Global Market Quick Take: Europe – 20 December 2023

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

Equities: Mixed sentiment out of the Asian session with Nikkei 225 futures being the winner up 1.4% as the JPY gave back gains yesterday on remarks from BoJ Governor Ueda saying the market was wrong on its expectations for the central bank to lift policy rates into positive territory. FedEx shares declined 10% in extended trading hours as the company lowered its revenue guidance for FY24 and said that peak holiday season volume was like last year. Liquidity is coming down in equities with S&P 500 futures volume already around half of normal levels so expect little action with equity futures in Europe and the US cruising into the new year.

FX: After the BoJ kept its monetary policies unchanged, the post-Monetary Policy Meeting communication was deemed somewhat more dovish than anticipated. There were no hints of leaning towards ending its ultra-loose monetary policy in Q1 2024. As a result, USDJPY surged to a high of 144.96 before retracing to trade around 143.70 in Tokyo today.

Commodities: Crude oil extended its rally with the driver being the elevated risks posed by potential attacks from Yemen’s Houthi rebels on tankers passing through the Red Sea, a vital route between Europe and Asia. Brent crude oil trades near $80 with the rerouting of ships causing delays while raising supply concerns. Gold trades above $2040 and near the upper end of its current range with support at $2021 as the market continues to price in a succession of rate cuts in 2024, potentially starting as early as March. Coffee surged above $2 per pound for the first time since April on concerns about El Niño related heat damage in Brazil at a time where stocks are at a 24-year low.

Fixed income: Treasury yields finished the Tuesday session nearly unchanged, before falling a couple of basis points overnight. This stability occurred amid robust housing starts data, mixed messages from Fed officials regarding rate cut anticipations, and a dovish-leaning Bank of Japan. The 2-year yield trades at 4.42%, while the 10-year yield trades softer to sit just 2 bps above last week’s low point at 3.89%

Macro: As anticipated, the BoJ maintained short-term interest rates at minus 0.1% and 10-year JGB yields around zero per cent, with a 1% reference rate serving as the soft upper bound of the range The next BoJ Monetary Policy Meeting is scheduled for January 22-23. During the press conference on Tuesday, Governor Ueda noted that the BoJ would incorporate new information in its policy decision and could not completely rule out a policy surprise. Therefore, the January meeting remains a ‘live’ meeting." US housing starts increased 14.8% M/M to 1,560k in November, surpassing the median forecast of 1,360k. Building permits fell 2.5% M/M to 1,460k, slightly below the 1,465k projected. The surge in housing starts is largely due to an 18% increase in the single-family component.

Technical analysis highlights: S&P 500 uptrend extended, likely to test all-time high at 4,818. Nasdaq 100 testing all-time highs, likely to be taken out. DAX top and reversal pattern correction likely, support at 16,528 and 16,060. EURUSD likely to testing key resistance at 1.10 once again. USDJPY rebounding likely to 145.40, support at 141.55. AUDJPY above key resist at 96.10, uptrend resumed. Gold potential to 2,070.  WTI Crude oil rebounding could move to 77, Brent to 82. US 10-year T-yields below support at 3.95 next support at 3.83

In the news: Fed’s Bostic Says He Doesn’t See Urgency to Cut Interest Rates (Bloomberg), FedEx shares tumble 9% after weaker demand hit revenue outlook (CNBC), Oil rises 1% as Red Sea shipping concerns unnerve traders (Reuters)

Macro events (all times are GMT): UK CPI (Nov) exp 0.1% & 4.3% vs 0% and 4.6% prior (0600), US Existing Home Sales (Nov) exp. 3.78m vs 3.79m prior (1400), US Consumer Confidence (Dec) exp 104.5 vs 102 prior (1400), EIA’s Weekly Crude and Fuel Stock Report (1430),

Earnings events: Earnings releases today from Aurubus, General Mills, Toro, and Micron Technology. Our key focus is Micron Technology which reports FY24 Q1 earnings (ending 30 November) after the US market close with analysts expecting revenue growth of 11% y/y as consumer electronics demand is coming back and prices are improving for memory chips.

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