Global Market Quick Take: Europe – 9 January 2024

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

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

Equities: Fear of missing out (FOMO) was back in focus during Monday’s session with the S&P 500 adding 1.4% while the Nasdaq rose 2.1%. Gains being led by the Magnificent Seven, all of them gaining more than 1%, led by a 6.4% jump in Nvidia. Ahead of the CES 2024 consumer electronics show officially starting today, Nvidia announced three new graphics chips with extra components and enhanced AI features for PC users. Additionally, the AI chip giants said four Chinese EV manufacturers will use its technology in their auto-driving platforms.  Boeing plummeted 8.1% after US regulators ordered the grounding of over 170 Boeing 737 Max 9 jets after the accident over the weekend.

FX: The dollar index came under some pressure on Monday, and the DXY index tested 102 amid slowing consumer inflation expectations from the NY Fed survey. USDJPY fell to a 143.42 low on softer Treasury yields and Tokyo CPI reported this morning still showed core-core CPI remaining elevated. EURUSD attempted gains but was rejected at 1.0980, ahead of Friday’s whipsaw high at 1.10. GBPUSD however surged to highs of 1.2767, remaining just shy of Friday’s high at 1.2770 break of which is now needed to reaffirm a bullish bias. USDNOK rose to fresh high of 10.42 with the slump in oil prices weighing.

Commodities: Oil prices slump 4% on Monday, unwinding last week’s geo-political gains, as Saudi’s price cuts fuelled demand concerns. Speculators started 2024 by signalling a major bearish shift following the second largest weekly increase in short bets since 2017. For now, $70 in WTI and $75 in Brent seem to be offering some support with focus today on EIAs Short-term energy outlook Copper trades higher boosted by speculation of another China RRR cut. Gold meanwhile found support ahead of $2012, the 50-DMA and as well as 38.2% fibo retracement level.

Fixed income: The US Treasury is preparing for the first coupon auctions of the year. Today, 3-year notes will be sold, followed by 10-year and 30-year bonds tomorrow and Thursday. The focus will be on auctions’ bidding metrics ahead of Thursday’s CPI readings. The big question is whether duration continues to be appealing after the recent bond rally despite markets are priced to perfection reflecting the expectations of six rate cuts this year.

Macro: NY Fed's December consumer survey saw inflation expectations dip across the forecast horizons. One-year inflation expectations fell to 3% from 3.4% in November, the lowest since January 2021. Three-year inflation expectations fell to 2.6% from 3.0% and five-year inflation expectations fell to 2.5% from the prior month's 2.7%.  Fed's Bostic, a 2024 voter, said the current pace of balance sheet normalization is appropriate and the Fed remains in a situation of ample reserves. He repeated his view for two 25bp rate cuts this year, with the first occurring sometime in Q3. Japan’s Tokyo CPI for December showed some cooling from last month but remained well above target levels. Headline CPI cooled to 2.4% YoY from 2.7% last month while core CPI was at 2.1% from 2.3% YoY previously. Core core CPI remains a key concern as it was at 3.5% YoY for December from 3.6% previously. Data is broadly in-line with BOJ’s view that import-driven price pressures are cooling, and this would mean policy pivot will continue to be pushed forward.

Volatility: In yesterday's session, the markets displayed a striking resilience, with the VIX declining to $13.08 (-0.27 | -2.02%), a drop signaling easing fears. In contrast, the S&P 500 and Nasdaq 100 surged, marking a robust start to the week with gains of 1.41% and 2.11%, respectively, closing at their highs—a bullish signal. Despite last week's downward trend, this shift indicates a market appetite for recovery, possibly eyeing all-time highs. Volatility indices like the VVIX and SKEW mirrored this sentiment, with the VVIX dipping slightly and the SKEW rising sharply. However, the overnight jump in VIX futures to $14.80 (+1.025 | +7.41%) suggests caution among traders, hinting that the climb might come with volatility. As we approach Thursday's pivotal CPI data release, the market's upward momentum could persist, albeit with an undercurrent of caution due to potential increases in volatility.

Technical analysis highlights: S&P 500 likely resuming uptrend, could test previous peak, support at 4,682. Nasdaq 100 likely resuming uptrend could test 17K, support 16,166. DAX likely resuming uptrend support at 16,470. EURUSD bounced from 0.618 retracement and support at 1.0882, could rebound to 1.10. USDJPY failed to close above 144.95 could slide back to 142.85, 200 DMA giving support.  GBPUSD below rising trendline, support at 1.25, resistance at 1,28. Gold bouncing from 2,017 support, likely range bound 2,017- 2,065. Crude oil is struggling for upside momentum. 10-year Treasury yields rejected at 4.10 key resistance

In the news: Nvidia Rolls Out New Chips, Claims Leadership of AI PC Race (Bloomberg), China regulators lift stock net-selling ban for mutual funds due to redemption pressures on funds (Reuters), China Hints at More Easing With Possible Reserve Ratio Cut (Bloomberg)

Macro events (all times are GMT): US Trade Balance (Nov) exp –64.9b vs –64.3b prior (1230), EIA’s Short-term energy outlook (1600), API’s weekly crude and fuel stock report (2030), US government to sell $52b 3-year Notes

Earnings events: The first Q4 earnings report has begun with focus on major bank earnings this week

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