Global Market Quick Take: Europe – 13 November 2023

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

Equities: Strong ending to US equities on Friday with S&P 500 futures closing above the 4,400 level for the first time in a month indicating that the technical picture is increasingly looking strong going into the last month of the year. Cyclical sectors are now the strongest against defensive sectors since February 2022 when equity investors went defensive on higher interest rates. Key earnings to watch this week include Home Depot (Tue), Tencent (Wed), TJX (Wed), Cisco (Wed), Palo Alto Networks (Wed), Siemens (Thu), Walmart (Thu), Applied Materials (Thu), and Alibaba (Thu).

FX: : The US dollar oscillated within a narrow range against the G10 currencies last Friday, except the Norwegian Krone (NOK) which strengthened by 1% after a hot CPI print that increased the likelihood of rate hikes from the Norges Bank. Rising intervention risks in USDJPY after reaching 151.80, just below last year’s high, the highest level since 1990.

Commodities: Steep losses in platinum and palladium led the metal sector lower last week with silver, copper and gold all falling with focus on a weak economic growth outlook and following hawkish comments from Powell at the IMF conference. Spot gold trades near key support in the $1930-35 area. A weakening demand outlook continues to dominate the energy space with crude oil extending a three-week decline ahead of monthly oil market reports from OPEC today and IEA on Tuesday. A resumption of oil exports from Northern Iraq also in focus. CFTC’s weekly COT report was delayed until today.

Fixed Income: last week’s ugly 30-year US Treasury auction and hawkish Powell’s remarks reignited the bear-steepening trend of the yield curve. On Friday, Moody’s changed the outlook of the U.S. debt to negative from stable, exposing the country to the risk of another downgrade due to its deficit unsustainability and increase of political polarization. The ten-year US treasury closed the week above 4.50%, remaining in an uptrend. This week the focus shifts to US CPI numbers on Tuesday, with the YoY core numbers expected to remain unchanged at 4.1%, but headline numbers expected to fall to 3.3% from 3.7%. Any surprise to the upside could push back expectations for future rate cuts. On Wednesday, inflation figures are also released in the UK. Overall, we expect yield curves to continue to steepen, and the long part of the yield curve to remain vulnerable to supply-demand dynamics and inflation expectations.

Volatility: While the VIX continued its decline last week, the pace of its descent slowed, and it ended the week's session at 14.17, down $0.74 or 4.96% for the week. Stock markets reacted accordingly and moved higher, with the S&P 500 rising 56.90 points (1.31%) for the week, roughly in line with its expected move of +/-53.19 points. Expected moves for the coming week are +/-53.82 (1.21%) for the S&P 500 and +/-294.55 (1.90%) for the Nasdaq. Options pricing for this week shows slightly more expensive put prices than equidistant call prices, while the same strikes for expirations one month from now show slightly more expensive call prices than equidistant put prices. This suggests that the market foresees modest further upside. S&P 500 and Nasdaq futures were down during their opening session overnight, falling by -20.25 (-0.45%) and -79.50 (-0.51%), respectively. VIX futures rose 0.305 to $16.30 (+1.89%) overnight. A slew of economic indicators and Fed speakers' comments will most likely add volatility in the week to come.

Technical analysis highlights: S&P 500 above 4,400 bullish trend, next resist at 4,540. Nasdaq 100 resistance at 15,561 & 16K. DAX above 15,280 resist, next 15,575 but rejected at 55 DMA, RSI still negative. EURUSD resistance at 1.0765. USDJPY likely to test 152.00, break above likely move to 153-154. Gold retraced to 1,933 could dip lower but expect rebound. Copper key support at 354.50. Bottom and reversal likely in Crude oil: Brent oil support at 78.20. WTI at 73.85. US 10-year T-yields could bounce to 4.80

Macro: Moody’s changed the outlook on the US Government ratings to negative from stable and affirmed the long-term ratings at Aaa. The rating agency said “the downside risks to the US' fiscal strength have increased and may no longer be fully offset by the sovereign's unique credit strengths. In the context of higher interest rates, without effective fiscal policy measures to reduce government spending or increase revenues, Moody's expects that the US' fiscal deficits will remain very large, significantly weakening debt affordability. Continued political polarization within US Congress raises the risk that successive governments will not be able to reach consensus on a fiscal plan to slow the decline in debt affordability.” The University of Michigan Sentiment Index fell more than expected to 60.4 from 63.8. However, both the 1-year and 5-10-year inflation expectations increased by 20 bps to 4.4% and 3.2%, respectively, contrary to street forecasts of a decline. The 5-10-year inflation expectation reached the highest level since March 2011.

In the news: Alibaba, JD.com withhold Singles’ Day sales tally for second year, but strike positive tone amid economic headwinds in China (SCMP), Moody's turns negative on US credit rating, draws Washington ire (Reuters), China weighs ending freeze on Boeing with 737 Max deal in US (Bloomberg), Iceland Braces for Volcanic Eruption That Could Wipe Out Town (Bloomberg)

Macro events (all times are GMT): ECB’s Guindos speaks (0815), OPEC publishes its Monthly Oil Market Report (During the day)

Earnings events: Tyson Foods reports FY23 Q4 (ending 30 September) earnings results ahead of the US market open with analysts expecting revenue growth of 0% y/y and EBITDA at $532mn down from $1.13bn a year ago.

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