Global Market Quick Take: Europe – September 18 2023

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

Equities: Last week was another week of defensive sectors outperforming cyclical sectors suggesting a market that might turn lower. S&P 500 futures are surprisingly trading firm at around the 4,504 level despite the breakout in the US 10-year yield on the back of higher energy prices driven by higher oil prices but also higher prices for uranium used for nuclear power.

FX: The dollar trades a tad softer in early trading with most currencies, except USDCNH marking a small comeback. It’s a heavy central bank week with Fed, PBoC, BOE and BOJ on the radar along with others. NZD and AUD led the G10 board in Asia at the start of the week while USDJPY retreated towards 147.60 after rising back to highs of 147.95 on Friday. The EURUSD remains below 1.07 following ECB’s dovish hike last week. GBPUSD trades near 1.24 with the path for BOE is also extremely complicated. USDCAD testing 1.35 as oil prices continue to rise. USDCNH rose back to 7.29 from lows of 7.2596 after PBOC’s liquidity enhancing measures on Friday.

Commodities: US data resilience and additional China stimulus measures are pushing Brent towards $95/barrel. With the supply outlook remaining tight into the yearend, especially for diesel amid lack of diesel-rich Middle East and Russian crudes, the demand outlook will be key. Later today, the Saudi Energy minister will speak in Calgary.  Gold is showing resilience despite rising dollar and yields and has returned to test $1930 resistance with focus on central bank commentaries. Uranium hit a 12-year high on Friday, driving miners higher as demand for the nuclear fuel strengthens

Fixed income: The US 10-year yield is making new cycle highs this morning trading around the 4.35% level as higher energy prices are impacting inflation expectations and yields. This week is about the FOMC on Wednesday with the market pricing no change. More attention will be on Bank of Japan as policymakers have expressed concerns over the weakening JPY and inflation pressures are still present in the Japanese economy.

Volatility: The VIX Index closed below 14 on Friday and is still signalling a calm equity market, but that could change this week on the back of several central bank rate decisions.

Macro: US industrial production remained strong with headline up 0.4% MoM vs. 0.1% expected but slowing from 0.7% last month (revised down from 1.0%) and confirming that manufacturing is slowing as hinted by ISM surveys as well. UoM sentiment survey showed some weakening conditions as headline dipped to 67.7 from 69.5 (below 69 expected) with current conditions at 69.8 (exp 74.8) and expectations 66.3 (exp 65).

In the news: US and China officials meet in Malta ahead of possible Biden-Xi summit (FT), Uranium prices hit 12-year high as governments warm to nuclear power (FT), UAW strike against automakers enters third day, no resolution seen (Reuters), An even bigger housing crisis threatens China’s economy (WSJ)

Technical analysis: S&P 500 at key resistance at 4,540. Nasdaq 100 at key resistance at 15,561. Both Indices seem bearish. European Equity Indices still bearish across the board after failing to close above resistance. EURUSD downtrend, strong support at 1.0635. USDJPY range bound 146-148. AUDJPY uptrend after broken resist at 95.00. WTI resistance at 93.48          

Macro events: US Sep Housing Market Index, exp 49 vs 50 prior (1200 GMT)us

Earnings events: No important earnings today

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