Global Market Quick Take: Europe – 7 May 2024

Key points:

• Equities: Sentiment remains positive, Palantir and Infineon earnings disappoint
• Forex: AUD drops after RBA turned neutral
• Commodities: Shallow correction being replaced by strong bounce
• Fixed Income: Focus on the $58 billion 3-year note auction.
• Economic data: Eurozone retail sales, Germany factory orders

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

Equities: Sentiment remains positive in global equities with Japanese equities up 1.8% as USDJPY continues to rebound. US and European equity futures are pointing higher with Stoxx 50 futures up 0.3%. The macro calendar is thin today, so we expect a volatility session. In the European pre-market Infineon Technologies is disappointing investors with a cut to FY24 (ending 30 September) revenue as the slump in electric vehicles demand is negatively impacting demand, shares are down 2% in pre-market. UBS shares are up 3% in pre-market trading on significant beat on earnings and net revenue pushing the ROTE to 9% vs est. 3% in addition to management seeing additional $1.5bn in cost savings by the end of 2024. Palantir shares declined 8% in extended trading despite Q1 results beating on revenue and earnings as the raised guidance for FY24 revenue to $2.68-2.69bn did not impress investors.

FX: The US dollar traded sideways on Monday after ending lower for a second consecutive week. This week is light on macro data and focus will likely remain on earnings and geopolitics. JPY was back in focus with intervention seemingly out of the way, and USDJPY traded back higher to 154.50 as FX Chief Kanda said that intervention may not be necessary if markets are orderly. This came after remarks from Janet Yellen over the weekend saying that they would expect interventions to be rare and consultation to take place. USDJPY faces a test of the 21DMA at 154.60. AUDUSD plunged on RBA not meeting the market’s high hawkish bar, but the 0.66 handle provided support. USDCNH traded back above 7.21 with CNY midpoint fixing back above 7.10 today, suggesting that Chinese authorities remain inclined towards a measured yuan weakness as yen slides again.

Commodities: A near perfect and as it turned out shallow 38.2 Fibo retracement in the BCOM TR index last week was enough to attract fresh demand with all sectors except softs having recorded broad gains since then. Speculator short covering continues in grains as wheat trades higher on volatile weather in Russia, while flooding in southern Brazil threatens soy and corn crop losses. In addition, geopolitics are back to support higher crude oil prices after Israel rejected a ceasefire proposal for Gaza Strip that was accepted by Hamas. Demand outlook remains supported by expectations of Fed’s rate cuts and focus today will be on the EIA outlook report. Base metals pushed higher amid the better risk-on tone across markets, with copper recovering from last week's mini correction as China markets reopened, and together with a recovering gold on fresh rate cut expectations, silver is allowed to shine, trading up +3% since Friday.

Fixed income: Yesterday's trading day saw subdued activity due to European holidays, yet sovereign bond yields edged slightly lower. Bond futures are still pricing in expectations for 75bps rate cuts in Europe and 44bps rate cuts in the U.S. by year-end. Comments from Fed's Williams and Barkin had little impact on markets, while the focus shifted on supply with the US Treasury selling $125 billion in 3-, 10-, and 30-year notes starting from today. We expect solid demand at the 3- and 10-year auctions but remain wary of the 30-year sale on Thursday. For more information on the upcoming US Treasury auction and their expected market impact, click here. The SLOOS confirmed tight lending standards, and demand for loans saw a slight decline. Looking ahead, attention turns to key data releases and ECB officials, with UK Gilts reopening after a holiday.

Technical analysis highlights: S&P500 Bullish trend . Nasdaq 100 above key resist at 17,808, uptrend. DAX testing key resistance at 18,192. A close above then uptrend EURUSD spike to just above 1.08 only to collapse, correction likely to be over.  GBPUSD spiked to 0.786 retracement at 1.2622, likely to slide back towards 1.07. USDJPY rebound potential to 157. EURJPY rebound potential to 168.75 . AUDUSD rejected at  strong resist at 0.6650 likely setback to 0.65. USDCHF bouncing from support at 0.90 Gold seems to have strong support around 2,280. US 10-year T-yield spiked below 4.47 support but closed above, close below next support at 4.34.

Volatility: Volatility, as indicated by the VIX, remained static from the previous day, closing at $13.49 (±0.00 | ±0.00%). The VVIX and SKEW, indices that help gauge market nervousness, showed decreases, suggesting that market anxiety is lessening. As investor fears abate, and with minimal economic news on the horizon to disrupt the calm, the markets experienced significant gains. Anticipated earnings from notable companies such as Disney, Arista Networks, Datadog, and Electronic Arts could prompt price movements later today. Overnight, VIX futures along with S&P 500 and Nasdaq 100 futures showed little change. Yesterday's most traded stock options, in order: Tesla, Palantir Technologies, NVIDIA, Apple, Advanced Micro Devices, Amazon, Marathon Digital Holdings, Meta Platforms, AMC Entertainment, and GameStop.

Macro: Fed speakers were on the wires. NY Fed President Williams said that "eventually" there will be rate cuts, but noted that the economy is still healthy, while it is growing more slowly. Richmond Fed President Thomas Barkin said that inflation data this year is "disappointing...job is not yet done"; he is confident that the current restrictive level of rates can curb demand enough to bring inflation to target, one again reiterating high for longer, not higher for longer. The Reserve Bank of Australia (RBA) left the cash rate unchanged at 4.35%, as expected. The market had set a high hawkish bar for the central bank, with pricing suggesting significant odds of a rate hike this year. As anticipated, the RBA did not meet this high bar, leaving the door open for both rate hikes and rate cuts without showing any significant concern over the recent uptick in Q1 inflation.

In the news: Apple Is Developing AI Chips for Data Centers, Seeking Edge in Arms Race (WSJ), Israel Says a Cease-Fire Plan Backed by Hamas Falls Far Short (Bloomberg), US banks report weaker loan demand, Fed survey says (Reuters), ‘Twist’ in Warren Buffett’s succession plan raises eyebrows among Berkshire’s Omaha faithful (CNBC), Global trade growth set to more than double this year (FT).

Macro events (all times are GMT):  Germany Factory Orders (Mar) exp 0.4% MoM vs 0.2% prior (0600), UK Construction PMI (Apr) exp 50.4 vs 50.25 prior (0830), Eurozone Retail Sales (Mar) exp. 0.7% vs –0.5% prior (0900), EIA’s Short-term Energy Outlook (1600), API’s Weekly Crude and Fuel Stock Report (2000)

Earnings events: Important day on earnings with many key earnings across Europe from UBS, BP, Ferrari, UniCredit, and Infineon Technologies. Later in the US session, the market will focus on Walt Disney earnings expected to show that free cash flow generation is finally coming back to levels seen before the pandemic.

• Today: UBS Group, Siemens Healtineers, Nintendo, BP, Duke Energy, Arista Networks, McKesson, Walt Disney, Ferrari, TransDigm, UniCredit, Suncor Energy, Coloplast, Sampo, Infineon Technologies, Leonardo, Geberit, Datadog, Coupang, Rockwell Automation
• Wednesday: Itochu, Toyota, BMW, Airbnb, Uber Technologies, Anheuser-Busch InBev, Shopify, Emerson Electric, Verbund, Munich Re, ARM
• Thursday: Enel, SoftBank, Brookfield, 3i Group
• Friday: NTT, Honda, KDDI, Tokyo Electron, Enbridge, Li Auto