Global Market Quick Take: Europe – October 12 2023

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

Equities: S&P 500 futures pushed above the 4,400 level yesterday and have continued this morning trading around the 4,426 level as the US 10-year yield has cooled to 4.55% and several Fed speakers have indicated ‘peak rates’ have arrived. Chinese equities are up 2% today on a surprise announcement by China’s sovereign wealth fund that it bought shares in the country’s largest banks. Today’s key event in equities is the US September CPI report expected to show inflation is cooling allowing the Fed to pause on its monetary policy.

FX: The dollar trades softer for a seventh day after the market paid little heed to hot PPI report with the DXY index below 106 and EURUSD challenging resistance at 1.0635 despite most ECB speakers continuing to hint at extending the rate pause. Lack of follow-on on China stimulus saw AUDUSD plunge below 0.64 on Wednesday before climbing back above. USDJPY still trades above the 21-DMA at 148.70 despite a further slide in long-end US yields.

Commodities: Crude oil prices fell on Wednesday after a NY Times report sowed doubts about Iran’s involvement let alone knowledge about the Hamas attack on Israel, thereby lowering the geopolitical temperature although risks remain, and after the API reported an almost 13m barrel jump in crude stocks. Today’s focus, apart from US CPI being monthly oil market reports today from OPEC and IEA. Gold is challenging an $1880/85 resistance area on peak rate speculation and a softer dollar. Chicago soybean trades near 22-month lowand wheat futures fell on Wednesday, and corn firmed ahead of today’s widely followed US crop forecasts (WASDE).

Fixed income. Yield curves continued to bull flatten yesterday, however yields rebounded slightly towards the end of the day, as the 10-year US Treasury auction drew low demand, and the FOMC Minutes showed that the Federal Reserve is poised to stay on hold as inflation continues to be unacceptably high. Weak demand at the 10-year US Treasury auction also indicates that the recent rally is caused more by short-covering rather than haven demand, as the auction recorded the biggest tail since April (1.8bps) despite the high yield offered. Indirect demand was the lowest since December ‘22 (60.3%), and dealers were left with the highest since Oct ‘22 (20.9%). Sentiment in US Treasuries remains bearish; hence, we remain defensive favouring quality and short duration.

Macro: US PPI for Sept was hotter than expected. Headline PPI rose 0.5% M/M in September (prev. 0.7%), above the consensus 0.3%, with the Y/Y lifting 2.2% (prev. 2.0%, exp. 1.6%). Core metrics also surpassed expectations with M/M and Y/Y climbing 0.3% (exp. & prev. 0.2%) and 2.7% (exp. 2.3%, prev. 2.5%), respectively. Food and energy prices underpinned the strength, and focus turns to CPI due today. Fed Governor Waller joined the less hawkish camp to say that “financial markets are tightening up and they are going to do some of the work for us”. Pricing for further rate hikes is now down to less than 30% probability, while additional rate cuts are being priced in for 2024. The FOMC minutes did not add much new information.

Technical analysis highlights: S&P 500 strong resistance at 4,400. Nasdaq 100 closed few cents below minor resistance at 15,245. DAX testing resistance at 15,482. EURUSD correction, testing resistance at 1.0635, close above next resist 1.0762. Gold above resistance at 1,870 likely move to 1,985. Crude oil lower, WTI support at 81.50. US 10-year yields testing 4.56 support, could drop to 4.37%

In the news: Early Intelligence Shows Hamas Attack Surprised Iranian Leaders, U.S. Says (NYT). Birkenstock IPO sours with 13% drop on first day of trading (Bloomberg). LVMH indicated in preliminary Q3 figures that revenue growth slowed more than expected (9% vs est. 11%) due to lower wine and spirits sales (FT). The US IRS has demanded Microsoft to pay back $29bn in taxes over wrong use of transfer pricing (FT).

Macro events: ECB Minutes, UK GDP (Aug) exp 0.2% vs. -0.5% prior (0600 GMT), UK Industrial Production (Aug) exp –0.1% MoM & 1.7% YoY vs –0.7 & 0.4% prior (0600 GMT), US CPI (Sep) exp 3.6% YoY vs. 3.7% prior (1230 GMT) – read Saxo’s full preview here. US jobless claims exp. 210k vs 207k prior (1230 GMT)

Commodity related events: IEA’s Monthly Oil Market Report (0800 GMT), EIA Natural Gas Storage Change (1430 GMT), EIA Crude and Fuel Stock Report (1500 GMT), USDA’s World Agriculture Supply & Demand Estimates (1600 GMT), During the day: OPEC’s Monthly Oil Market Report

Earnings events: Delta Air Lines reports Q3 earnings today (bef-mkt) with estimated revenue growth at 4% y/y and est. EPS growth of 34% y/y as travel remains strong.