Global Market Quick Take: Europe – October 26 2023

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

Equities: With yesterday’s big move in the US 10-year yield of 13 bps pushing the yield back above 4.95% equities sold off with the S&P 500 futures declining 1.4% closing just above the 4,200 level. This morning risk-off has continued with S&P 500 futures trading down at the 4,183 level. One driver seems to be the market recalibrating technology valuations amid rising real yields and that cycle could go on for a while. Meta reported Q3 earnings yesterday beating estimates, but investors were disappointed about the Q4 outlook with the revenue guidance range mid-point slightly below consensus estimates, Meta shares were down 3% in extended trading.

FX: Dollar extended gains with the run higher again in Treasury yields and a pickup in geopolitical worries. DXY still remains below 107 and US GDP data today could still bring further upside even as the positioning is stretched. USDCAD made its way above 1.38 despite higher oil prices and BOC keeping a hawkish bias. EURUSD testing 1.0540 and US GDP and ECB decision due today could bring it lower to test 1.05. USDJPY meanwhile is back above 150 printing fresh YTD highs of 150.48, raising intervention alert as noted in our FX note from today.

Commodities: Crude oil prices fell on Wednesday after the EIA reported a rise in stocks and soft demand, before surging on renewed Middle East concerns. The war premium will continue to ebb and flow with focus on whether Israel will start a ground operation inside Gaza. Gold trades higher towards $2k, once again defying rising yields and a stronger dollar as investors seeks shelter against the rising risk of a credit event caused by surging yields and market illiquidity. Copper closed lower and may be heading for a test of $3.55 support again despite China’s stimulus boost, suggesting it continues to fall short to lift sentiment.

Fixed income: The yield on US 10-year notes surged back towards 5% following hotter-than-expected US new home sales data with losses widened after a poorly received $52 billion 5-year auction heightened investors’ concerns about next week’s quarterly refunding (3-year notes, 10-year notes, and 30-year bonds) announcement. The yield of the current 2-year notes increased to 5.12%.

Volatility: While the VIX retreated for the last two days from a 7-month high, yesterday it rose back up to end at $20.19. Supported by its own volatility index (VVIX) going back above 100, markets continue to face elevated volatility and turmoil. S&P500 and Nasdaq futures also had a rough overnight session, declining -0.68% and -1.11% respectively, fueling the fear that the end is not yet in sight. Alphabet, Google’s parent, took a beating (-9.51%) after earnings. However, options volume signals that the market sees it as a buying opportunity, with considerable higher volume in calls compared to puts: 601,571 calls over 397,504 puts (P/C ratio 0.66). The Put/Call Open Interest (P/C OI) ratio of 0.80 is even more bullish than most other big tech companies.

Technical analysis highlights: S&P 500 below support at 4,195, can drop to 4,050. Nasdaq 100 downtrend likely to drop below 14K. DAX sliding lower, next support at 14,500. EURUSD resuming downtrend. USDJPY broken resistance at 150.16, next 152. Gold testing 1,985 resistance, still possible correction to 1,945-1,925. Copper once again bounced from key support at 354.50. US 10-year T-yields resuming uptrend, resistance at 5%

Macro: US new home sales surged 12.3% in September to 759k (prev. 676k), way above the expected 680k. Bank of Canada left rates unchanged at 5% as expected while it maintained guidance that it is prepared to hike rates further if needed and acknowledging that inflationary risks have increased. Germany IFO survey delivered a positive surprise, the IFO expectations index climbed to 84.7 from 83.1 in September. WSJ reported that Israel has agreed to delay its ground attack in Gaza in order for the US to assemble air defences to protect its troops in the Middle East, although Israeli PM later in a speech said that Israel is preparing for a ground invasion in Gaza, where the timing of such would be "reached by consensus" without giving further details; said Israel was doing everything possible to bring hostages home.

In the news: ECB’s Lagarde Says Fight Against Inflation Isn’t Over Yet (Bloomberg), U.S mortgage rates soar to highest in more than 23 years (Reuters), Israel Agrees to Delay Gaza Invasion to Allow U.S. to Prepare Defenses (WSJ), Trump ally Mike Johnson elected House speaker three weeks after McCarthy ouster (CNN), Japan's government is considering spending around $33 billion for payouts to low-income households and an income tax cut in a package of measures to cushion the blow to households from rising living costs (Reuters), Country Garden’s failure to pay interest on the note within a grace period that ended last week “constitutes an event of default,” according to a notice to holders from trustee (Bloomberg).

Macro events (all times are GMT): ECB Refinancing Rate exp 4.50% vs. 4.50% prior (1215), US GDP Advanced (Q3) exp 4.5% YoY vs. 2.1% prior (1230), EIA’s Weekly Natural Gas Storage Change (1430)

Earnings events: Amazon reports Q3 earnings today (aft-mkt) with analysts expecting revenue growth of 11.4% which will mark the third consecutive quarter of rising growth and EBITDA of $25.6bn up from $15bn a year ago driven by lower investments and cost cutting. Intel reports Q3 earnings today (aft-mkt) with analysts expecting revenue growth of -11.7% y/y, but the second consecutive quarter of revenue growth q/q as the personal computing market is stabilizing.

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