Global Market Quick Take: Europe – September 12 2023

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

Equities: The Nasdaq 100 index led US stocks higher on Monday with Tesla jumping 10% after Morgan Stanley upgraded the stock. Key events in equities this week to watch are Arm IPO (Wednesday), Adobe earnings (Thursday), ECB rate decision (Thursday). The US inflation report on Wednesday is also a potential market mover if inflation surprises to the upside.

FX: The retreat of the US dollar brought strong gains across the G10 board although dollar gains came back slowly overnight. The Japanese yen saw strong gains on the back of weekend Ueda comments that brought forward expectations of policy normalization. USDJPY dropped to lows of 145.91, coinciding with fresh recent peaks in JGB yields, before a rebound back to 146.50+ levels as US CPI is awaited. Yuan also strengthened with USDCNH briefly dropping below 7.30 from highs of 7.36+ amid verbal warnings from authorities, better-than-expected credit data as well as the continued appreciation bias in PBoC’s daily fixings.

Commodities: Crude extended its rally on Monday as the dollar softened, and the fuel sector recorded strong gains amid continued tightness. Focus on monthly oil market reports from OPEC and EIA with gains being led by the fuel products. Strong performance in metals led by iron ore up 3.5% and copper up close to 2.5% with China credit data and a stronger yuan boosting sentiment. Gold trades in a tight range between the 200- and 50-day moving averages with moves in the dollar and yields the focus ahead of US CPI on Wednesday. Finally, a harvest pressured grains sector awaits a monthly supply and demand report from the US government.

Fixed-income: This week, the bond market will focus on inflation data, US Treasury auctions, and the ECB rate decision. Yesterday’s 3-year Treasury note sale attracted little demand, with indirect bidders falling to the lowest since October 2022. The auction tailed by one basis point for the first time since June as investors expect the Federal Reserve to keep rates higher for longer. Today, the Treasury will sell $35 billion 10-notes. Overall, we remain cautious, favoring the front part of the yield curve over a long duration. Bonds will gain as the economy starts to show signs of deceleration. Still, larger coupon auction sizes and a hawkish BOJ will support long-term yields unless a tail event materializes. We still see 10-year yields rising further to test strong resistance at 4.5%.

Volatility: Options volumes on Tesla have been exceptionally high over the last 2 trading days. With volumes of over 3 million option contracts per day it’s almost double of the normal volumes, while the implied volatility of Tesla is also rising, building up towards its earnings release next month. The broader market saw another day of decline in the VIX, currently at 13.80, and the VIX futures having touched their lowest since January 2020.

Macro: US NY Fed inflation expectations rose higher for one-year to 3.6% from 3.5%, while the long-term five-year also rose 0.1ppt to 3.0% from 2.9%. However, the three-year expectations dipped to 3.8% from 3.9%.

In the news: China’s PBoC asks banks to get approval for dollar purchases over USD50 million (Reuters), EU Commission cuts euro zone growth forecast as Germany in recession (Reuters), Representatives from eight core member institutions of the China National Forex Market Self-regulatory Mechanism met on Monday to discuss about maintaining the stability of the renminbi (Xinhua), Strong demand pushes Arm to close IPO order book early (FT), Qualcomm strikes new Apple deal on 5G chips (FT), US and Vietnam unveil billions in semiconductor and AI deals (FT)

Technical analysis: The author is away

Macro events: UK jobs report (Aug) est. 30k vs 97k prior (0600 GMT), Ger ZEW Survey (Sep) est –15 vs -12.3 prior (0900 GMT), US 10-year T-note auction ($35 billion)

Commodities events:  EIA’s Short-term Energy Outlook (1600 GMT), USDA’s World Agriculture Supply and Demand Estimates (1600 GMT), OPEC’s Monthly Oil Market Report (During the day), API’s Weekly Crude and Fuel Stock Report

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