Global Market Quick Take: Europe – 19 February 2024

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

Equities: Mixed session in Asian equities with Hang Seng futures down 1.2% and European equities are also declining a bit in the first hour of trading with Euro Stoxx 50 futures down 0.4%. Banco Santander is one of the positive movers today after announcing the start of shares buyback worth €1.5bn. In Asia, the big single stock news was Nintendo declining 9% as the gaming console maker said its Switch 2 would be delayed. Note as well, that the US cash equity market will be closed today due to Washington’s Birthday. This week we will get important earnings releases from Nvidia (Wed), Walmart (Tue), and Home Depot (Tue) and from all the major mining companies such as Rio Tinto, BHP, and Glencore.

FX: The post-PPI gains in the dollar faded quickly, with the DXY drifting lower towards 104 support area while the lack of a China rate cut over the weekend saw the USDCNH slid below 7.21. Also watching the AUD which rallied to 0.6530+ on Friday on optimism around China easing and China’s LPR decision ahead of RBA minutes Tuesday.  EURUSD back at Friday’s highs of 1.0780+, but key test will be the 1.08 handle.

Commodities: Crude oil closed at a 2024 high on Friday amid escalating tensions in the Middle East and signs US production growth is slowing. Still, supply concerns remain measured due to rising OPEC spare-capacity, and a mixed demand outlook. Copper prices jumped 4.2% last week before easing back overnight with its best weekly gain in months being driven by China demand optimism. Gold, meanwhile, has managed to build a base despite US economic data strength leaving a more challenged rate cut path ahead, with strong physical demand offsetting ‘paper’ selling of futures and ETFs’. The metal sector will be watching earnings this week from several mining giants, including BHP and Rio (see calendar below).

Fixed income: US Treasury yields ended the week lower on Friday on the back of hotter-than-expected January PPI data. Yields rose by 4bps-8bps across the curve, and the yield curve bear flattened slightly. Today is President’s Day in the U.S. and bond markets will reopen tomorrow. The FOMC minutes and the 20-year US Treasury bond auction on Thursday will be in focus this week together with the ECB account of January meeting on Thursday. Overall, we continue to see scope to extend the duration up to 10 years but remain wary of ultra-long maturities (for more information, click here).

Macro: After a hot CPI report last week, US PPI for January also came in above expectations. Headline PPI rose 0.3% M/M above the 0.1% forecast and -0.1% prior. On a Y/Y basis, PPI rose 0.9%, easing only a notch from the prior 1.0% pace but above the 0.6% consensus. The core print rose 0.5% M/M (prev. -0.1%, exp. +0.1%) with the Y/Y rising 2.0% (exp.1.6%, prev. 1.7%) while the super core rose 0.6% (prev. 0.2%), with the Y/Y steady at 2.6%. Core PCE, which is the Fed’s key inflation metric, is only due end of February, but hot CPI and PPI suggest that it could remain hot as well. Markets now expect a less than 40% chance of a rate cut by May. Fed officials have brushed off the high inflation numbers, as seasonality could be at play for the January prints. Ex-St. Louis Federal Reserve branch president Bullard said that the FOMC should cut interest rates at its 19-20 March meeting as a preemptive move to prevent the current level of rates from needlessly curtailing economic activity later this year. Mary Daly and Raphael Bostic also shrugged off the inflation surprise, with Daly saying that markets are now pricing in something more dovish than Fed officials ever said so there's some convergence here, but the Fed isn't changing its tune.

Technical analysis highlights: S&P 500 uptrend stretched but potential to 5,110, a close below 4,920 downtrend confirmed. Nasdaq 100 uptrend fragile, a close below 17,478 could indicate sell-off to 17K. DAX uptrend potential to 17,255-17,410, key support at 16,821. EURUSD could be range bound 1.07-1.08. USDJPY above resistance at 149.75 next is 152. AUDJPY above resistance at 97.81 potential to test 2022 peak at 98.55. Gold bouncing from 100 DMA at 1.984, likely to reach 2,034 but downtrend could take it to 1,974. WTI oil could test key resist at 79.77. Gold range bound 2,065 – 2K. 10-year T-yields above key resistance at 4.20, double bottom pattern potential to 4.38-4.44.

Volatility: The VIX slightly increased to close last week at $14.24 (+0.23 | +1.64%), reflecting a week marked by volatility, swinging from $13.34 to a intraday peak of $17.94 after an unexpectedly high CPI report. Despite a quieter week ahead in terms of economic data and earnings, the expected market moves have ticked up to +/-58.37 (+/- 1.17%) for the S&P 500 and +/- 333.16 (+/-1.88%) for the Nasdaq 100. The focal point this week centers on Nvidia's earnings, projected to cause significant swings with an expected move of +/- $79.55 (+/- 10.96%), underscoring the market's high expectations. VIX futures modestly increased to $15.00 (+0.05 | +0.32%), aligning with slight upticks in futures for the S&P 500 and Nasdaq 100 at 5025.50 (+5.75 | +0.11%) and 17781.00 (+37 | +0.21%). In the options market, Friday's most active trading was seen in TSLA, NVDA, SMCI, AAPL, AMD, META, COIN, AMZN, PLTR, and MARA, with Tesla notably leading the volume again, surpassing 3.5 million contracts.

In the news: Nintendo Plunges After Game Makers Say Switch 2 Pushed to 2025 (Bloomberg), EU to hit Apple with first ever fine in €500mn music streaming penalty (FT), Eli Lilly, Novo Nordisk get growth stock status on weight-loss drug boost (Reuters), Intel in Talks for More Than $10 Billion in Chips Act Incentives (Bloomberg), China's travel spending during Lunar New Year holidays beats pre-COVID levels (Reuters), Premier Li Qiang called for “quick results” in tackling domestic economic problems (SCMP)

Macro events (all times are GMT): No major releases today.

Earnings events: The earnings season has lost its significant impact on equity markets outside specific industries. Overall, the Q4 earnings season has been positive for the equities outlook. This week will still see important earnings releases with the three most important being Nvidia (Wed), Home Depot (Tue), and Walmart (Tue). Outside these three US earnings the giants on the global mining industry such as Rio Tinto, BHP, and Glencore will also report earnings.

• Tuesday: BHP, Air Liquide, Medtronic, Walmart, Palo Alto Networks, Home Depot, Barclays, Antofagasta
• Wednesday: HSBC, Rio Tinto, Glencore, Analog Devices, Nvidia, Synopsys, BAE Systems, Nutrien, Rivian
• Thursday: Fortesque, Zurich Insurance, Nestle, AXA, Booking, Copart, Intuit, MercadoLibre, EOG Resources, NU Holdings, Mercedes-Benz, Iberdrola, Pioneer Natural Resources, Danone, Anglo American, Wolters Kluwer, Rolls-Royce
• Friday: Allianz, Deutsche Telekom, BASF
• Saturday: Berkshire Hathaway

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