Global Market Quick Take: Europe – September 21 2023

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

Equities: S&P 500 futures declined 1% yesterday on the Fed’s hawkish message bolstering the ‘higher for longer’ narrative as long-end US Treasuries rose to new highs with cyclical equity sectors underperforming. The negative sentiment has continued in today’s session in both Asia and Europe. FedEx shares rose 6% in extended trading yesterday on better-than-expected operating income delivered through its ‘drive’ cost-cutting programme.

FX: The dollar moved higher following the hawkish surprise from the FOMC on the 2024 rate projections. The biggest downside was seen in GBP which slid to near 4-month lows on dual shocks of softer CPI and hawkish Fed. EURUSD hit a fresh 6-month low overnight at 1.0617 while higher US yields has taken USDJPY back to a 10-month high above 148  and with Yellen opening the doors for more jawboning from Japanese officials, speculators may be turning cautious ahead of the BOJ meeting. The CNH meanwhile holds steady on signs of improvement in Chinese real estate. 

Commodities: Crude oil traders focus on consolidation has been strengthened by the higher-for-longer message signalled by the FOMC dot plot, but while it may raise some demand concerns for 2024, the short-term outlook points to continued tightness. For now, the stronger dollar and reduced risk appetite may see Brent trade lower towards 90.60 and WTI towards 87.50. Gold's negative reaction to Fed’s hawkish message was more modest with XAUUSD managing to hold support around $1925.

Fixed income: The hawkish FOMC outlook yesterday lifted the longer end of the US Treasury curve to new highs and the ‘higher for longer’ trade rallied with SOFR futures with maturities inn 2024 declining (pricing in higher policy rates for longer).

Volatility: The VIX Index rallied above the 15 level yesterday as the ‘higher for longer’ narrative could a boost from yesterday’s FOMC rate decision as equity futures declined and long-term US bond yields rose.

Macro: The Fed left rates unchanged at 5.25-5.50% as expected in a unanimous decision, while upgrading its language on economic growth. Meanwhile, hawkish vibes came from the dot plot which slashed 50bps of rate cuts from next year to emphasise ‘higher-for-longer’. While the door was left open for another hike this year, the 2024 dot plot moved higher to 5.1% from 4.6% in June and 2025 dot correspondingly up to 3.9% from 3.4% previously. UK CPI surprised on the downside with headline CPI falling to 6.7% YoY from 6.8% (vs. exp. 7.0%), core CPI slipping to 6.2% YoY from 6.9% (vs. exp. 6.8%) and the all-services print declining to 6.8% YoY from 7.4% (vs. MPC exp. 7.2%). Expectations for a BOE hike today have fallen to less than 50% from 80% before the release.

In the news: PBoC says its policy room is ample (Bloomberg), The European Union is “very far” from imposing new tariffs on Chinese electric cars (CNBC), UAW, Detroit Three automakers in standoff as wider strike looms (Reuters), FedEx posts profits topping estimates, raises forecasts (Bloomberg)

Technical analysis: US stocks Bearish trend: S&P500 support at 4,328. Nasdaq 100 support at 14,687. EURUSD downtrend, testing support at 1.0635, next support 1.05. USDJPY uptrend, potential to 150. GBPUSD testing key support at 1.23. Crude oil correction: WTI oil expect to 87.58. Brent to 80.62. US 10-year T-yields eyeing 4.48-4.55               

Macro events: Bank of England rate decision exp. 5.5% vs 5.25% prior (1100 GMT), US Initial Jobless Claims exp. 225k vs 220k prior (1230 GMT), Philadelphia Fed Sep Business Outlook exp –1 vs 12 prior (1230 GMT), US Existing Home Sales (Aug), exp. 4.1m vs 4.07m prior (1400 GMT)

Earnings events: Darden Restaurant reports FY24 Q1 (ending 31 August) before the US market opens with analysts expecting revenue of $2.7bn up 11% y/y and EPS at $1.74 up 14% y/y.

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