Global Market Quick Take: Europe – October 25 2023

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

Equities: Strong earnings from Microsoft after the US market close driven by higher-than-expected growth in its cloud business (26% growth in constant currency) lifting shares 6%. While Microsoft saw strong cloud growth this was the segment that disappointed in Google’s earnings after the US market close while YouTube advertising did better than expected on the top line, but shares were down 7% in extended trading. S&P 500 futures are struggling to rebound this morning trading again below the 200-day moving average around the 4,257 level.

FX: The diverging US and European PMIs brought some strength back into the US dollar after Monday’s losses and the USD is now unchanged on the week. EURUSD plunged back below 1.06 from highs of 1.0694 while EURGBP made a round trip back to 0.87+ as GBPUSD slid back below 1.22 handle. USDJPY still close to the 150 area while AUD outperformed hitting the 0.64 handle on hot Q3 CPI, China’s budget boost and RBA Bullock’s comments saying that the board will not hesitate to raise the cash rate further if there is a material upward revision to the outlook for inflation.

Commodities: Crude oil trades lower for a fourth day as the war premium and disruption fears continue to erode on news the US and Saudi Arabia agreed to pursue diplomatic efforts to prevent an Israelis ground invasion of Gaza, and as the demand outlook continues to moderate. Ahead of EIA’s weekly stock report today, the API said US crude stocks rose 2.7m barrel last week with the Copper bounced higher on China support news while Gold was relatively stable after being supported at $1955 as safe-haven bid retreated and strong dollar underpinned, but long-end treasury yields declined slightly.

Fixed income: the US yield curve bear flattened yesterday, as 2-year yields accelerated their rise after a mediocre auction of the same tenor. Today, the Treasury is selling 5-year notes. The belly of the yield curve is more sensitive when it steepens or flatten. If demand is solid, it might be an early sign that real money is positioning for the yield curve to bull-steepen. However, if demand is weak, it might accelerate the bear steepening of the yield curve.

Technical analysis highlights: S&P 500 bouncing from support at 4,195 but likely to resume downtrend. Nasdaq 100 bouncing from support at 14,505, if broken support at 14,254. DAX correction, possibly up to 15K. EURUSD rejected at resistance at 1.07. USDJPY resistance at 150.16. Gold rejected at 1,985, expect correction to 1,945-1,925. Copper once again bounced from key support at 354.50. US 10-year T-yields setback likely after reaching 5%, possibly down to 4.70

Macro: Preliminary PMIs for September showed European underperformance while US is still holding steady. Eurozone composite PMI slipped back to 46.5 from 47.2 with manufacturing staying weak at 43 while services disappointed, slipping back to 47.8 from 48.7 (48.6 expected). US PMIs where slightly stronger than expected, the composite at 51.0 from 50.2. Manufacturing PMI rose back into expansionary territory, albeit only just, to 50.0 (prev. 49.8) against the expected 49.5. Services rose to 50.9 from 50.1, despite consensus for a decline to 49.9. Australian inflation was surprisingly strong in the third quarter (+1.2% to 5.2% y/y) amid broad-based and stubborn cost pressures, a headache for policymakers that added greatly to the risk of a rise in interest rates as early as next month.

In the news: Xi steps up economic aid with new debt issuance, and makes first ever visit to the PBOC (Bloomberg), China willing to cooperate with US, manage differences – Xi (Reuters), Australia's surprisingly strong Q3 inflation raises odds of Nov rate hike (Reuters), Microsoft sales beat estimates as customers prepare for AI rollout (Reuters), Google-parent Alphabet's cloud division misses revenue estimates, as Microsoft’s cloud booms (Reuters).

Macro events (all times are GMT): Ger IFO Business Climate (Oct) exp. 86 vs 85.7 prior (0800), Bank of Canada Rate Decision (1400), US New Home Sales (Sep) exp 680k vs 675k prior (1400), EIA’s Weekly Crude and Fuel Stock Report (1430)

Earnings events: Meta (former Facebook) reports Q3 earnings today (aft-mkt) with analysts expecting revenue growth of 21% y/y and EBITDA $17.9bn vs $8.7bn a year ago as Meta is scaling back its metaverse capital expenditures and global advertising markets are coming back from low growth last year.

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