Global Market Quick Take: Europe – September 4, 2023

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

Equities: Our view is still cautious with overweight on defensive sectors against cyclical sectors. Hang Seng futures are up 3% as investors are increasingly positive on the economic reforms enacted last week around the mortgage market. This week’s focus is on whether Chinese equities will continue to rally and whether energy markets will remain strong. We are also focusing on green transformation stocks given last week’s horrible performance.

FX: Dollar regained strength on Friday to end the week for a 7th consecutive gain, while CNH was also up in the week. Losses were led by sterling, with GBPUSD sliding below 1.26 on comments from BoE Chief Economist Pill who talked about holding rates as an option. Poor GDP and PMI reports saw USDCAD jumping higher to 1.36 from lows of 1.3490. EURUSD dipped below 1.08 despite some hawkish ECB remarks, and AUDUSD stays below 0.65 ahead of RBA meeting tomorrow.

Commodities: Crude oil trades at or near fresh year to date peaks on expectations OPEC+ will keep supply tight while the demand outlook has received a boost from Chinas latest support measures. Focus this week on whether Brent’s current momentum can carry it above $90. Gold remains supported by US peak rate speculation but still needs to clear $1950 while copper trades near a four-week high.

Fixed-income: A week-long rally in bonds, especially at the front of the curve was halted on Friday following mixed economic data signals. On the week the 2-year yield dropped 20 bp while the 10-year was down 6 bp. US cash markets are closed today.

Volatility: As the IPO of Softbank Group's British chip designer Arm is rapidly approaching, Intel is rumoured to be one of the major investors for the IPO. The last few days options volume in Intel has been more than 3 times higher than the days/weeks before, with a clear preference for call options (277,201 calls compared to 90,911 puts in the last trading day), suggesting that the market is positive for Intel. Meanwhile the VIX (13.09) had its sixth consecutive downward day, close to its low of the year (12.73).

Macro: US nonfarm payrolls came in above expectations at 187k in August, although data for last couple of months was revised lower by -110k. The unemployment rate edged up to 3.8% from 3.5% in July (with labor force participation picking up) and wage growth moderated. Report further boosted soft-landing hopes, prompting markets to further reduce the possibility of another Fed rate hike. The ISM Manufacturing PMI data rose above expectations to 47.6 (exp. 47.0) from 46.4, while price paid increased. Fed's Mester (non-voter) acknowledged that employment growth has slowed, but at 3.8% she said the jobless rate is still low while inflation remains too high.

In the news: Property Stocks Lead China Rally as Stimulus Measures Lift Mood Bloomberg,

Technical analysis: S&P 500 is rejected at resistance at 4,527, expect set back, support at 4,340. Gold rejected at the 1,947 resistance level. Brent Crude oil is above key resistance with daily and weekly bullish trend. US 10-year yields rebound, and likely to resume uptrend.

Macro events: US and Canada Labor Day Holiday

Earnings events: Partner Group (0500 GMT) est. EPS 19.65 vs 17.39 a year ago.

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