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Global Market Quick Take: Europe – 17 January 2024

Macro 3 minutes to read
Saxo Be Invested
Saxo Strategy Team

Summary:  Risk aversion has ramped up as the dollar jumps with US and EU stock futures extended Tuesday’s losses after Fed’s Wallers pushed back against the markets aggressive rate cut expectations. His comments sent bond yields and the dollar higher while lowering the prospect for a March cut. The stock market selloff deepened in Asia overnight, with the Hang Seng down around 4% after China data showed a worsening slump in housing and listless domestic demand. Gold has returned to challenge key support; crude oil remains stuck while Robusta coffee hit a record on tight supply. Focus on eurozone’s CPI numbers, and later in the day on US retail sales, industrial production and the import price index as well as US earnings


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

Equities: US equity futures trade softer after Tuesday’s rate cut comments from Fed’s Waller drove bond yields higher while lowering the prospect for a March cut, and after weak Chinese economic data helped sent Asian stocks lower overnight. The S&P 500 shed 0.4% to 4,766 with 10 of its 11 sectors losing except information technology. The Nasdaq 100 was flat, closing at 16,831, supported by strength in semiconductor names on positive analyst reports. Nvidia surged 3.1% to $563.82, reaching a new high. Meanwhile, AMD jumped 8.3%. In US earnings, Morgan Stanley slid amid a warning on lower margins in wealth, while Goldman Sachs Group Inc. rose as profit beat estimates. Boeing Co. sank on an analyst downgrade. Apple Inc. slipped as the US Supreme Court refused to consider its appeal in an antitrust suit challenging the App Store.

FX: The dollar extended its recent run of gains in Asia, with the dollar index reaching a fresh one-month high, breaking above the 200DMA at 103.45 with Treasuries falling as markets re-assessed the aggressive rate cut pricing for this year after a pushback from Waller as well as a host of ECB officials. Aussie was the weakest of the majors, with AUDUSD breaking the 0.66 handle and moving below the 200DMA at 0.6583. Yen also suffered on the back of higher Treasury yields, with USDJPY breaking higher towards 148. EURUSD pushed below the 1.09 mark despite the ECB pushback on rate cut pricing, while GBP was hit by wage data with CPI data eyed today as pair tests the 50DMA and 1.26 handle.

Commodities: A stronger dollar in response to the Fed pushing back against current aggressive rate cut pricing and weak economic data out of China helped pull commodities lower. Gold is once again challenging key support in the 2010-15 area, copper continues to find support amid China stimulus hopes, while crude oil remains stuck with demand concerns being offset by current Mideast tensions. OPEC will publish its monthly oil market report later today. US natural gas plunged the most in 10 months as current cold weather support look set to pass soon. Coffee prices meanwhile went in the opposite direction with Robusta reaching a record high as producers in Vietnam hoard beans in anticipation of even higher selling prices.

Fixed income: After first reacting to weakness in European government bonds during Asian and European hours, Treasury yields extended their rises in the U.S. session on hawkish comments from Fed Governor Waller, who said rate cuts don’t have to be “rushed”. To weigh on bond markets this morning, UK inflation data are showing a rebound in headline and core inflation.  The focus turns onto the eurozone’s CPI numbers, and later in the day on US retail sales, industrial production and the import price index which will be released ahead of a 20-year US Treasury bond auction.

Macro: Fed Governor Waller reaffirmed that the Fed could start cutting rates this year, but he pushed back on market’s aggressive pricing. He said that the central bank should be methodical and careful when lowering rates as there could be concerns around the sustainability of data such as low inflation with strong growth and low unemployment. He did not comment specifically on the possibility of a March rate cut and continued to emphasize a data-dependent approach. He also did not sound like he was in a big rush to taper QT. The NY Fed manufacturing survey saw a sharp deterioration. Headline manufacturing business conditions fell to -43.7 from -14.5, much deeper than the forecast of -5, driven primarily by a huge decline in New Orders and Shipments. New Orders fell to -49.4 from -11.3, while Shipments dropped to -31.3 from -6.4. UK labor and wage data cooled more than expected. Private sector regular pay growth – which removes the volatile bonus category – now sits at 6.5%, down from a peak of over 8% last summer. German January ZEW survey saw economic sentiment a notch higher than expected at 15 vs. 12 expected. But more ECB speakers pushed back on rate cut expectations. ECB’s Villeroy said it was too early to declare victory over inflation, while Simkus said that he is far less optimistic than the market on rate cuts. Meanwhile, Muller said that market expectations for 2024 ECB rate cuts are aggressive and wage growth is not in line with inflation target. The Hang Seng Index plunged amid weak Chinese data and President Xi’s reiteration of tightening the Party’s control over China’s financial sector with supervision that has 'teeth'´ China’s Q4, as well as the full-year GDP for 2003, grew by 5.2%. Industrial production increased by 6.8% Y/Y in December, slightly above the estimate and November’s 6.6%. However, retail slowed more than expected to 7.4% Y/Y from 10.1%

Volatility: The VIX rose yesterday to $13.84 (+0.59 | +4.45%) caused by a rising yield on the 10-year Treasury (to 4.06%), signaling heightened market caution. The S&P 500 dipped 0.4% while a resilient tech sector kept the Nasdaq 100 flat. VIX futures edged higher to $15.15m (+0.160 | +1.08%), pressuring S&P and Nasdaq futures down during their nightly session to 4776.50 (-22.50 | -0.45%) and 16840 (-125 | -0.74%), respectively. Eyes now turn to today’s retail sales numbers and earnings from Charles Schwab and US Bancorp for further market direction.

In the news: China Weighs More Stimulus With $139 Billion of Special Bonds (Bloomberg), Trump faces tougher test in New Hampshire after blowout Iowa win (Reuters), Goldman and Morgan Stanley report lowest profits in 4 years (FT), Morgan Stanley revenue tops estimates, but CEO warns of geopolitical, economic risks ahead (CNBC), China misses fourth-quarter GDP estimates (CNBC)

Macro events (all times are GMT): UK CPI (Dec) exp 0.2% & 3.8% vs –0.2% & 3.9% prior (0600), UK Retail price index (Dec) exp 0.4% & 5.1% vs –0.1% & 5.3% prior, US Retail Sales (Dec) exp. 0.4% vs 0.3% prior (1230), US IP (Dec) exp –0.1% vs 0.2% prior (1315), US NAHB (Jan) exp 39  vs 37 prior (1400). During the day OPEC’s Monthly Oil Market Report, API’s weekly crude and fuel stock report (2030)

Earnings events: Charles Schwab, US Bancorp, Citizen Financials, Prologis, Kinder Morgan, Discover

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

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