Global Market Quick Take: Europe – 12 January 2024

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

Saxo’s Q1 2024 Outlook titled “What happened to the future” is now out. You can read the executive summary here

Equities: The year has started with a ketchup effect in Japanese equities with Nikkei 225 futures extending the gains with another 1% gain in today’s trading session taking the year-to-date return to 6.5%. The geopolitical risk picture also worsened overnight with US and UK attacks on military positions in Yemen as a response to Houthis attacks on trade ships. Yesterday also marked the first day of trading for US listed ETFs holding spot Bitcoin and the volatility was wild with iShares Bitcoin Trust ETF rallying as high as $30 before closing at $26.63 corresponding to a premium of 0.45% over the underlying NAV. The much-anticipated US inflation report yesterday also failed to move the picture across all markets, but under the surface the inflation report showed US core services inflation rising for the fifth consecutive month to 5.2% annualized which underscoring that inflation is entrenched in the service sector.

FX: Dollar gains following Thursday’s US CPI uptick was quickly reversed with most of the overnight action being focused on the JPY which strengthened amid a risk off reaction to airstrikes on Houthis for fears it may increase Mideast tensions. GBPUSD is another pair to watch as it is back to test the 1.2780-level that has held up multiple times since end-December, and UK monthly GDP is on the radar today. EURUSD also still close to a test of 1.10, while AUDUSD moved back above 0.67 with China yuan support continuing and rate cut in focus for next week.

Commodities: Oil prices surged back to upper end of the current range, in Brent around $80, after the US and UK launched airstrikes against Houthi rebel targets in Yemen, and Iran also raised stakes as its Navy captured an oil tanker off the coast of Oman. Gold was down post-CPI but reversed higher after finding support at $2015 on Mideast tensions and expectations the higher CPI print may not derail current rate cut expectations. A break above 2045 is needed to offer fresh momentum. Grain traders look towards today’s WASDE and Quarterly Stocks reports for guidance after the sector slumped to a four-year low amid ample supply.

Fixed income: The bond market has decided to look beyond CPI andd extend duration. The 30-year US Treasury bond auction received solid demand, stopping through by 0.1bps at 4.229%. Indirect bidders awarded 67.8% and directs 17.7, leaving dealers with 14.5% of the auction, the lowest since August last year. Because there is no 30-year bonds maturing this month, demand for this issue came from real money looking to extend their portfolios' duration. The US yield curve bull-steepened with 2-year yields closing at 4.24%, the lowest in 2024, and 10-year yields closing just below 4% as bond futures confirmed wagers for six rate cuts this year. The move goes against what several Fed members have been saying in the past few days, calling for caution for bond bulls.

Macro: US December CPI reaffirmed that the last leg of disinflation is proving bumpy as headline inflation rose and core did not cool as expected. Both headline and core rose 0.3% MoM (vs. 0.1% and 0.3% respectively earlier) while the headline YoY rose 3.4% from 3.1% in November and 3.2% expected. Core was at 3.9% YoY from 4.0% previously, but higher than the 3.8% expected. Jobless claims for the week ended 6 Jan ticked lower to 202k from 203k previously and below the 210k expected. Continued claims (w/e 30th Dec) declined to 1.834mln from 1.868mln and shy of the consensus 1.871mln. ECB’s Lagarde was also talking, and she expressed confidence in the European Central Bank's handling of inflation and confirmed that interest rates have reached a peak although she cannot predict when they might decrease. Taiwan is holding elections this Saturday to elect a new president and vice-president, as well as the 113 members of a new parliament – the Legislative Yuan. China’s headline CPI deflation slowed to -0.3% Y/Y in December from -0.5% in November, slightly above the -0.4% median forecast. On a month-on-month basis, CPI increased by 0.1% in December vs -0.5% in November. A smaller decline in food prices was a major driver. Core-CPI remained at +0.6% Y/Y, same as the previous month. PPI deflation decelerated to -2.7% Y/Y in December from -3.0% in November. China’s December trade surplus beat expectations rising to +$74.34n with the good news being a rise in both imports (+0.2% vs –0.5% exp) and exports (+2.3% vs +1.5% exp.)

Volatility: Volatility remained a player in yesterday's market as the VIX modestly decreased to $12.44 yet experienced a mid-session surge peaking at $13.31. The VIX1D initially spiked as CPI figures disappointed, but eased off, allowing stock markets to recover, with the Nasdaq 100 even notching a slight gain. The VIX1D's proximity to the VIX indicates ongoing anticipation of short-term swings, especially leading into the long (US) weekend. As earnings season launches with financial heavyweights like JPMorgan and Bank of America reporting, their results could significantly sway market volatility. The question looms: As the market edges towards record highs, could these earnings reports fuel the momentum or temper the ascent? Futures on the S&P 500 and the Nasdaq 100 are slightly lower after their nightly session: 4809.25 (-6.25 | -0.12%) and 16953.25 (-12.25 | -0.07% respectively.

Technical analysis highlights: S&P 500 testing previous peak, eyeing 4,835 possibly higher, support at 4,682. Nasdaq 100 resuming uptrend likely to reach 17K and new highs, support 16,166. DAX losing momentum, support at 16,470. EURUSD range bound 1.0882 – 1.10. USDJPY above key resistance at 144.95 likely to test resist at 146.60 and 147.50.  EURJPY uptrend, reached 0.618 retracement at 160.04, possible move to 161.90. Gold likely range bound 2,017- 2,065, could test 2K. Crude oil breaking falling trendline, possible bullish move. 10-year Treasury yields could slide down to 3.90

In the news: US, UK Launch Airstrikes on Houthi Rebel Targets in Yemen (Bloomberg), Airbus lands record orders in 2023, beats Boeing on deliveries (Reuters), Bitcoin ETF Trades Top $4.6 Billion in ‘Ground-Breaking’ Day (Bloomberg), Tesla Berlin to stop most output for two weeks due to Red Sea disruption (Reuters)

Macro events (all times are GMT): US PPI (Dec) exp 0.1% & 1.3% vs flat & 0.9% prior (1230), USDA World Agriculture Supply and Demand (1600)

Earnings events: The Q4 earnings season starts today with earnings from UnitedHealth, BlackRock, Delta Air Lines, Bank of America, Wells Fargo, JPMorgan Chase, and Citigroup. Analysts expect JPMorgan to report net revenue growth of 16% y/y and EPS of $3.62 up 1% y/y.

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