Global Market Quick Take: Europe – 22 March 2024

Key points:

• Markets retreat: US equities pull back from all-time highs after strong US data.
  
  
• Central bank surprises: Swiss National Bank cut rates starting the global rate cut cycle. Bank of England left rates unchanged but signaled a dovish shift.
  
  
• Mixed bag in commodities: Oil pressured by dollar strength and gold retreated after a spike above $2,200.
  
  
• Equity movers: Reddit soared in its IPO yesterday, while Nike and Lululemon shares fell on cautious outlooks, FedEx rose on strong earnings.
  
  
• Technicals watch: Key reversal patterns formed in major indices, support and resistance levels to watch in currency pairs.

Equities: Equity futures globally are down in early trading hours retreating from yesterday’s strong upward move taking US equities to a new all-time high. Strong US macroeconomic data lifted sentiment and extended Nasdaq 100 futures above the 18,500 level. Reddit had its first day of trading yesterday gaining 48% taking the market value to $8bn (around 10 times revenue). Nike shares were down 5% in extended trading on as the CFO said it expected revenue to be down low single digits in the first half. FedEx shares gained 10% in extended trading on more buybacks, more restrained CAPEX spending and an earnings outlook that beat expectations. Lululemon shares were down 11% in extended trading following a cautious outlook and new challenges in its US market.

FX: The dollar saw a sharp rebound, and the DXY index rose back above the 104 level in Asia, as a neutral Powell started to look hawkish amid a dovish wave coming from other central banks such as SNB and BOE. Strong US data also underpinned, signalling that the Fed may be able to engineer a soft landing. SNB’s surprise rate cut saw USDCHF breaking above 0.89 and reaching straight for the 0.90 handle with highs seen at 0.8995 for now while EURCHF retreated slightly to 0.9740 from highs of 0.9788. The SNB rate cut will kickstart a global easing cycle, and more downside for CHFJPY is likely. GBPUSD also pushed back below the 1.27 handle as BOE vote split tilted dovish, but 100DMA around 1.2640 is offering support for now. USDCNH rose sharply to 7.26 as PBOC yuan fixing came out much weaker than expected. Chinese authorities continue to be threatened by yen weakness given their competitive export markets. USDJPY saw a move below 151 in Asia session on Thursday but has returned higher to 151.60 amid dollar strength. EURUSD slid below 1.0840, reversing the post-FOMC gains. 

Commodities: Crude oil prices are under some pressure due to the strong dollar, but Brent Crude remains above $85/brl as rate outlook and supply tightness concerns continued to underpin prices. Gold briefly spiked above $2,200/oz yesterday but is coming down in today’s session trading around the $2,167 level. The expectation of central banks starting to cut policy rates later this year will continue to underpin gold. Iron ore continued to recover from the recent rout, while copper rose earlier in the session with risk-on sentiment in play but could not sustain the momentum amid dollar strength.

Fixed income: European bonds surged following a surprise rate cut by the Swiss National Bank and the Bank of England's dovish pivot, as even hawkish policymakers backed away from rate hikes. Initially, the rally spread to US Treasuries but reversed after US data showed stronger-than-expected Manufacturing PMI and home sales, along with jobless claims highlighting a strong labor market. Appetite for Treasuries was gauged by 4- and 8-week bill auctions, and a 10-year TIPS auction. The 4-week bills were favored, with indirect bidders taking down 66.8% of the auction, compared to 54.1% for the 8-week bills—both auctions saw stopped through when-issued. However, the $16 billion 10-year TIPS auction underperformed, tailing by 2bps. Ten-year US Treasury yields ended the day unchanged, while 2-year yields edged 2bps higher to 4.58%. Following the recent FOMC meeting we continue to favour the front part of the yield curve, while remaining cautious about the ultra-long duration. To learn more about it click here.

Macro: The Bank of England MPC once again opted to stand pat on rates at 5.25%, however the vote split shifted dovish. Two of the members, Haskel and Mann, moved into the unchanged camp from voting for rate hikes earlier, leading to an 8-1 split with Dhingra the lone dissenter in opting for a rate cut. Market has increased the odds of a June rate cut now to 77% from 58% earlier. The Swiss National Bank delivered a surprise rate cut of 25bps, kickstarting the G10 easing cycle and putting pressure on the Fed, ECB and BOE to start cutting rates by mid-year. Concerns over the currency was the primary catalyst for SNB, and as we have highlighted before, the next SNB meeting was only after the Fed and the ECB. US S&P Flash PMI composite reading for March fell to 52.2 from 52.5 with divergence between services and manufacturing. The manufacturing sector was the strong spot, with the PMI seeing a surprise rise to 52.5 from 52.2 (exp. 51.7), while services fell more than expected to 51.7 from 52.3 (exp. 52.0). On the other side of the pond, Eurozone PMIs indicated weakness in manufacturing while services PMI lifted higher. Japan’s headline CPI for February rose to 2.8% YoY from 2.2% in January, but came in below 2.9% expected. Core CPI rose to 2.8% as expected from 2.0% previously but core-core measures eased to 3.2% YoY, a notch lower than 3.3% expected, from 3.5% YoY in January. Focus today will be on the second tally of wage negotiation results.

Technical analysis highlights: Dow Jones and S&P 500 cancelled top and reversal pattern. S&P now looking at 5,300 or will it form a new top? Nasdaq 100 top and reversal pattern still intact, cancelled if closing above 18,417.
EURUSD failed to keep upside momentum, could test key strong support at 1.08. GBPUSD rejected at 0.618 retracement at 1.2807, now likely to test key support at 1.26.  USDJPY strong resist at 151.95, a break above bullish move to 153.50. USDCHF bullish potential to 0.9050. AUDJPY top and reversal pattern indicating pair could drop to 98.20. Gold hit by selling after reaching 1.618 projection at  2,225, could slide back to 2.146. Silver lost steam just below 26.00, retracing 0.382. US 10-year T-yields rejected at 4.35. Could slide back to 4.20

Volatility: Yesterday, the VIX edged down to $12.92 (-0.12 | -0.92%), signaling a further easing in market volatility. The VIX1D notably declined to $9.44 (-1.46 | -13.39%), illustrating diminishing short-term concerns. The VVIX also saw a decrease to 77.30 (-1.57 | -1.99%). However, the SKEW index, which tracks the potential for outlier events, jumped to 154.00 (+12.81 | +9.07%). Today, attention turns to Fed Chair Powell's speech for further insights into interest rate decisions, potentially sparking volatility. VIX futures experienced a slight increase in the overnight session to 14.500 (+0.045 | +0.30%). Futures for the S&P 500 and Nasdaq 100 show little change at 5305.50 (+3.00 | +0.06%) and 18575.00 (+13.25 | +0.07%) respectively. Thursday's options market was busiest with trades in AAPL, TSLA, NVDA, AMD, MU, MO, AMZN, MSFT, BAC, and COIN.

In the news: US government is asking Ukraine to stop attacking Russian oil refineries due to risk of retaliation and higher crude oil prices (FT), Bank of England’s Andrew Bailey says rate cuts ‘in play’ in upbeat take on UK economy (FT), Reddit Shares Soar in Long-Awaited IPO (WSJ), Wegovy to be covered by US Medicare for heart disease patients (Reuters)

Macro events (all times are GMT): German Mar IFO expectations est. 84.7 vs prior 84.1 (09:00), ECB speeches from Nagel, Holzmann, and Centeno (09:00 to 12:00), Norway March unemployment rate est. 2.0% vs. 2.1%, Canada Jan retail sales MoM est. -0.4% vs prior 0.9%.

Earnings events: Quiet day on earnings.

• Today: China Shenhua Energy, Meituan, Zijin Mining Group, Yihai Kerry Arawana, CMOC Group, China Petroleum & Chemical

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