Global Market Quick Take: Europe – 19 March 2024

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

Equities: Japanese equities are up 0.2% despite the JPY weakening 0.9% today against the USD (above the 150 level again) as the Japanese central bank is ending its negative policy rate that has been in place since 2016. US and European equity futures are slightly lower in early trading hours with the next big central bank event being FOMC tomorrow night. Later today the German Mar ZEW survey is among the first indications we get on the European economy in March and is well-watched economic figure. Nvidia unveiled yesterday its new AI chip called Blackwell which taking over from the successful Hopper AI chip, but investors were not overly excited with Nvidia shares down 2% in extended trading. Nvidia’s GTC conference will last until Thursday and will likely continue to impact AI stocks. On earnings, Xiaomi, China’s largest mobile phone maker, is expected to revenue growth of 10% YoY in Q4.

FX: The historic decision from the Bank of Japan to end negative rates and yield curve control came with caveats around accommodative policy being maintained and saw yen coming under pressure. USDJPY rose above the 150 handle to highs of 150.43 and focus now turns to risks of a hawkish outcome from the Fed meeting. EURJPY rose above 163 and could target the 2022 high at 164.30. The RBA was on hold but weakened its hawkish bias. AUDUSD plunged 50 pips as a result and was last seen at lows of 0.6515. USDCHF getting close to a re-test of the 0.89 handle as EURCHF printed fresh YTD highs at 0.9661 with SNB meeting on Thursday still likely to throw a dovish surprise as we discussed in the podcast yesterday. The EURUSD was attempting a rally to 1.09+ yesterday but the dollar's strength got in the way and the pair slipped back towards 1.0860. GBPUSD remained range-bound around 1.2720 yesterday but also lost momentum to test the 1.27 handle in Asia today ahead of UK CPI and BOE decision this week. GBP strength could be tested if equity sentiment weakens, as noted in our weekly FX chartbook.

Commodities: Strong factory output and investment growth data in China underpinned copper and a rebound in iron ore back above USD 100/t while crude oil traded near a near five-month high, supported by OPEC+ production curbs and not least diesel and gasoline strength after Ukrainian drone strikes over the weekend hit three Russian refineries potentially knocking out 600k b/d of Russian oil-refining capacity. Iraq is said to cut its oil exports to compensate for its recent above-quota production. EU gas reached a six-week high on supply concerns from an unplanned Norwegian outage, US Freeport LNG export problems and focus on Russia’s LNG export capability following drone attacks. Gold trades nervous ahead of Wednesday’s FOMC with focus on the 284 tons long recently bought by hedge funds. Short-covering in key crops gaining momentum led by wheat following Monday’s jump on Black Sea supply concerns

Fixed income: The Bank of Japan ended its negative interest rate policy and abandoned yield curve control while maintaining quantitative easing. Markets have been anticipating the move for days, and Japanese government bond yields slid across tenors after the announcement. Although bond markets remain muted after the announcement, such a decision will have profound long-term repercussions for global bond markets, including the repatriation of Japanese investors. In Europe, Bunds tumbled yesterday, with 10-year yields rising by 20 basis points in only six days as European sovereign debt continues to flood the primary market, and inflation met market expectations with core CPI at 3.1%. US Treasuries also ended the day lower, with yields rising by 2bps across tenors. This week's focus is on the Federal Reserve and the update on the Summary of Economic Projections, which will show higher growth and inflation for 2024. The question is whether such forecasts will be accompanied by 75bps of rate cuts this year. We see a higher probability of US Treasury yields ending the week higher, with ten-year yields resuming their rise to 4.5%. For more information about the FOMC meeting, click here. For a preview of Thursday's upcoming BOE monetary policy meeting, click here.

Macro: The Bank of Japan has entered a new era as it scrapped negative interest rates and yield curve control, while also ending its ETF purchases. The central bank has set the short-term interest rate at between 0-0.1% in its first rate hike since 2007, although comments suggested that they expect accommodative conditions to persist for some time which is a signal that concurrent rate rises are unlikely. The Reserve Bank of Australia kept its policy settings unchanged but toned down its hawkish bias even though there was no mention of rate cuts in the statement. Markets have increased the odds of rate cuts this year, now standing at over 40bps from 35bps pre-RBA.

Technical analysis highlights:  S&P 500 & Nasdaq 100 Bearish Engulfing top and reversal pattern. Key support for S&P 500 at 5,057. Nasdaq 100 key support at 17,478. DAX looks toppish, key support at 17,620. Below expect sell-off to 17,326-17,118.
EURUSD correction support at 1.0870 and 1.0830. USDJPY likely to test resistance at 150.90 and 151.95. EURJPY likely to break resistance at 163.70, potential to 165. GBPUSD correction, support at 1.27, but could drop to 1.2660. GBPJPY likely bullish move to 192.60. AUDJPY range bound 96.80- 98.20.  Gold correction unfolding likely to test support at 2,134, possibly 2,115.  WTI crude oil testing resist at 82.56, upside potential to 84.60.  US 10-year T-yields testing resistance at 4.35.

Volatility: Yesterday, the VIX slightly decreased to $14.33 (-0.08 | -0.56%). The S&P 500 and Nasdaq 100 indices saw increases of 0.63% and 0.99%, respectively. These movements indicate a positive market sentiment ahead of the anticipated FOMC announcements. The VVIX dropped to 86.78 (-5.39 | -5.85%), suggesting a decrease in volatility expectations, while the SKEW index experienced a slight increase to 139.94 (+1.03 | +0.76%). With no major economic news affecting US markets on Monday, all eyes are on the FOMC's upcoming interest rate decisions. VIX futures showed a slight uptick to 15.35 (+0.020 | +0.13%), while S&P 500 and Nasdaq 100 futures are down slightly to 5209.50 (-5.25 | -0.10%) and 18190.00 (-41.50 | -0.23%), respectively. Monday's trading session was most active in options for TSLA, NVDA, AAPL, GOOGL, AMD, GOOG, AMZN, PLTR, WBD, and SOFI.

In the news: BOJ ends negative rate policy implemented in 2016 and raises policy rate for the first time since 2007 (FT), Nvidia unveils new AI chip named Blackwell at GTC conference to succeed its successful Hopper chip (Bloomberg), UBS market value reaches $100bn for the first time in 16 years as Credit Suisse integration is working out (Bloomberg), Gunvor says Ukraine drone attacks shut 600,000 barrels of Russian refining (Bloomberg)

Macro events (all times are GMT): Germany Mar ZEW survey est. 20.5 vs prior 19.9 (10:00), US Fed Housing Starts est. 1440k vs prior 1331k, Canada Fed CPI est. 3.1% YoY vs prior 2.9% (12:30), APIs weekly crude and fuel stock report (1930).

Earnings events: Xiaomi, China’s largest mobile phone maker, is scheduled to report earnings later today with analysts expecting revenue growth of 10% YoY and EBITDA of CNY 5.3bn down QoQ from CY 6.9bn in Q3 2023.

• Today: Xiaomi, China Unicom Hong Kong, Partners Group
• Wednesday: Tencent, Prudential, Micron Technology, Alimentation Couche-Tard, Kuaishou Technology, PDD, General Mills, BioNTech
• Thursday: China Mobile, CNOOC, Ping An Insurance Group, Enel, China CITIC Bank, BMW, Nike, FedEx, Lululemon Atheletica, Accenture, Next, Darden Restaurants, FactSet
• Friday: China Shenhua Energy, Meituan, Zijin Mining Group, Yihai Kerry Arawana, CMOC Group, China Petroleum & Chemical

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