Global Market Quick Take: Europe – 25 March 2024

Key points:

• Markets sentiment souring: US and EU equity futures trade lower after the Atlanta Fed chief called for just one rate cut this year.
• Commodities consolidates after last week’s strong dollar correction: Oil and gold pressured by dollar strength but finding support amid raised global tensions
• Equity movers: The Nikkei trades down more than 1% after officials warned against speculative moves in the currency markets. Thin earnings calendar today
• Technicals watch: Key reversal patterns in major indices, support and resistance levels to watch in currency pairs.
• Economic data watch: Inflation data from Australia, France, Italy and Spain as well as the Fed’s preferred core PCE on Friday

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

Equities: Global equities are starting the week on a weak footing with Nikkei 225 futures down 1.5% and both US and European equity futures pointing slightly lower in early trading hours. Today’s key events are limited to Dallas Fed Manufacturing Activity figures for March and later this week on Wednesday earnings from Carnival and H&M can impact consumer related stocks. Last week’s shocking Gucci sales decline and weak outlook from Nike continue to paint a picture of a global consumer that is still healing after the inflation shook last year. Bill Gross, the former ‘bond king’, is out saying that US equities show signs of ‘excessive exuberance’ as enormous US fiscal deficits and AI enthusiasm are driving equity markets to new highs.

FX: The dollar strength extended further on Friday, with the DXY index back above 104.30 to its highest levels in over a month. The Chinese yuan saw notable volatility after a weak PBOC fix on Friday but a strong fix today. USDCNH rose sharply to touch 7.28 before reversing back to 7.24 today. AUDUSD dropped 40pips as well on Friday, slipping from 0.6570 to 0.6520 but the recovery today has been underwhelming. EURUSD also testing the 1.08 handle with the SNB surprise rate cut prompting wagers to increase bets for ECB easing for June. EURCHF eased from highs of 0.9788 to settle around the 0.97 handle although USDCHF settled just below the 0.90 handle. GBPUSD back below 1.2650 after BoE governor Bailey said rate cuts are in play at future BoE meetings amid signs that tighter policy quelled the risk of a wage-price spiral. For more on our FX views, read our Weekly FX article here.

Commodities: Last week’s USD strength impacted negatively especially those commodities that had seen a strong buildup in speculative longs ahead of FOMC, especially crude oil, silver and copper. Brent nevertheless holds above key support as Russia attacks ads to global tensions while Ukraine’s successful attacks on Russian oil refineries are adding risks to global energy supplies. Gold is holding above $2146 support but for now, back on the defensive amid dollar strength and hawkish comments on policy rate trajectory from Fed’s Bostic moving his expectations to expect only one rate cut this year.

Fixed income: Markets are consolidating bets of a June rate cut in Europe, as ECB policymakers see a persistent easing in Euro-area inflation, and some do not exclude a rate cut even by April. Yields fell across European yield curves, with the 10-year Bund yields dropping by 12bps to 2.32% on the week. The rally in Europe leaked to US Treasuries, with 10-year yields ending the week down by roughly 10bps and 2-year yields by 14bps. This week, the focus is on February’s US PCE core deflator coming out on Good Friday when markets are closed. The core PCE is expected to remain unchanged from January at 2.8%. Before Friday, several Federal Reserve members, including Bostic, Goolsbee, and Waller, will speak on the back of last week’s FOMC meeting. The US Treasury will sell 2-, 5-, and 7-year notes today, tomorrow and on Wednesday, and the focus is on bidding metrics and signs of duration extension. We continue to see scope to extend duration up to five years, we favor the 10-year tenor for its risk and reward proposition, while we remain cautious the ultra-long part of the yield curve as explained here.

Macro: Atlanta Fed Chief Bostic said on Friday that he now only expects one interest rate cut this year, adding that the reduction will likely happen later in the year than he previously expected. He said he had less confidence about the trajectory of inflation than in December, and focus this week turns to the Fed’s preferred inflation gauge, the PCE, due out on Friday. This fits well with the latest economic data points from the US suggesting robust growth around 2% in the US economy.

Technical analysis highlights: S&P 500 cancelled top and reversal pattern now looking at 5,300, but uptrend very stretched. Nasdaq 100 top and reversal pattern still intact, cancelled if closing above 18,417. EURUSD testing key support at 1.08, likely rebounding, if closing below next support at 1.0756. GBPUSD closed bang on key support at 1.26, expect rebound. USDJPY strong resist at 151.95, a break above bullish move to 153.50. USDCHF bullish potential to 0.9050. AUDJPY top and reversal pattern indicating pair could drop to 98.20. Gold hit by selling after reaching 1.618 projection at 2,225, key support at 2.146. US 10-year T-yields likely range bound 4.15-4.35

Volatility: On Friday, the VIX slightly increased to $13.06 (+0.14 | +1.08%), indicating a modest rise in market volatility. Despite this, the VIX's departure from an uptrend channel and a dovish Federal Reserve stance led to new market highs. The VVIX fell to 76.49 (-0.89 | -1.05%), while the SKEW index moved up to 155.84, signaling sustained vigilance for outlier events. This week's focus is on the Core PCE Price Index and Fed Chair Powell's speech, potentially stirring market dynamics in a week light on notable earnings. Expected market movements have narrowed, with the SPX at +/- 45.92 (+/- 0.88%) and the NDX at +/- 242.37 (+/- 1.32%), reflecting reduced volatility anticipations. VIX futures climbed to 14.600 (+0.120 | +0.82%), with S&P500 and Nasdaq100 futures slightly down: 5343.50 (-7.00 | -0.19%) and 18536 (-38.75 | -0.21%). Friday's most active stock options were: NVDA, TSLA, AAPL, AMD, GOOGL, NKE, MU, LULU, AMZN, and MSFT.

In the news: US and Japan plan biggest upgrade to security pact in more than 60 years (FT), Infrastructure: from investment backwater to a $1tn asset class (FT), Donald Trump’s $464mn bond is due on Monday. What happens next? (FT), Oil rises as heightened geopolitical risks exacerbate supply concerns (Reuters), Google, Apple breakups on the agenda as regulators target tech (Reuters), The $27 Trillion Treasury Market Is Only Getting Bigger (WSJ), Attack on Russian Concert Hall Threatens Putin’s Strongman Image (WSJ)

Macro events (all times are GMT): US February Chicago Fed National Activity Index est. -0.34 vs prior -0.30 (12:30), US February New Home Sales est. 675k vs prior 661k (14:00), US March Dallas Fed Manufacturing Activity est. -11.5 vs prior -11.3.

Earnings events: This week’s earnings will not move markets as investors are awaiting the Q1 earnings releases that start being published mid-April.

• Monday: PetroChina, China Merchants, BNP Paribas Fortis
• Tuesday: BYD, China Telecom, Nongfu Spring, CITIC Securities, ANTA Sports, Flutter Entertainment, McCormick
• Wednesday: ICBC, China Life Insurance, Midea Group, Haier Smart Home, Cintas, Paychex, Carnival, H&M
• Thursday: Agricultural Bank of China, Bank of China, CITIC, Walgreens Boots Alliance
• Friday:

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