Global Market Quick Take: Europe – November 3 2023

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

Equities: The ‘peak rates’ message from Powell on Wednesday lifted S&P 500 and Nasdaq 100 yesterday adding 1.9% and 1.7% respectively as the 10-year yield declined further. The gains were broad-based with all 11 sectors gaining, led by energy, real estate and financials. Tesla rallied 6% as the potential for lower interest rates is seen as boosting future demand. Starbucks soared 10% on upbeat sales forecasts. In the extended hours, Apple shares dropped 3% despite reporting revenue in line with estimates and earnings beat, as the revenue outlook for the current quarter at no change from last year is significantly lower than the 5% estimated by analysts.

FX: The dollar weakened against most currencies as Treasury yields continued to retreat following Wednesdays FOMC potential peak rate message. The Bloomberg Dollar Index trades down 0.5% on the week with gains being led by KRW, CHF, AUD and the euro, which trades back above 1.06 thereby staying within its established uptrend from the October 4 low. GBPUSD rose by about 0.3% to 1.22 after the BoE left policy rates unchanged. Lower US yields have weakened USDJPY to near 150 thereby leaving recently established longs stranded, so watch a potential break below 149.80 for further downside action.

Commodities: The sector trades near unchanged following a mixed weeks that has seen losses in energy, precious metals and grains being offset by gains in softs and not least industrial metals. Crude oil is heading for a second weekly drop as the Israel war remains contained while demand is weakening, gold is consolidating following last month's 200-dollar rally but with dollar weakness and lower US Treasury yields providing support. Copper heading for its highest close in four weeks, supported by falling stockpiles and China support measures.

Fixed income: bonds continued to rally yesterday as the Bank of England delivered a pause and the market positions for upcoming rate cuts in August 2024. However, the US yield curve twist flattened as two-year yield jumped back to around 5% from 4.91%, and 10-year yields continued to drop as low as 4.62%.  Today's focus is on the nonfarm payrolls. If they beat expectations on the downside, they could provoke a considerable drop in yields. If ten-year yields break and close below 4.51%, they will enter a downtrend that could take them to 4%.

Volatility: Volatility kept dropping yesterday, ending the VIX at $15.66, down -1.21 (-7.17%), sending stocks to rally. The VIX’s own volatility index, the VVIX, also continues to decline, ending at 83.24, down -1.84 (-2.16%). For the time being, it seems it’s risk-on. S&P 500 & Nasdaq rose 1.89% and 1.74% respectively. Short-term SPX option prices (0DTE and 3DTE) suggest that the market may be pausing after four consecutive green days, as put options at various strikes are two or more times more expensive than equidistant call options. This indicates that the market is less willing to pay for calls and more for puts, suggesting that a short-term pullback may be imminent. VIX futures are up marginally at 16.65 (+0.095), S&P 500 and Nasdaq futures down -0.08% and -0.28% respectively.

Technical analysis highlights: S&P 500 strong rebound, strong resistance at 4,400 but could run out of steam before. Nasdaq 100 above resistance at 14,781. DAX  resistance at 15,280. USDJPY could be range bound bound 152-148.80. Gold uptrend but expect correction possibly to 1,935. US 10-year T-yields bearish testing 4.60, Key support at 4.50

Macro: The Bank of England left rates unchanged at 5.25% as widely expected while keeping the wording of “monetary policy will need to be sufficiently restrictive for sufficiently long to return inflation to the 2% target sustainably in the medium term” with Governor Bailey saying that “it is much too early to be thinking about rate cuts” and the BoE “will be watching closely to see if further rate increases are needed.” GBPUSD bounced on the news despite UK Gilt yields retreated. The 10-year UK Gilt yield finished the session 12bps lower at 4.38%. US initial jobless claims rose to 217k from 212k the prior week versus the expectation of 210k. US unit labor costs decreased by 0.8% in Q3, versus the median forecast of +0.3% and sharply lower than the +3.2% in the prior quarter.

In the news: Sam Bankman-Fried found guilty in FTX crypto fraud case (CBSNews), BMW Q3 margins beat estimates on rising EV sales (Bloomberg), BlackRock says investors should set expectations for long-term interest rates at 5.5% (FT), BOJ plans to exit from easy policy next year but needs some good fortune (Reuters)

Macro events (all times are GMT):  UK Services PMI (Oct) exp 49.2 vs 49.2 prior (0930), US nonfarm payroll (Oct) exp 180k vs 336k prior, Unemployment rate at 3.8% vs 3.8% prior

Earnings events: Key earnings releases today come from Enbridge, Maersk, Societe Generale, BMW, Vonovia, and Intesa Sanpaolo. Our main focus is on Maersk expected to report before European markets open with analysts expecting revenue growth of -45% y/y driven by lower container freight rates and EBITDA $1.9bn down from $10.8bn.

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