Pls use this Quick Take EU 1142x160 Pls use this Quick Take EU 1142x160 Pls use this Quick Take EU 1142x160

Global Market Quick Take: Europe – November 1 2023

Macro 3 minutes to read
Saxo Be Invested
Saxo Strategy Team

Summary:  A cautious opening in Europe ahead of today’s Fed decision with US equity futures trading unchanged after rising for a second day on Tuesday, supported by a rally among the big banks and a Tesla bounce back. US Treasury yields remain firm, and near cycle highs after data pointed to a strong labor market while the dollar remains bid despite a JPY bounce amid intervention fears. The crude oil war premium has deflated as focus turns to seasonal demand weakness while gold trades softer on profit taking ahead of FOMC.

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

Equities: S&P 500 futures continued their bounce back yesterday closing above the 4,200 level. The earnings results from Caterpillar disappointed as the backlog of orders is clearly not growing any longer suggesting growth rates will come down in the future. AMD reported weaker than expected Q4 revenue outlook, but investors shrugged the bad news off as investors are seeing many of AMD’s markets will turn around over the coming quarters. Japanese equities are up almost 2.5% today as Toyota raised its outlook and increased buybacks pushing its shares up 6%, but Toyota also revised down its battery EV target for FY23 to 123,000 from 202,000 which could add to negative sentiment in Tesla shares.

FX: The Dollar trades broadly higher ahead of today’s Fed decision and against a broad basket of currencies it sits just 0.3% below the cycle high reached in early October. The main driver being the JPY which slumped following BOJ’s usual dovish note disappointing those waiting for normalization, USDJPY, not on intervention alert, reached 151.68 overnight while EURJPY broke above 160 for the first time since 2008. EURUSD lingers below 1.06 after disappointing GDP and a sharp drop in CPI hinted that the ECB tightening cycle has ended. AUDUSD is down as well amid China PMI miss but still finding support at 0.63.

Commodities: Crude oil slumped further on Tuesday, fully deflating the war premium as the focus turned to growth concerns and seasonal demand weakness. All the major oil and fuel futures suffered losses last month led by a near 9% slump in diesel. Gold trades lower for a third day on profit taking ahead of FOMC after the dollar rose and after data pointed to a strong US labor market. Next area of support around $1950. Copper was resilient despite the miss in China PMIs, supported by falling stockpiles. US gas prices surge to nine-month high on incoming cold snap while EU gas slumps below €50 on mild weather, strong winds and storage nearly full.

Fixed income: Treasury yields reversed higher on Tuesday, after a larger-than-expected increase in the Q3 employment cost index driven by a sharp rise in state and local government employee wages. The smaller-than-expected fall in the Conference Board consumer confidence index added further to the selling pressures on the long end of the curve. The OIS curve is pricing in almost zero probability of a rate hike at today’s FOMC and a 25% chance of an increase in the policy rate in December. In addition, the Treasury will announce the Quarterly Refunding of 3, 10 and 30-year auction sizes today.

Volatility: Volatility dropped 1.61 to $18.14 yesterday, well below the 20 dollar mark, pushing the stock market moderately higher, helped by mostly stronger-than-expected corporate earnings. The VVIX, the VIX's own volatility index, also declined sharply to 87.94 (-7.66%), indicating nervousness in the markets is cooling down, while waiting for the Fed rate decision later today. While the Fed is believed to keep its rates on hold, comments about further hikes later on and/or higher-for-longer rates will have impact on volatility. The CBOE SKEW-index (the out-the-money sibling of the VIX index) also declined to 128.21 (-1.92), the lowest level in the last 6 months, indicating the market foresees no big outlier moves at the moment. VIX futures had a near flat overnight session (+0.125 to 18.250), while S&P 500 & Nasdaq futures also had a nearly flat nightly session; -0.17% and -0.15% respectively.

Technical analysis highlights: S&P 500 support at 4,100, expect rebound. Nasdaq 100 downtrend but short-term rebound to 14,500. DAX bouncing from support at 14,675, resistance at 14,980. USDJPY resuming uptrend could move to 155, resistance at 152. Gold uptrend, but expect correction possibly to 1,935 but. WTI testing key support at 81.50. Brent broken support, next is 83.44. US 10-year T-yields range bound 4.80-5.02

Macro: Eurozone Q3 GDP growth fell into negative territory at -0.1% q/q from 0.2% previously, suggesting there may be a risk of a technical recession in H2. October CPI also came in below expectations, with headline at 2.9% y/y vs. 4.3% previously and 3.1% expected and core as expected at 4.2% y/y vs. 4.5% previously. Data is a clear sign that the ECB rate hike cycle may have ended. US consumer confidence dropped to 5-month lows as it came in at 102.6 for October, from 104.3 last month (above 100.5 expected). Both the present situation and expectations eased from September, but September data was revised higher. Data suggests US consumer is weakening but the pace remains modest.

In the news: Biden and Xi to meet in San Francisco in November, White House says (CBS), Japan Ramps Up Yen Intervention Warning After BOJ-Fueled Selloff (Bloomberg), Orsted reports $4bn in net income loss for the first nine months on mounting costs for offshore wind, existing US projects (Bloomberg).

Macro events (all times are GMT): US ADP Employment change (Oct) exp 150k vs 89k (1215), US ISM Manufacturing (Oct) exp 49 vs 49 (1400), US Treasury Quarterly Refunding (1230), EIA’s Weekly Crude and Fuel Stock Report (1530), FOMC Rate Decision (1800)

Earnings events: Key earnings reports today from Toyota, Mondelez, Qualcomm, Airbnb, CVS Health, Nutrien, Orsted, GSK, MercadoLibre, PayPal, Estee Lauder, DoorDash. Our focus is on PayPal given the lastest blowup in the payments industry from Adyen and Worldline. Another key focus is on Airbnb because of leisure activity being a good indicator on consumer confidence. Airbnb is expected tp Q3 earnings results after the US market close with analysts expecting revenue growth of 17% y/y and EBITDA $1.7bn up from $1.2bn a year ago.

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

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