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Global Market Quick Take: Europe – September 29 2023
Saxo Strategy Team
Résumé: US and European equity futures followed Asian stocks higher into Friday’s session following a bruising month that saw steep declines being driven by surging long-end bond yields and the Fed’s higher for longer message. US income and spending data as well as PCE inflation data will likely set the tone ahead of the weekend and month end. US Treasury yields slipped from a 16-year high while the dollar trades softer against most of its G10 peers.
The Saxo Quick Take is a short, distilled opinion on financial markets with references to key news and events.
Equities: S&P 500 futures are bouncing back after two weeks of downward pressure with the index futures trading around the 4,344 level in early trading. Nike earnings results after the US market call lifted sentiment (shares were up 7% in aft-mkt) as the outlook on gross margin and revenue growth were better than feared by analysts.
FX: Dollar eased slightly with Treasury yields reversing from the peak, but the DXY index remained above 106. AUDUSD rallied over 0.64 and extended gains to 0.6450 with RBA meeting next week on the radar. EURUSD also bounced after finding support near the January low at 1.0484 with EZ yields remaining firmer despite the softer German inflation and recaptured 1.0580. USDJPY eased yesterday but upside pressures towards 149.50 returned in Asia and BOJ announced bond buying to cap yields
Commodities: Oil prices eased ahead of month end after WTI ran into resistance around $95 and speculation Saudi Arabia will start restoring output sooner than expected amid the current tightness leading to a disorderly market. Gold came under further pressure, with $1850 the next important level, while copper rose ahead of Golden Week Holiday, supported by a rally in zinc and a stronger Yuan. A harvest and ample supply pressured crop market look towards USDA’s quarterly stock report today for guidance.
Fixed Income: The Federal Reserve’s higher-for-longer message reverberates though higher long-term US Treasury yields. Unless there is a sign that the job market is weakening significantly, or that the economy is slowing down quickly, long-term yields will continue to soar. With 10-year yields breaking above 4.5% and selling pressure continuing to mount through an increase in coupon supply, quantitative tightening and less foreign investors demand, it’s not unlikely to see yields to continue to rise towards 5% until something breaks. Yesterday’s 7-year notes auction received weak demand despite offering the highest auction yield for that tenor record. It shows that the market is still expecting the yield curve to bear steepen. In Europe, Bund yields are approaching 3%, and the BTP/Bund spread widens. Our attention turns to today’s PCE deflator. Overall, we continue to favour short-term maturities and quality on both sides of the Atlantic.
Volatility: The CBOE Volatility Index fell for a second day as the underlying SPX index gained 0.6% to close around 4300. The index closed at 17.34% down from a four-month high of 19.7% earlier in the week.
Macro: Final US Q2 GDP was unrevised at 2.1% but consumer spending was revised sharply lower to 0.8% from 1.7% and reflective of the deterioration in the state of the consumer that could start to be a bigger concern going into Q4. Initial jobless claims at 204k vs 215k expected yet again signalling that the pace of cooling in the labor market is very modest. Fed’s Goolsbee (voter) was rather dovish, noting that inflation could reach target soon without further policy tightening. Japan’s Tokyo CPI was higher than expected on the headline print, coming in at 2.8% YoY vs. 2.7% expected but cooling from 2.9% prior. Core and core-core measures were softer than expected, creating little urgency for the BOJ to remove its massive stimulus.
In the news: Accelerated slump in global container shipping rates (X), Wheat Set for Worst Quarterly Run in 14 Years on Ample Supply (Bloomberg), US, China talks gather momentum, paving way for Xi-Biden Summit- WSJ via Reuters. Nike jumps as inventory glut eases, profit beats estimates (Bloomberg).
Technical analysis: S&P 500 downtrend support at 4,200. Nasdaq 100 support at 14,254. DAX downtrend support at 14,933, expect short-term rebound to 15,500. EURUSD could rebound to 1.0660. GBPUSD rebounding, could move to 1.2350, still downtrend to 1.2012. USDJPY uptrend stretched but could reach 150. Gold is in downtrend expect minor rebound, support at 1,800. Crude oil in uptrends Brent resist at 99.45, WTI above 93.74.
Macro events: UK GDP (2Q) exp 0.4% YoY vs 0.4% prior (0600 GMT), Ger Unemployment Change (Sep) exp. 15k vs 18k prior, Eurozone CPI (Sep) exp YoY 4.5% vs 5.2% prior, core YoY 4.8% vs 5.3% prior (0900 GMT), US Personal Income and Spending (Aug), exp 0.4% vs 0.2% and 0.5% vs 0.8% (1230 GMT), US PCE Deflator (Aug) exp 3.5% YoY vs 3.3% prior and core at 3.9% vs 4.2% prior (1230GMT), U. of Michigan Sentiment (Sep) exp 67.7 vs 67.7 prior (1400 GMT), USDA Quarterly Grain and Soybean Stock Report (1600 GMT)
Earnings events: No important earnings releases today.
For all macro, earnings, and dividend events check Saxo’s calendar.