Global Market Quick Take: Europe – November 2 2023

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

Equities: Powell’s hint yesterday at the FOMC meeting lifted equities with S&P 500 futures gaining 1% to close at the 4,256 level. The positive sentiment in US equity futures has spilled over into the Asian session with Nikkei 225 and Hang Seng around 1% higher. Today’s equity session will focus on green transformation stocks after the rout in Orsted shares following widening write-downs related to its offshore wind turbine projects. In Europe this morning, Novo Nordisk has reported Q3 earnings results with revenue and EBIT beating estimates despite several upgrades to guidance. The Obesity Care segment revenue was DKK 12.3bn vs est. DKK 10.8bn, and Novo Nordisk lifts its free cash flow guidance. Apple reports later today (aft-mkt) and will be key for setting sentiment in the overall US equity market.

FX: While Powell tried to signal a hawkish hold, there was a sense that the Fed has come to an end of its rate hike cycle with little being read out of the strong Q3 GDP report or the blowout September jobs numbers. This saw the dollar weakening after Powell’s presser as Treasury yields slumped, and once again, AUD proved the most sensitive to the US yields. AUDUSD shot up above 50DMA at 0.6390 which has provided an upside barrier for over a month and broke above 0.64. Yen also recovered, with USDJPY back below 150.50 amid lower US yields and a ramp-up in verbal intervention. EUR recovered back above 1.0550 and is testing a break of 1.06. GBPUSD is the focus today as it moved towards 1.22 with BOE decision ahead. Vote split or language suggesting dovishness could bring a test of recent lows around 1.2070 again.

Commodities: Crude oil struggled to find direction with the Israel-Hamas overhang remaining but risks not accelerating rapidly, and the Fed’s less hawkish message supports a growth outlook while China’s economic numbers paint a less supportive picture for now. A rise in US crude inventories also weighed on sentiment. Gold gyrated around recent levels, surprisingly not finding a bid despite a run lower in dollar and Treasury yields as risks of a credit event possibly pared with the Fed message sounding less hawkish.

Fixed income: Treasury yields fell initially after a larger-than-expected decrease in the ISM manufacturing index, which exhibited a weak underlying composition, and a smaller-than-expected job gain in the ADP report. The market rallied further following the Treasury's announcement of $112 billion in supply for the next week, comprising $48 billion in 3-year notes, $40 billion in 10-year notes, and $24 billion in 30-year bonds. This supply was below the expected $114 billion. After the Fed left rates unchanged and noted "tighter financial and credit conditions" in its statement, Treasury yields fell even further. The word "financial" was newly added, as the previous language only mentioned "credit conditions." The 2-year yield declined by 14 basis points to 4.94%, while the 5-year and 10-year yields dropped sharply by 20 basis points to 4.65% and 4.73%, respectively.

Volatility: VIX ended at $16.87, down -1.27 (-7.00%), the third consecutive day of steep decline in volatility. Bonds raised, yields fell, Fed left rates unchanged, fear subsided, VIX/volatility took a nose-dive, stocks rose: that’s a short summary of yesterday’s events. Just as implied volatility drops after a company’s earnings release, VIX dropped after Powell’s press conference, sending stocks higher. VIX Volatility (VVIX) also continued its decline ending the session at 85.08 (-2.86) and returned to the level it was at, earlier this year (Q2), which suggests that market nervousness is currently back under control. VIX futures remained flat during the overnight session at $17.30, S&P 500 and Nasdaq futures had a slight increase, +0.21% and +0.17% respectively.

Technical analysis highlights: S&P 500 closed below 200 Moving Average, resistance at 4,260. Nasdaq 100 resistance at 14,781. DAX bouncing from support, resistance at 14,980. USDJPY ran out of steam just below 152 but uptrend intact, downtrend if break below 148.80. Gold uptrend but expect correction possibly to 1,935. WTI testing key support at 81.50. Brent broken support, next is 83.44. US 10-year T-yields bearish testing 4.70, could drop to 4.62. Key support at 4.50

Macro: The Fed left rates unchanged at 5.25-5.50%, in line with expectations and market pricing while there were only slight changes to the FOMC statement and the door for further rate hikes was left open. Growth expectation was changed from ‘solid’ to ‘strong’ and there was some acknowledgement of higher longer-end yields, with tighter financial conditions mentioned alongside tighter credit conditions. However, Powell was clear that the Fed was not thinking about rate cuts yet. US ADP private payrolls rose by 113k in October, less than the 150k expected by the consensus. Job openings increased 56k to 9.55m from a downwardly revised August, though were a little above the 9.4mn expected. The ratio of job openings to unemployed was steady at 1.5, well down form the peak of 2 but remaining above pre-pandemic levels near 1.2. In contrast, the quits rate held steady at 2.3%, in line with pre-pandemic levels, and the hiring rate held at 3.7%, a little below its 2019 average. Labor market loosening trends remain slow. US ISM manufacturing fell to 46.7, coming in below the expected and prior 49. Looking at the internals, new orders fell to 45.5 (prev. 49.2) while employment declined back into contractionary territory at 46.8 from 51.2. Prices rose to 45.1 from 43.8.

In the news: FOMC statement, Treasury quarterly refunding announcement, Nick Timiraos - Fed Extends Pause on Rate Hikes but Keeps Door Open to Moving Higher (WSJ),Japan’s Kishida Announces Stimulus Package as Support Sags (Bloomberg), ‍Orsted hit by up to $5.6 billion impairment on halted US projects (Reuters).

Macro events (all times are GMT): BoE (1200) and Norges Bank (0900) Policy Announcements, EZ Final Manufacturing PMI (Oct) exp 43 vs. 43 prior (0900), US jobless claims exp 210k vs. 210k prior (1230), US Factory Orders (Sep) exp 2.3% MoM vs. 1.2% prior (1400), EIA’s Weekly Natural Gas Storage Change (1430)

Earnings events: Big earnings day with the important earnings releases coming from Apple, Novo Nordisk, Cigna, S&P Global, Booking, Stryker, Eli Lilly, Shell, ConocoPhillips, Starbucks, Regeneron Pharmaceuticals, Shopify, ING Groep, Ferrari, Fortinet, Palantir, Block, Cloudflare, and Coinbase. Our key focus is Apple reporting FY23 Q4 (ending 30 Sep) earnings after the US market close with analysts expecting revenue growth of -1%, but a healthy rise in EBITDA to $29.7bn from $27.8bn a year ago.

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