Global Market Quick Take: Europe – October 18 2023

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

Equities: US equities were on the backfoot again amid the sharp rise in Treasury yields, even as the Dow eked out a small gain. NASDAQ 100 ended the day 0.3% lower as Fed rate hike bets picked up following the strong retail sales and industrial production. Bank earnings were mixed, as Goldman Sachs missed expectations on real estate losses while Bank of America beat estimates. Nvidia fell over 4%, leading broader declines in the chip sector, after a Bloomberg report that the U.S. is restricting the sale of semiconductors that the chipmaker designed for the Chinese market. Earnings today from Morgan Stanley, Netflix and Tesla today

FX: The dollar spiked higher on the strong retail sales print before finishing Tuesday a notch lower. While data was strong, reduced risk aversion may have underpinned with Biden’s scheduled visit to Israel, but the fresh escalation overnight with attack on a Gaza hospital and cancellation of Biden summit with Arab leaders may brew fears again. AUDUSD was the best performer on the G10 board, rising to 0.6385 highs, after hawkish RBA minutes keeps the November meeting live and China data also outperforming expectations. USDCNH also dipped to a 7.3047 low on the news before reversing back above 7.31. Jump in Treasury yields brought USDJPY back towards 150 and UK wage data pushed GBPUSD back below 1.22.

Commodities: Crude oil spiked higher overnight as geopolitical risks escalated following the Gaza hospital explosion leading to Middle East leaders cancelling a planned summit with President Biden. Brent under pressure before the news jumped three dollars to trade well above $90 with API reporting a 4.4-million-barrel stock drop also supporting. Gold rallied with haven demand more than offsetting rising US yields while copper managed to bounce from key support after China released better than expected growth and retail sales data. 

Fixed Income: Hot US retail sales and industrial production data drove US two-year yields to a fresh 2006 high, rising 11bps to 5.21% before easing back a bit overnight. The 10-year yield rose nearly 13bps to 4.83% while the odds of another US rate hike reached 60%. A 20-year auction on tap for today.

Volatility: Following the strong US retail sales figures, fear for continued higher inflation made the VIX go higher to 17.88, up 3.89% compared to yesterday’s opening. VIX futures show that today we might follow that path and fear/uncertainty will continue to rise, in part also because of the geopolitical events.

Macro: US retail sales were strong across the board. Headline retail sales were 0.7% MoM vs. 0.3% expected, and the core control measure which feeds into GDP was 0.6% MoM vs. 0.1% expected. Also beating was industrial production (0.3% MoM vs. 0.0% expected). Atlanta Fed’s GDP Now for Q3 stands at 5.4%, well up on its 5.1% of last week. Higher-for-long holds up as US data remains strong, and odds of another rate hike by year-end are now close to 50%. UK weekly average earnings slowed more than expected to 8.1% 3M YoY from 8.5% prior, and September payrolled employees also came in at -11k vs. 3.k expected suggesting BOE may remain on hold. RBA October minutes were more hawkish than recent RBA communications. Key was this statement: “The Board has a low tolerance for a slower return of inflation to target than currently expected” which was inserted into the concluding paragraph. Q3 CPI due next week will be key as discussed in yesterday’s FX note.

Technical analysis highlights: S&P 500 strong resistance at 4,400. Nasdaq 100 rejected at resistance at 15,245. DAX back below key support at. EURUSD testing falling trendline, retesting of resistance at 1.0635? USDJPY uptrend intact. Gold above falling trendline, likely moving higher.  Copper bouncing from key support at 354.50. WTI Crude oil testing key resistance at 88.20, a close above bullish trend resumed. US 10-year yields likely to test 5%

In the news: Hundreds dead at Gaza Hospital as Israel, Hamas Trade Blame (Bloomberg), Jordan cancels Biden summit after deadly explosion at Gaza hospital (FT), Biden cuts China off from more Nvidia chips, expands curbs to other countries (Reuters), China's Q3 GDP seen slowing as Beijing races to revive growth (Reuters), BofA profit beats estimates on interest income, decade high trading revenue (Reuters), United Airlines forecasts weaker quarterly profit on higher costs (Reuters)

Macro events (all times are GMT): EC CPI (Sep) exp. 0.3% & 4.3% vs 0.3% & 4.3% prior (0900), US Housing starts (Sep) exp 240k vs 252.8k prior, US Building Permits (Sep) exp. 1453k vs 1543k prior. Fed’s Beige Book (1800)

Central bankers speaking (all times are GMT): Fed’s Waller (1600), Fed’s Williams (1630), Fed’s Bowman (1700), Fed’s Barkin (1700), Fed’s Harker (1915).  Note the Fed blackout period ahead of the November 1 meeting starts on October 21.

Earnings events: Morgan Stanley, Netflix and Tesla

For all macro, earnings, and dividend events check Saxo’s calendar and Peter Garnry’s earnings update here