Global Market Quick Take: Europe – September 20 2023

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

Equities: US equity futures were weak yesterday dropping as much as 1% at the lows before bouncing back. Investors are weighing the signals from stronger oil prices and what it means for inflation and the signals from the Fed at tonight’s rate decision. Arm shares were down 5% in yesterday’s trading closing at a new low since the IPO. Instacart had a positive session yesterday on its first day of trading.

FX: The dollar trades a tad firmer ahead of today’s US CPI print with EURUSD still unable to hold gains above 1.07, AUD keeps getting rejected ahead of 0.65 GBP stays close to 1.24. USDJPY remained choppy, with yen defying gains despite more verbal intervention and threats of a coordinated yen intervention with the US. The offshore yuan was little changed after the PBoC repeated its threat to crack down on disruptive behaviour.

Commodities: Brent has taken a three-dollar tumble after reaching $96 on Tuesday with traders scaling back positions ahead of FOMC event risk, and with the market increasingly talking about $100 as the next target, the one-sided focus may trigger increased volatility. A softer gold market is also turning to FOMC for guidance after US yields were pushed higher due to hot Canadian inflation prints.

Fixed income: With some concerns arising about the rise in crude oil prices, trading in the Treasury market pushed the US 10-year yield to a new closing high for the cycle. The US 10-year yield is currently absorbing the move higher in oil prices. Tonight’s Fed language at the FOMC rate decision is a key event for the long end of the US yield curve.

Volatility: The VIX Index remains around the low 14 level as the market awaits tonight’s FOMC rate decision. Daily moves in the S&P 500 have not extended for the longest period since 2018. Significant US single stock options activity yesterday was observed in Nubank (puts buying) and SoFi Technology (calls buying).

Macro: Canadian inflation rose to 4.0% y/y from 3.3% y/y in July, faster than the 3.8% y/y expected amid base effects and fuel price gains. Deputy Governor Kozicki said that underlying inflation remains above a level consistent with the Bank of Canada achieving its target, and noted risks of doing both too much or too little. Markets now price about 50% probability of a hike from BOC in October

In the news:  Housing’s ‘Vicious Spiral’ drags Australia into deepening crisis full story on Bloomberg, China keeps benchmark rates unchanged as economy finds footing full story on Reuters. Europe is highly dependent on Chinese rare earth minerals for its green transformation – full story in the FT.

Technical analysis: S&P 500 resistance at 4,540 and support at 4,430. Nasdaq 100 key resistance at 15,561 and support at 15,138. EURUSD downtrend, strong support at 1.0635. USDJPY range bound 146-148. AUDJPY uptrend resist at 95.85. GBPUSD strong support at 1.23. WTI oil rejected at 93.48 resistance, expect correction to 87.58. Brent correction to 90.62

Macro events: UK Aug CPI exp. 7% YoY vs 6.8% prior and 0.7% MoM vs –0.4% prior (0600 GMT), FOMC Rate Decision (1800 GMT)

Earnings events: FedEx reports FY24 Q1 (ending 31 August) before the US market opens with analysts expecting revenue of $21.8bn down 5% y/y and EPS at $3.73 up 8% y/y.

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