Global Market Quick Take: Europe – September 22 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 extended their downward pressure yesterday declining 1.7% breaking below both the 100-day moving average and the important 4,400 level. The culprit is the significant repricing of longer end US bonds with the US 10-year yield hitting 4.5%. Cyclical sectors continue to underperform defensive sectors approaching the lows from August. The worst performing theme basket was bubble stocks declining 4.3%

FX: Dollar strength continued in the post-Fed reaction, although some of the gains were reversed. USDJPY traded higher to 148.26 after the BOJ announcement to maintain easy policy, although Governor Ueda’s press conference is awaited. AUDUSD plummeted from highs of 0.6511 to drop back towards 0.64 amid risk-off although NZDUSD stayed above 0.59 on Q2 GDP surprise. GBPUSD broke below key 1.23 support with BOE holding rates with EURUSD staying below 1.07 while finding support near 1.06.

Commodities: A temporary Russian ban on fuels export saw diesel prices leap higher on Thursday, thereby supporting crude oil prices. Macro challenges remain as bond yields rise and the FOMC higher for longer message raise 2024 growth concerns. A focus that saw copper slid the most in four months, testing the bottom of a long-held trading range amid rising stocks and lack of China stimulus announcements, while gold continues to attract demand from investors seeking a hedge against stagflation.

Fixed income: Yields from the belly (5-year) onward to the long end extended their post-FOMC march on a surprise drop in the initial jobless claims to 201K, signifying a still-hot US labor market.  Selling concentrated on the long end, with the benchmark 10-year yield reaching 4.5% for the first time since 2007 while the 30-year yields touched 4.58%, respectively, while the 2-year yield traded softer at 5.14%.

Volatility: The extended rally in longer-end US bond yields yesterday pushed the VIX Index to 17.50 which is the highest level since August.

Macro: US jobless claims fell to 201k from 221k, the lowest since the end of January, and against expectations for a rise to 225k.  The Bank of England defied market expectations and kept interest rates unchanged with a 5-4 vote split while maintaining a tightening bias on evidence of more persistent inflationary pressures”. Elsewhere, the Swiss National Bank defied wide expectations for a 25bps hike and left its policy rate unchanged, the same did Bank of Japan, while Sweden and Norway’s central banks both hiked the expected 25bps. Japan’s headline August CPI came in firmer-than-expected at 3.2% YoY vs. expected 3.0%, slowing only a notch from prior 3.3% YoY.

In the news: The China Securities Regulatory Commission (CSRC) has checked with several major brokers about short-selling activities and trading strategies of their quant clients (Reuters), Cisco to Buy Splunk for $28 Billion in Giant AI-Powered Data Bet (Bloomberg),  Senate Republicans are predicting that Speaker Kevin McCarthy (R-Calif.) will need to reach out to House Democrats to get the votes to prevent a government shutdown at the end of next week (The Hill)

Technical analysis: US stocks Bearish trend expect minor rebound: S&P500 closed on 4,328 support. Nasdaq 100 closed on 14,694 support. DAX key support at 15,482. EURUSD strong support at 1.0635, expect rebound but if closing below next support at 1.05. GBPUSD support at 1.2175. Crude oil correction: WTI oil expect to 87.58. Brent to 80.62. US 10-year T-yields eyeing 4.55 

Macro events: UK Retail Sales (Aug) exp –1.2% YoY incl Auto Fuel vs –3.2% prior (0600 GMT), Euro-area HCOB PMIs (Sept) Manufacturing 44 vs 43.5 prior, Services 47.6 vs 47.9 prior (0800 GMT), UK PMIs (Sep) Manufacturing 43.2 vs 43 prior, Services 49.4 vs 49.5 prior (0830 GMT), US Manufacturing PMI (Sep) 48.2 vs 47.9 prior (13:45), US Services PMI (Sep) 50.7 vs 50.5 prior (1345 GMT).

Earnings events: No earnings releases today

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