Global Market Quick Take: Europe – 4 March 2024

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

Equities: Quiet start to the new week with small moves across Asian equity markets and flat equity futures across Europe and the US. Key events to track this week are investors’ appetite for US equities with equity valuations being quite stretched, Super Tuesday tomorrow with the most US states holding primary elections ahead of party nominations, earnings from Sea Ltd (today), JD.com (Wed), Dassault Aviation (Wed), and Costco (Thu). Interesting single stock news are Super Micro Computer is set to enter the S&P 500 Index as generative AI fever keeps transforming equity indices, and Bank of America analysts saying Eli Lilly can rally another 30%.

FX: The dollar traded broadly lower with Treasury yields in Friday’s session as ISM manufacturing and the revision to University of Michigan sentiment numbers garnered a dovish reaction. Despite a softer greenback, however, yen underperformed as Governor Ueda retained a dovish narrative with USDJPY rising back above 150. Activity currencies were the top gainers amid dollar weakness, with NOK outperforming followed by SEK, AUD and NZD. The EURUSD meanwhile remains stuck with a 1.08 handle with firm resistance at 1.09 ahead of this week’s ECB meeting, and GBPUSD stays above 1.26 with focus on the UK budget.

Commodities: Gold closed at a record high on Friday after a softer dollar and Treasury yields triggered a strong technical buying reaction, thereby strengthening the yellow metal’s buy-on-dip credentials following a month that should have seen it trade lower amid lower rate cut expectations, dollar and yield strength as well as continued selling from investors in ETFs. Instead, strong physical demand and low short-selling appetite at a time of heightened geopolitical tensions have supported. Crude oil prices trade near this year's high after OPEC+ agreed to extend output curbs into mid-year amid non-OPEC supply and risk of demand disruptions. Industrial metals will focus on China’s rubber-stamp Congress this week where growth and inflation target as well as policy direction will be announced.

Fixed income: Last week, markets increased expectations of interest rate cuts for this year, following a downside surprise in the US February manufacturing ISM and the University of Michigan survey below estimates. Waller’s speech also boosted US Treasuries as he commented about Quantitative Tightening (QT), mentioning that he would like to see MBS holding to zero and US Treasury holdings towards a larger share of shorter-dated securities. Such a comment led the US yield curve to bull-steepen, with 2-year yields dropping by 9bps on Friday and 16bps over the week to 4.53%, and ten-year yields dropping by roughly 7bps on Friday to 4.18%. In Europe, flash inflation data for February came higher than expected, with core inflation remaining above the 3% mark. Thus, markets pared back on expectations of ECB rate cuts, pricing for the first time since October less than 25bps rate cuts by June. This week, the focus shifts onto US Services ISM, Super Tuesday, Powell’s congressional testimony, and nonfarm payrolls on Friday. In Europe, the attention turns to the UK budget and the ECB meeting on Thursday, where inflation projections are expected to be revised downward, boosting European sovereigns (for a preview, click here).

Macro: US ISM manufacturing PMI for February unexpectedly fell to 47.8 from 49.1, against the forecasted rise to 49.5. Prices paid remain in expansionary territory but encouragingly dipped to 52.5 (prev. 52.9, exp. 53.0), while new orders fell into contractionary territory to 49.2 from 52.5. Employment and production declined to 45.9 (prev. 47.1) and 48.4 (prev. 50.4), respectively. Focus now turns to services ISM PMI due on Tuesday although markets may be in a wait mode ahead of the NFP jobs numbers due on Friday. Eurozone disinflation continued in February, even though the headline print came in higher than expected at 2.6% YoY vs. 2.5% exp and 2.8% prior. Core inflation eased to 3.1% YoY from 3.3% in January, coming in above expectations of 2.9%. This could mean that an April ECB rate cut remains off the table for now, but ECB meeting this week will be key to assess the staff projections on GDP and CPI for 2024 and Lagarde’s take on wages and inflation. Read Saxo’s ECB preview here. Focus on China this week with the National Committee of the Chinese People’s Consultative Conference (CPPCC) from March 4 to March 10 and the National People’s Congress (NPC) starting on March 5 and concluding on March 11, potentially bearing substantial implications for China's economic trajectory. Read our preview here

Technical analysis highlights: S&P 500 uptrend extended, likely to 5,176. Nasdaq 100 spiked higher, short-term potential to 18,593-18,763. DAX uptrend could have exhausted, Monday trading could be key. EURUSD range bound 1.08-1.09. USDJPY dipped below support at 149.75 but closed above, could be caught range bound 149-151. EURJPY uptrend intact after correction. Likely to resume bullish move. GBPUSD range bound 1.2535-1.27. USDCHF rejected at key resist at 0.89. Gold broken key resistance at 2,065 short-term potential to 2,135-2,150.  WTI oil closed above key resistance at 79.77 confirming uptrend with potential to 87-90, resistance at 82.56. 10-year T-yields below key support at 4.20, next 4.11 and 4.00

Volatility: On Friday, the VIX further declined to $13.11 (-0.29 | -2.16. The VVIX increased to 77.68 (+0.23 | +0.30%), the SKEW index edged up to 150.42 (+0.59 | +0.39%), suggesting cautious sentiment about potential outlier events. The expected market moves for the upcoming week are projected at +/- 55.94 (+/- 1.09%) for the S&P 500 and +/- 292.32 (+/- 1.60%) for the Nasdaq 100, mirroring last week's volatility expectations. The coming week is packed with economic reports including ISM Non-Manufacturing PMI, ADP Nonfarm Employment, Fed Chair Powell's Testimony, JOLTs Job Openings, Initial Jobless Claims, and Nonfarm Payrolls, any of which could be catalysts for market volatility. Noteworthy earnings from CrowdStrike, Oracle, and MongoDB are also on the horizon. VIX futures have slightly decreased to 14.00 (-0.050, -0.34%), with S&P 500 and Nasdaq 100 futures showing minor adjustments to 5141.75 (-4.25 | -0.08%) and 18357.00 (+19.00 | +0.10%). Friday's most active stock options were, in order: NVDA, TSLA, AMD, AAPL, META, PLTR, AMZN, MARA, NYCB, MSFT.

In the news: Fed policy report warns on possible financial sector risks (Reuters), OPEC+ members extend oil output cuts to second quarter (Reuters), China to Unveil GDP Target, Avoid ‘Bazooka’ Stimulus at Meeting (Bloomberg), China needs 10 times its solar and wind power to be carbon neutral, study finds (SCMP), U.S. seeks to revive idled shipyards with help of Japan, South Korea (Nikkei Asia)

Macro events (all times are GMT): Switzerland Feb CPI YoY est. 1.1% vs prior 1.3% (07:30), Eurozone Mar Sentix Investor Confidence est. -10.6 vs prior -12.9 (09:30), Japan Tokyo Feb CPI YoY est. 2.5% vs prior 1.8%.

Earnings events: Key earnings releases this week are listed below. Our key focus is Sea Ltd today on temperature on Southeast Asia e-commerce demand, JD.com on Wednesday for insights into the Chinese consumer, Dassault Aviation on Wednesday for an update on military spending in Europe, and finally Costco on Thursday as one the largest US retailers.

• Monday: Archer-Daniels-Midland, China Tower, Sea Ltd
• Tuesday: Thales, Lindt, Bayer, Ferguson, Ross Stores, Franco-Nevada, Crowdstrike, Target, Ashtead, NIO
• Wednesday: Deutsche Post, Brown-Forman, JD.com, Legal & General, Dassault Aviation
• Thursday: MTR, Techtronic Industries, Prada, Merck KGaA, Costsco, Broadcom, Marvell Technology, MongoDB, Samsara, Kroger, Continental, Vivendi, DocuSign
• Friday: Oracle, China Unicom Hong Kong, ZTE

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