Global Market Quick Take: Europe – 22 February 2024

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

Equities: Gains across all equity futures this morning with Nikkei 225 futures up 2.2% in Asia, and in Europe, STOXX 50 futures are up 0.9%, and in the US, Nasdaq 100 futures are up 1.6%. The big event overnight lifting equity sentiment was the much better-than-expected FY24 Q4 earnings from Nvidia with EPS $5.15 vs est. $4.64 and sales of $22.1bn vs est. $20.6bn. The sales guidance for the current quarter is $24bn vs est. $21.9bn as generative AI has hit “tipping point” according to Nvidia indicating strong future demand. Nvidia shares rose 9% in extended trading. The worsening outlook in the electric vehicles industry was underscored yesterday as Rivian fiscal year production was guided at 57K vs est. 80K leading the EV maker to cut 10% of workers. With Nvidia’s earnings result out of the way and gaining on strong outlook we expect the momentum in equities to continue in the weeks to come.

FX: Dollar traded sideways with lack of that extra hawkish bias in FOMC minutes but sustained exceptionalism of the US economy providing support. Higher Treasury yields following the 20-year auction did not move the dollar, but yen weakness extended further with USDJPY reaching 150.40 overnight with EURJPY reaching a November high at 162.90, and with NZD momentum continuing ahead of next week's RBNZ meeting, NZDJPY above 93 is at the highest since 2015 - note we expect a hawkish bias. CHF, however, seems to have reversed some of the weakness for now with USDCHF back below 0.88 and EURCHF testing 0.95.

Commodities: Crude oil prices were firmer with signs of tight market conditions despite another rise in US crude stocks with the short-term focus shifting to whether a new hostage deal could be signed in the Middle East. Iron ore held steady after slumping to a November low while industrial metals are having a better week amid expectations that Chinese demand would pick up and after President Biden said that the US plans to unveil a major sanctions package against Moscow on Friday, the latter potentially supporting nickel and aluminum. Gold trades steady near $2032 resistance despite the run higher in yields again as recent heavy ETF selling show signs of slowing down.

Fixed income: Following BOE Governor Andrew Bailey’s comment that inflation doesn’t need to fall to 2% before cutting rates, Gilts rallied, driving sentiment in European sovereigns and US Treasuries. The US yield curve twist steepened with front-term yields dropping by a little over three basis points, while the ultra-long part of the yield curve moved slightly up from Friday’s close. The FOMC minutes and the 20-year US Treasury bond auction today will be in focus, together with the ECB account of the January meeting tomorrow. Overall, we continue to see scope for duration extension up to 10 years but remain wary of ultra-long maturities (for more information, click here). Cocoa futures hit a fresh all-time high on lower supply from West Africa

Macro: The minutes of the FOMC minutes continued to highlight that most policymakers were more concerned about easing too soon rather than maintaining an overly restrictive stance for too long. Wall Street Journal's Nick Timiraos said that the minutes show unease over premature rate cuts. However, that pushback wasn’t any more than what we have heard from policymakers in recent weeks and did not worry markets. BOE’s Dhingra, the only voter who has been voting to cut rates, said that UK consumption remains below pre-pandemic in contrast to US and eurozone, and that overtightening could mean hard landing. In contrast to what the Fed minutes hinted, she said that for the BOE, evidence to err on the side of overtightening is not compelling.

Technical analysis highlights: Hang Seng broken bullish likely move to 17K.S&P 500 uptrend but RSI divergence indicating trend exhaustion, key support at 4,920. Nasdaq 100 uptrend stretched but intact, closed few cents above support at 17,478. DAX uptrend struggling for momentum. Could slide back, key support at 16,821. EURUSD likely rebounding to 1.0865. USDJPY above key resistance at 149.75, next at 152. EURJPY uptrend potential to 163.30 – 164.20. AUDJPY above 2022 peak could move to 99.40. Gold likely testing 2,035 resistance, possibly 2,048. WTI oil rejected at key resistance at 79.77. 10-year T-yields range bound 4.20 – 4.33, likely bullish move to 4.44

Volatility: Wednesday's trading session saw a slight dip in the VIX to $15.34 (-0.08 | -0.52%), with market attention riveted on Nvidia's post-market earnings announcement. The anticipation for Nvidia's results was evident, as evidenced by the unusual spike in the VIX1D to $17.83, surpassing the VIX and highlighting expectations for short-term market movements. Nvidia's stock experienced a downturn of 2.85% during regular trading hours ahead of its earnings release. The publication of the FOMC minutes brought no significant surprises, leaving market volatility largely unaffected. However, Nvidia's earnings report, surpassing expectations, acted as a catalyst for positive futures market movement. VIX futures dropped to $14.870 (-0.480 | -3.12%), while futures for the S&P 500 and Nasdaq 100 significantly increased, to 5035.00 (+38.75 | +0.77%) and 17801.00 (+264.25 | +1.51%) respectively, suggesting a bullish market open. Nvidia's stock soared in after-hours trading, up 9.07% to $735.95. Top 10 most traded (stock) options on Wednesday, in order: TSLA, NVDA, AAPL, PANW, AMZN, AMD, INTC, PLTR, RIVN and META.

In the news: Nvidia Surges After AI Boom Shows No Signs of Letting Up (Bloomberg), China Tightens Grip on Stocks With Net Sale Ban at Open, Close (Bloomberg), HSBC's shares slide as record profit marred by $3 billion China hit (Reuters), Hong Kong developers urge government to remove all property cooling measures (SCMP), China starts drafting bill to boost private sector and tackle sluggish post-Covid economy following major setbacks (SCMP)

Macro events (all times are GMT): EZ Manufacturing PMI (Feb) exp 47 vs 46.6 prior, Services exp. 48.8 vs 48.4, composite exp. 48.4 vs 47.9 prior (0800), ECB Minutes (Jan) EZ, UK PMI (Feb exp 52.9 vs 52.9 prior (0830), US Manufacturing PMI (Feb) exp 50.7 vs 50.7 prior, Services 52.32 vs 52.5 prior & Composite 51.8 vs 52 prior (1345), US Existing Home sales (Jan) exp 3.97m vs 3.78m prior (1400), EIA Natural Gas Storage Change (1430), DOE Weekly Crude and Fuel Stock Report (1500)

Earnings events: Big day ahead on earnings with the key earnings to watch being Nestle (bef-mkt), MercadoLibre (aft-mkt), Nu Holdings (aft-mkt, Nubank), Mercedes-Benz (bef-mkt), and Rolls-Royce (bef-mkt).

• Today: Fortesque, Zurich Insurance, Nestle, AXA, Booking, Copart, Intuit, MercadoLibre, EOG Resources, NU Holdings, Mercedes-Benz, Iberdrola, Pioneer Natural Resources, Danone, Anglo American, Wolters Kluwer, Rolls-Royce
• Friday: Allianz, Deutsche Telekom, BASF
• Saturday: Berkshire Hathaway

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