Global Market Quick Take: Europe – 4 December 2023

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

Equities: Another negative Chinese session with Hang Seng futures down 1%, but the bearish sentiment remains an isolated Chinese event. Equity futures in Europe and US are mostly flat as the strong close on Friday taking S&P 500 futures above the 4,600 level. In company specific news, Spotify is laying off 17% of its global workforce as profitability has worsened over the past year. Bond markets and especially pricing of Fed rate cuts next year will continue to set the pace and direction in US equity markets this week. COP28 has committed to increase nuclear power by 200% by 2050 in bid to increase reliable clean energy which could set uranium and nuclear power stocks on the move in today’s session.

FX: Dollar slipped after markets interpreted Powell’s comments as dovish, and Gold raced to all-time highs of $2,100+ and yen rallied on the back of lower Treasury yields. USDJPY slid below 146.50 briefly to test the 23.6% fibo retracement at 146.09 but reversed higher in Asia. AUDUSD rose above 0.6680 with RBA expected to follow the RBNZ to deliver a hawkish hold tomorrow, and NZDUSD spiked to 0.6220 before reversing to 0.6660 and 0.62 respectively. EUR has broken below 1.09 on Friday and sees room for decline especially on the crosses amid dovish ECB repricing risks.

Commodities: Gold surged to a record $2135 overnight, thereby completing a bullish signal with the s/t risk of a pullback towards $2057 with $2000 potentially a new floor. Prices surged as markets saw a dovish repricing of the Fed with Powell’s pushback to rate cut pricing remaining modest, potentially supporting an extension into 2024. Watch silver and platinum given their relative cheapness to gold following the latest surge. Crude oil also recovered in Asia after slipping another over 2% on Friday despite softer dollar and increased Fed rate cut bets as market remain comfortable that supply will be ample and OPEC discord risks remain. Copper trades lower after reaching an August high at $3.93 on Friday with bulls focusing on Powells comments and supply risks

Fixed income: US Treasury yields continued to drop on Friday despite Jerome Powell pushing back on Markets pricing more than 100bps rate cuts next year. The 2-year yield fell 14bps to 4.54% and the 10-year yield dropped by 13bps to 4.20%. The Federal Reserve blackout period started on Saturday, hence the focus shifts on economic data such as US factory orders today, US ISM services on Tuesday and nonfarm payrolls on Friday. The primary high-grade corporate bond market will also be in focus, as syndication desks estimate between $15-$20 billion issuance this week and $30-$35 billion for the whole month, putting pressure on US treasuries. This week the US Treasury sells only T-bills, and coupon auctions will resume next week.

Volatility: The VIX ended last week at $12.63, down 0.29 cents (-2.24%) after Friday’s positive session in the stock markets. VVIX ended at 85.90, down 0.81 (-0.93%), while SKEW stayed flat at 144.54 (+0.00). VIX futures stayed mostly flat overnight at $13.710 (+0.010 | +0.09%). S&P 500 and Nasdaq 100 futures are slightly down: 4592.50 (-8.25 | -0.18%) and 15970 (-53.75 | -0.34%) respectively. Expected moves for the coming week are: +/- 50.96 (+/- 1.11%) and +/- 245.35 (+/- 1.53%) for the S&P 500 and the Nasdaq 100 respectively. Volatility in the coming week will largely be influenced by employment data, which will be released over the span of several days (JOLTS, ADP Nonfarm, Initial Jobless Claims.

Macro: Fed Chair Powell tried to push back on rate cut expectations after Waller’s dovish comments earlier last week, saying that Fed is still prepared to tighten further if it becomes appropriate to do so. However, he mentioned policy is in restrictive territory, and markets interpreted Powell’s comments as tilting dovish and Q1 rate cut pricing ha snow shot up to over 70%. US ISM manufacturing was unchanged at 46.7 in November, against expectations for a recovery to 47.6. New orders and prices paid rose to 48.3 (prev. 45.5) and 49.9 (prev. 45.1), respectively, while employment fell to 45.8 from 46.8.

Technical analysis highlights: S&P 500 eyeing 4,800. Nasdaq 100 short term correction likely, support at 15,744. DAX above resist at 16,060, could test 16,530. EURUSD rejected at 1.10, support 1.0755. USDJPY downtrend support at 145. GBPUSD likely to be rejected at 1.2745. Gold correction likely to 2,032 maybe 2K.  WTI Crude oil range bound 72.65-79.77, Brent 77.24-83.97. Copper support at 382, resistance at 400. 10-year T-yields support at 4.19

In the news: Washington is aiming to halve Russia’s oil and gas revenues by the end of this decade, a senior US diplomat has said (FT), New strikes hit Gaza as Israel-Hamas fighting resumes (CNN), Bitcoin Hits $40,000 Level for the First Time Since May 2022 (Bloomberg), China Evergrande Faces Final Chance to Avoid Liquidation by Hong Kong Court (Bloomberg), Gold soars past $2,100 to new record (CNBC). Leaders have agreed to triple nuclear power by 2050 and launching first Nuclear Energy Summit for 2024 in Brussels (IAEA).

Macro events (all times are GMT): US factory orders (Oct) -3% vs 2.8% prior (1400), US Durable Goods Orders (Oct) exp –5.4% vs –5.4% prior (1400)

Earnings events: Gitlab, US based software company, reports FY24 Q3 (ending 31 October) earnings after the US market close with analysts expecting revenue growth of 25% y/y and negative EBITDA of $4mn up from negative $56mn a year ago.

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