Global Market Quick Take: Europe – 13 December 2023

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

Equities: Wall Street witnessed another strong day on Tuesday with the S&P 500 up 0.5% while the Nasdaq 100 added 0.8% to reach a new high for the year. The VIX index, the so-called fear index slumped to an almost four-year low. Eight of the 11 S&P 500 sectors gained, while energy fell 1.4% amid a near 4% plunge in crude oil prices. Oracle plummeted 12.4% after reporting weaker-than-expected revenue. Broadcom surged 4.2% after a major investment bank called for a buy, citing AI tailwinds. Besides the FOMC, investors have their eyes on Adobe’s quarterly results, scheduled to release today for a gauge of the AI business landscape.

FX: The dollar trades a tad firmer in Asia as focus turns to the FOMC announcement today and whether any pushback to market’s rate cut pricing is likely. Japanese yen was the outperformer on Tuesday, with USDJPY dropping to 144.74 before rising back to 145.80. Other currencies were in smaller ranges except kiwi which plunged in Asia session on fund selling as dovish expectations picked up. NZDUSD is now testing 0.61 with AUDNZD back above 1.0750. EURUSD unable to break above 1.08 handle while GBPUSD trades mixed around 1.2550. USDCNH seeing upside risks as it gets closer to 7.20 with China seen to be skipping a big demand stimulus coming out of a key meeting.

Commodities: Crude oil plunged almost four dollars to its lowest level in five months on Tuesday with increased flows from Russia raising doubts about OPEC compliance. An upgrade to US production and rising US crude stocks at Cushing also weighing. OPEC, who very wrongly as it turned out, recently forecast a massive supply deficit will publish their monthly report later today. Gold’s premature FOMO rally at the beginning of the month and subsequent correction continues to haunt the market, now with the added pressure from traders scaling back 2024 rate cut expectations. Copper trades lower with the Chines Yuan amid disappointment China’s Central Economic Work Conference failed to announce fresh stimulus measures for 2024.

Fixed income: Despite a small surprise in the monthly headline US CPI data, markets were able to digest the Treasury’s 30-year bond sale discreetly well yesterday. Indirect and direct bidders demand increased markedly, and the auction stopped through by 0.3bps. Today, markets’ focus shifts to the FOMC meeting, where investors are interested to know whether the Fed is done hiking rates and how early it will begin to cut. Across the Atlantic, fears of a recession are taking hold of the UK, whose monthly GDP came well below expectations at –0.3%. That is likely to boost BOE interest rate cut expectations for 2024, with ten-year Gilt yields continuing their drop to 3.87%.

Macro: US November CPI was broadly in-line with expectations with only a minor beat on the headline MoM which rose 0.1% vs. expectations of remaining flat but YoY was 3.1% as expected. Core was in-line with expectations at 0.3% MoM and 4.0% YoY. A small number of categories drove bulk of the gains, and this print continues to put an emphasis on the end of the Fed’s rate hike cycle but a complete dovish turn still appears to be unlikely. UK’s wage growth missed expectations with payrolls turning negative at -13k for Nov from 39k previously and 5k expected. Wage growth came in below expectations as well, although still stuck in the 7% range. However, data serves as a reminder that BOE can cut sooner than expected. China concluded the Central Economic Work Conference, which set the agenda for economic policies in 2024 on Tuesday. Among other priorities, the conclave emphasized: 1) Developing new industries and business models through technological innovation, 2) Expanding domestic consumption and investment, 3) Deepening reforms, 4) Opening up the economy, 5)Preventing and resolving risks, including those in the property sector, local government debts, and small to medium-sized financial institutions, 6) Rural development, 7) Integration of cities and rural areas, 8) Green and low-carbon emissions, 9) Improving people’s livelihood. These priorities are essentially familiar rhetoric in recent years. Investors are likely to adopt a wait-and-see attitude pending further policy developments. Weaker than expected UK data: October GDP showed a 0.3% contraction (-0.1% expected). The trade deficit is also wider than anticipated, at £4.48 billion compared to the £2.15 billion expected. Industrial production fell by 0.8% in the monthly figures, much weaker than the 0.1% estimate. On a yearly basis, it rose by 0.4%, also behind the 1.1% growth expected. Manufacturing production fell by 1.1% month-on-month and construction output was down 0.5%. Again, both worse than forecast.

Technical analysis highlights: S&P 500 no resist until 4,818, support at 4,458. Nasdaq 100 uptrend eyeing 16.750, support at 15,744. DAX uptrend very stretched, support at 16,469. EURUSD bouncing from 1.0730 testing 1.0825, close above next is 1.10. USDJPY resistance at 147.50, still in downtrend. EURJPY strong resist at 157.70, support at 155.52. GBPUSD rejected at 1.2745, support at 1.2445. Gold testing 1,975 once again a close below could drop to 1,950-1,930. WTI Crude oil support at 67. Brent support at 71.93. 10-year T-yields could bounce to 4.35 resistance

In the news: China Puts Focus on Industrial Policy, Skips Big Demand Stimulus (Bloomberg), Global EV sales hit new record in November - Rho Motion (Reuters), Sweden Posts Sharp Home-Price Plunge as Rates Hit Global Markets (Bloomberg). Japan Large Manufacturer Sentiment Improves Ahead of BOJ Meeting (Bloomberg), Argentina devalues peso, cuts spending to treat fiscal deficit 'addiction' (Reuters), Firms more confident ahead of BOJ policy meeting, tankan shows (Japan Times)

Macro events (all times are GMT):  EZ Industrial Production (Oct) exp –0.3% & -4.6% vs –1.1% & -6.9% (0900), US PPI (Nov) exp 0.0% & 1% vs –0.5% & 1.3% (1230), OPEC’s Monthly Oil Market Report, EIA’s Weekly Crude and Fuel Stock Report (1430), FOMC Rate Decision (1800)

Earnings events: Key earnings releases today from Adobe

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