Global Market Quick Take: Europe – 3 May 2024

Key points:

• Equities: Broadly higher with technology leading as Apple results surprise
• FX: A week of yen-driven dollar weakness
• Commodities: Negative week led by softs and energy; Gold continues to find support below $2300
• Fixed Income: Sovereign bonds rise with rate cut expectations; attention turns to today’s US job and ISM reports.
• Economic data: US jobs report and ISM Services PMI

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

Equities: Japanese equities are down 0.9% as the JPY is strengthening (USDJPY down to 153) as it is estimated that BOJ is intervening in the currency market. US and European equity futures are pointing higher in early trading hours with Nasdaq 100 futures up 0.6% following Apple earnings last night. Apple shares rose 6% in extended trading as the iPhone maker surprised on the upside on revenue (Greater China segment grew QoQ) and earnings while announcing a more upbeat outlook than expected. In addition, Apple is launching the world’s largest buyback programme at $110bn. Today’s key events impacting equity markets are US April Nonfarm payrolls and later US April ISM Services. Recent data points have pointed to an US economy that is accelerating back towards 2% real GDP growth supporting the market’s low expectations for rate cuts this year.

FX: The dollar trend seems to be turning bearish as market faces dovish repricing risks. DXY index is the lowest in three weeks and heading for its second consecutive weekly decline. AUD and JPY outperformed on dollar weakness, with AUDUSD heading back higher for another test of the 100DMA at 0.6583. USDJPY slipped to fresh lows of 152.76 as suspected intervention and lower yields are lending support to the yen. With NFP due out today and Japan markets closed for a four-day weekend, there remains risk of further intervention, which can bring the pair down closer to the 150-handle. USDCHF fell below 0.91 handle on higher Swiss CPI, testing key support in the 0.9088 area, break of which will clear the path to 0.90. GBP and EUR lagged, with GBPUSD still wobbling around 1.25 and EURUSD around 1.07.

Commodities: Gold trades higher after once again managing to find support in the $2285-area, supported by yen-driven dollar weakness and lower bond yields following Wednesday’s on-balance dovish FOMC meeting. Copper meanwhile is going through an overdue correction as long-term bullish fundamentals and today also a softer dollar is being confronted by short-term weakness, more in this article. Oil prices are heading for their steepest weekly decline in three months on demand uncertainty, as rates are expected to stay higher for longer, and easing tensions in the Middle East reducing supply risks after Hamas was said to be studying a proposal for a temporary ceasefire. The BCOM grains index trades higher for a second week and near a three-month high as speculators are forced to cover short positions amid unfriendly crop weather across key growing regions. Cocoa’s near 30% slump this week is mostly reflecting a broken illiquid market, more than an improvement in the very tight supply outlook.

Fixed income: European sovereign bonds rallied on Thursday following Wednesday's dovish FOMC meeting, which signaled a green light for the ECB to cut rates in June. Ten-year Bund yields closed 4 basis points lower at 2.55%, while Italian BTPs dropped 5 basis points to 3.87%. The rally gained momentum in the afternoon as US Treasuries priced in the likelihood of more than one Fed rate cut this year, with bond futures now anticipating a total of 40 basis points in cuts compared to 28 basis points on Monday. As a result, the yield curve bull-steepened further, with 2-year US Treasury yields dropping by 8.7 basis points to 4.87%, and 10-year yields falling by 4.7 basis points to 4.58%. We anticipate the front end of the yield curve will trade within a range of 4.75% to 5% until the Fed signals readiness to cut rates. The long part of the yield curve will continue to be sensitive to data points and supply. With the US Treasury selling the highest net coupon issuance in two year, there's a likelihood that the 10-year yield will persist in its trajectory towards 5%, despite the deceleration of Quantitative Tightening (QT). Today's focus shifts to the US jobs report and April's ISM services data.

Technical analysis highlights: S&P500 bearish trend in play, key support at 4,953, above 5,146 then bullish. Nasdaq 100 rejected at key resist at 17,808 likely resuming downtrend, support at 16,963. DAX rejected at key resistance at 18,192, if close above uptrend, key support 17,620. EURUSD range bound 1.0650-1.0755. GBPUSD range bound 1.2570-1.2449. USDJPY testing 0.786 retracement at 152.83.  could drop to 151.75, maybe 150.80? EURJPY testing 0.786 retracement at 164.29. AUDUSD if breaking above 0.6585 potential to 0.6650. USDCAD uptrend seems to be fizzling, key support at 1.3618. Gold correction possibly down to 2,255, bullish above 2,353. Brent oil sold off below support at 84.75, now bearish trend, support at 81.40. US 10-year T-yield minor correction likely, support at 4.47 

Macro: US jobless claims were unchanged on the week at 208k with the prior revised up to 208k from 207k, despite expectations for a rise to 212k. The 4wk average fell to 210k from 213.5k. The continued claims for the preceding week were also unchanged with the prior revised down to 1.774mln. April NFP data is the next big focus today, and expectations for that and the likely market reactions were discussed in this article. Swiss April CPI reached a 4-month high of 1.4% YoY vs. 1.0% previous and 1.1% expected. The market-implied probability of a June rate cut from the SNB slid to 65% from 96% the day before, even as ECB's June rate cut odds remain at 93%. ECB speakers continued to make a case for the June rate cut, which could be seen as a policy mistake if the manufacturing cycle continues to turn and threatens a return of goods inflation. ECB’s Lane said that this year and next year, the more the data validates inflation coming back to target, the more we'll be able to remove restriction. ECB's Stournaras said three rate cuts this year are probable.

In the news: Apple unveils record $110 billion buyback as results beat low expectations (Reuters), Hedge Funds Buying Protection With Defensive Stocks, Goldman Says (Bloomberg), BoC says there's a limit to how far US and Canada rates can diverge (Reuters), Nasdaq Plans More Short-Term Options on Commodity, Treasury ETFs (Bloomberg),

Macro events (all times are GMT): Norges Bank Policy Announcement (0800), UK April Services and Composite Final PMIs (0830), US Jobs Report (Apr): Nonfarm payrolls exp. 240k vs 3030k prior, unemployment rate exp unchanged at 3.8%, Average hourly earnings exp. 4% YoY vs 4.1% prior (1230), US ISM Services PMI (Apr) exp. 52 vs 51.4 prior (1400),  Baker Hughes weekly US oil and gas rig count (1700), Weekly COT reports from the CFTC and ICE Europe Exchange (2000)

Earnings events: Mostly European earnings today with Danske Bank Q1 earnings hitting estimates while reiterating its fiscal year forecast for net income of DKK 20-22bn. In the US session, the key focus will be on South American e-commerce retailer MercadoLibre expected to report solid revenue growth in Q1.

• Today: Novonesis, Danske Bank, Credit Agricole, Societe Generale, Intesa Sanpaolo, MercadoLibre, Monster Beverage
• Weekend: Berkshire Hathaway

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