings update here