Equities: New extremes and a challenging opportunity set
Discover insights on the future of equity markets in Q1 2024 and navigate the potential recession with strategic investment choices.
Summary: US equity futures trade higher after Thursday’s rebound on Wall Street extended into after-hours trading following a set of bumper results from tech giants. Meta saw a 14% after-hours surge with strong quarterly results, including a 25% YoY revenue growth, earnings beat, share buyback, and debut dividend. Amazon rose 7% post-Q4 results, while Apple dipped as outlook suggested weak iPhone sales. Supporting risk sentiment was a continued drop in US Treasury bonds on fresh banking concerns and after a surprise rise in initial jobless claims. Crude oil tanked as talks for Gaza ceasefire advanced while gold is testing $2055 resistance. Today’s overriding focus is on the US employment report.
The Saxo Quick Take is a short, distilled opinion on financial markets with references to key news and events.
Equities: US and European futures are pointing higher in early trading hours following a mixed session in Asia following strong earnings and outlook from Amazon and Meta, and better than expected January ISM Manufacturing figures yesterday showing the US manufacturing sector is seeing green shoots. Today’s key events are earnings from AbbVie, Chevron, and Exxon Mobil, and on macro market will get January Nonfarm Payrolls where the focus will be on hourly earnings. Apple earnings last night highlighted weakness in its Chinese market and a beat on revenue in the previous quarter, but investors reacted negatively the guidance for flat iPhone revenue in the current quarter.
FX: The dollar reversed lower on the back of an increase in jobless claims with the DXY index falling to 103 support with pressure potentially continuing ahead of NFP today. In EURUSD, a short-lived break below 1.08 helped catapult it back higher on short covering to the current 1.0880 level. GBPUSD also touched 1.2750, its first key resistance as indicated in our weekly G10 views, but a break of 1.28 may be needed to confirm an upside trend. AUD was the underperformer, even as it bounced higher from 0.6520 support.
Commodities: Gold is back to testing its key $2,055 resistance supported by a drop in the dollar and after US bank concerns and weaker jobless claims helped drive yields lower while raising the odds of a March rate cut. Crude oil suffered its biggest loss since November with the risk premium deflating amid talks for Gaza ceasefire. The negotiations are still in the early stages with plenty of risks still around, including a US response to the Jordan attacks. The JMMC meeting made no recommendation on oil output policy, with OPEC+ likely to revisit the current 2.2mn barrels/day voluntary cuts due to expire end of Q1 24 early March. Cocoa’s recent parabolic surge on Ivory Coast supply worries has taken the price near the 1977 record at $5010. Read this article to know more about commodity ETF flows for the month of January.
Fixed income: Higher-than-expected weekly jobless claims, low 4Q unit labor costs data, and fresh declines in US regional bank shares intensified the bond rally. Ten-year yields dropped to 3.81 before ending the day at 3.88%, and the yield curve bull-flattened. In Europe, Bunds and Gilts rallied as they digested the message of central banks. Despite policymakers rejecting the notion of an early start to rate cuts, markets are euphoric about the beginning of the rate-cutting cycle weighing heavily on duration. We expect bond markets to remain data point-driven and to trade rangebound until the cutting cycle begins. Today, the focus turns to nonfarm payrolls, ahead of next week’s US Treasury bond sale, which will see the biggest auction size for 10-year notes.
Macro: US jobless claims for the week of 27th Jan rose to 224k (prev. 215k), the highest level since early November and above the expected 212k. Continued claims were also higher than expected while the Challenger job cuts came in at -82K which was the most announced layoffs going back to March 2023. That triggered concerns around the health of the labor market and best for a March rate cut were increased again to over 40%. This article highlights the considerations for a Fed rate cut and how you can position for it in equities and SOFR contracts. ISM manufacturing came in stronger at 49.1 vs. 47.0 but remained in contraction. Focus shifts to non-farm payrolls today, and the market will likely remain very sensitive to any downside surprise. Read this article to know more. The Bank of England kept rates unchanged in a three-way split vote. There was a slight hawkish bent even though the prior guidance that “further tightening could be required” was removed. The Bank now expects inflation to reach its 2% target in Q2 2024 vs. previous view of Q4 2025, but Governor Bailey did not shed any light on the timing of the first rate cut and a data-dependent approach was emphasized. Eurozone CPI for January came in slightly above expectations at 2.8% YoY for the headline and 3.3% on the core vs. 2.9% and 3.4% previously respectively and 2.7% and 3.2% expected respectively.
Technical analysis highlights: Technical analysis highlights: S&P 500 still in uptrend but correction likely unfolding, support at 4,793. Nasdaq 100 correction unfolding support at 16,970. DAX rejected at 17K. Likely correction to 16,500. EURUSD bouncing from 100 DMA, could dip to 1.0730 key support. USDJPY closed below support at 146.65, could drop to 145 before resuming uptrend. EURJPY key support at 158.55. GBPUSD range bound 1.2610-1.2775. AUDUSD bouncing from key strong support at 0.6520. Gold rejected at strong resistance at 2,064 once again, if broken move to 2,121. WTI Crude oil strong resist at 79.77. Brent strong resist at 84.75. 10-year T-yields bouncing from previous low at 3.78.
Volatility: The VIX softened to $13.88 (-0.47 | -3.28%), offering the markets a reprieve and fostering a rebound from the prior day’s sell-off. Despite this, vigilance remains prudent as the SKEW index escalated above 160 (+9.87 | +6.57%), and the VIX1D outpaced the traditional VIX, signaling the possibility of more immediate volatility. This comes amidst a market recalibration following upbeat earnings reports and ahead of the Non-Farm Payrolls data release, which could inject additional fluctuations. Overnight, VIX futures dipped to $14.350 (-0.350 | -2.37%). Meanwhile, both S&P 500 and Nasdaq 100 futures experienced notable gains: 4955.00 (+26.50 | +0.54%) and 17598.75 (+162 | +0.93%), hinting at a potentially positive market open influenced by the latest economic indicators and corporate financials.
In the news: Gaza Cease-Fire Negotiations Advance as Israel-Hamas War Grinds On (Bloomberg), Peloton Tumbles After Predicting Another Sales Decline (Bloomberg), Bank losses revive fears over US commercial property market (FT), Powell Navigates ‘Toxic’ Politics of Rate Cuts as Election Nears (WSJ), Meta shares jump 14% after profit triples and company announces first-ever dividend (CNBC), Apple stock falls after company gives outlook suggesting weak iPhone sales (CNBC), Amazon profits rebound on strong holiday sales (WSJ).
Macro events (all times are GMT): US nonfarm payroll (Jan) exp. 185k vs 216k prior, Unemployment rate exp. 3.8% vs 3.7% prior, Average hourly earnings, exp. 0.3% & 4.1% vs 0.4% & 4.1% prior (all at 1230), Uni of Michigan sentiment (Jan), exp 78.9 vs 78.8 prior (1400), Weekly COT reports from CFTC and ICE (2000)
Earnings events: A busy earnings week is coming to end with earnings today from Keyence, ExxonMobil, AbbVie, Chevron, Regeneron Pharmaceuticals, and Bristol-Myers Squibb. ExxonMobil is expected to report revenue growth of -8% y/y and EPS of $2.22 down 35% from year ago as crude oil prices declined from Q4 2022 to Q4 2023.
For all macro, earnings, and dividend events check Saxo’s calendar
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