Global Market Quick Take: Europe – 19 January 2024

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

Equities: The Nasdaq 100 rallied 1.5% as optimism about the semiconductor and AI space rose following Taiwan Semiconductor Manufacturing Co beat estimates in its Q4 results and said it expected a return to solid growth and increase in capital spending. The company which is the main supplier of chips to Apple and Nvidia saw its ADR jump 10% during the US session, supporting a fresh record close for the Nasdaq. Lam Research and Qualcomm surged over 4% while Nvidia gained 1.9%. Apple added 3.3% on an analyst upgrade.

FX: Dollar followed the mixed trajectory of bonds amid the decline in jobless claims prompting a re-think of the Fed path while market remains firm in its expectations. AUDUSD failed the test of 0.66 as iron ore prices reversed trajectory in Asia today, and NZD also slumped to drop back below the 0.61 handle. Yen, meanwhile, continued to weaken. USDJPY rose to fresh highs of 148.72 as BOJ policy normalization hopes continue to fade ahead of the meeting next week. GBPUSD broke above 1.27 and retail sales data will be on watch today. EURUSD found support at 200DMA around 1.0850 and reversed higher to 1.0890.

Commodities: Crude oil prices rallied once again with Middle East tensions in focus and after US stockpiles showed a surprise drop as exports rebounded and harsh winter disrupted production. Base metals also had a strong day with copper rising from a two-month low with supply concerns in focus, even as expectations of further China stimulus were doused with comments from Chinese Premier, Li Qiang. Gold trades down on the week, driven by USD and economic data strength, but has managed to bounce after finding support near $2000 with silver also holding above its key support at $22.50.

Fixed income: Fixed income: The 10-year Treasury yield extended its rise by 4bps, reaching 4.14% after initial jobless claims unexpectedly fell to 187k, the lowest level since September 2022. The sign of a resilient labour market caused investors to pare somewhat expectations of the size and pace of the Fed’s rate cuts this year. The 10-year TIPS auction stopped through by 1bps awarding the lowest auction yield since July at 1.81%. Today the focus turns on the University of Michigan survey, particularly on inflation expectations. We continue to see the first cut coming this March, contributing to a bill steepening of the yield curve.

Macro: US jobless claims fell to 187k from 203k, coming in the lowest since Sept 2022 despite expectations of a rise to 207k. Continued claims, for the week prior, eased to 1.806mln from 1.832mln, despite expectations for an increase to 1.845mln. These numbers could question the assumption of over five Fed rate cuts priced in for this year. Fed’s Bostic urged caution on rate cuts amid geopolitical risks, but Harker said that he expects inflation to continue to slide towards target. The Philly Fed Business Index improved to -10.6 in January (prev. -12.8) easing some concerns from the NY Fed survey earlier this week but was still below expectations at -7.0. Internally, New Orders and Employment printed -17.9 (prev. -22.1) and -1.8 (prev. -2.5), respectively, with Capex Index rising to +7.5 (prev. -7.5) and Shipments lifting 5 points to -6.2. ECB minutes showed little support among members of the Governing Council for reducing interest rates before June. Japan’s inflation cooled in December but remained above target. Headline CPI rose 2.6% YoY, softer than 2.8% YoY in November but a notch above expectations. Other measures met expectations, with core at 2.3% YoY from 2.5% previously and core-core at 3.7% from 3.8% previously. UK December retail sales m/m dropped 3.2%, compared to a -0.5% estimate. On a yearly basis, sales fell 2.4%, compared to an estimate for a gain of 1.1%.

Volatility: Volatility dipped as the VIX closed at $14.13 (-0.66 | -4.46%), a decrease of 4.46%, amid gains in tech and AI sectors influenced by positive news from TSMC and an Apple upgrade. The SPX and NDX ended up by 0.88% and 1.47%, respectively. VIX futures are down this morning to 14.900 (-0.105 | -0.69%), aligning with slight increases in S&P 500 and Nasdaq futures: 4814 (+2.75 | +0.06%) and 17159 (+49 | +0.29%) respectively. Today's market is expected to be relatively quiet with no major economic reports or earnings releases anticipated. Investors may look ahead to next week's heavy earnings schedule, which includes MSFT, NFLX, J&J, PG, TSLA, and ASML.

• In the news: TSMC’s Outlook Backs Hopes for Global Tech Recovery in 2024 (Bloomberg)
• China unearths million-tonne lithium deposit, heating up global resource race as Thailand also boasts big find (SCMP)
• Private-equity investors to return to China in search of M&A deals in 2024, Bain & Co says (SCMP)
• Bitcoin Retreats to One-Month Low as ETF-Led Enthusiasm Wanes (Bloomberg)
• Apple gets a big upgrade from Bank of America, which calls for more than 20% upside ahead (CNBC)

Macro events (all times are GMT): Uni of Michigan Sentiment (Jan) exp 70.1 vs 69.7 prior, and expectations exp 67 vs 67.4 prior (1400)

Earnings events: Schlumberger, Travelers, State Street, Firth Third, Huntington, Regions Financial

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