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Global Market Quick Take: Europe – September 1, 2023
Saxo Strategy Team
Résumé: US and European equity futures trade higher along with Asian stocks ahead of Friday’s US job report after China provided additional support to its ailing economy. US Treasury yields extended their retreat from a 2007 high while the dollar trades higher, especially against the euro.
The Saxo Quick Take is a short, distilled opinion on financial markets with references to key news and events.
Equities: Cyclical sectors continue to outperform defensive sectors suggesting investors are not worried about a slowdown in the economy, and the S&P 500 futures still sit firmly above the 4,500 level. Hang Seng futures are bouncing a bit today after two down sessions. Samsung shares are up more than 6% as the company is the company will join as supplier of advanced memory chips to Nvidia.
FX: Month-end flows and EUR weakness driven by dovish ECB comments has driven the dollar higher with EURUSD hitting a 1.0835 low overnight. GBPUSD also sold-off but found support at 1.2650 with BOE chief economist Pill saying further hikes might not be necessary. PBoC’s announcement to cut RRR saw USDCNH break below 7.25 from 7.2750, while NZD and AUD rallied. USDJPY holds above 145 with focus on NFP jobs data
Commodities: Crude oil is heading for its best week since April as Russia plans to extend export cuts while Saudi Arabia is expected to roll over its 1m b/d cut to October. Demand worries also easing in China as the government rolls out additional measures to support the economy. Gold on watch ahead of US jobs report with focus on resistance at $1948. Copper breaks higher on China support with focus on 3.8725 next.
Fixed-income: The 10-year yield extended its retreat on Thursday and has now dropped 26 bps since hitting a 2007 high last month
Volatility: As the VIX continues to go down, now at 13.57, fear sentiment is going to its lows, helping risk-on sentiment, and opening the path to higher equity valuations. One such equity that got a boost yesterday was Canadian e-commerce platform Shopify, that saw an unusual high options activity, with volume up to 6 times as high as in the previous days and more than double the number of call options traded compared to put options, it clearly shows that traders are bullish on the news that Amazon's integration of "Buy with Prime" in Shopify will be good for its valuation.
Macro: China’s PBoC announced a cut to FX RRR from 6% to 4% from September 15 while the Caixin Mfg PMI surprised positively at 51 vs 49 exp and 49.2 prior. Little new information in US claims and July PCE data. Jobless claims 228k (exp 235k vs 232k prior) and core PCE +0.2% MoM, 4.2% YoY as expected. Both reaffirmed economy is cooling but not fast enough
In the news: DeepMind’s (Google’s AI unit) co-founder Suleyman is arguing that the US should use its power in semiconductors to enforce global standards on AI – full story in the FT. Broadcom guidance is weaker than expected on stiff competition and weak demand – full story on Reuters. Lululemon lifts guidance on strong growth in China – full story on CNBC.
Technical analysis: S&P 500. Rejected at resistance at 4,527. Expect set back. Support at 4,340.
Gold rejected at 1,947 resistance. Expect set back to 1,915 before uptrend resumes
US 10-y Treasury yields top and reversal pattern could correct to 4.10-4.00
Macro events: US Nonfarm Payrolls (Aug) est 170k vs 187k prior (1230 GMT)
Earnings events: No earnings today
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