Global Market Quick Take: Europe – 12 April 2024

Key points:

• Equities: Key focus is earnings from JPMorgan Chase, Wells Fargo, and Citigroup.
• FX: Euro weakness with focus on June rate cut
• Commodities: EU and US gas prices diverge; Fresh gold record
• Fixed Income: Weak 30yr US Treasury auction suggests long-term yields might be sticky.
• Economic data: China trade and U. of Michigan Sentiment

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

Equities: Strong gains in US equities yesterday with Nasdaq 100 futures up 1.6% led by Apple (+4.3%), Nvidia (+4.1%), and Broadcom (+4.5%) with Apple stealing a lot of headlines that its valuation is now attracting interest from hedge funds. Asian equities were lower in today’s session with Hang Seng futures down 2% as traders are increasingly nervous over developments in JPY and potential CNY devaluation. Today’s key event in equities is earnings reports from major US financials such as JPMorgan Chase, Wells Fargo, and Citigroup all reporting before the US market opens. We are coming out of a period with macro driving the price action to now entering a period of earnings driving expectations over the next month. With high equity valuations in US equities a lot is at stake, especially for US technology companies.

FX: The dollar remained pinned around its highs with US PPI data cooling some of the recent inflation fears, while a relatively dovish ECB was broadly priced in. Heightened geopolitical risks brought a safety bid to the dollar in Asia today with EURUSD the underperformer in G10 as it tested the 1.07 handle after ECB meeting opening the door for a June rate cut, but it bounced back higher. JPY also remained weak, with USDJPY back above 153 as intervention threat lingers. However, it is worth noting that the yen weakness post-US CPI has been less broad-based which may reduce the urgency of an actual intervention until 154 is breached. AUDUSD bounced higher after a test of 0.65 support. USDCNH traded around 7.2550 with PBoC still keeping a tight grip on the yuan band.

Commodities: Gold and silver pushing higher with bullion reaching a fresh record after softer PPI underpinned the rally. However, considering the current dollar and yield strength, it is increasingly clear the rally apart from the momentum attracting short-term buy strategies, is being driven by investors who care less about funding cost, and more about geopolitics, rising government debt piles and now also reaccelerating US inflation. Watch silver which is close to breaking its three-year down trend against gold. Crude trades higher an will likely remain bid into the weekend amid fears of an Iran attack on Israel. US and EU natural gas prices moved in opposite directions on Thursday after EIA reported a bigger than expected US stock build while the Russian attacks on Ukraine energy infrastructure lifted the Dutch TTF contract back to near €30.

Fixed income: Following the ECB meeting, markets are pricing in a June rate cut in Europe and up to three cuts by the end of the year. This expectation contributed to a steeper German yield curve, with 2-year Schatz yields remaining flat at 2.95%, and 10-year Bund yields increasing by 3 basis points, closing at 2.46%. In the US, better-than-expected PPI reading caused a temporary drop in yields. However, a weak 30-year US Treasury auction, tailing by 1 basis point and closing at 4.671%, indicates that bearish sentiment in the longer part of the yield curve persists. Hence, the yield curve twist-steepen, 2-year US Treasury yields decreased by 1.4 basis points to 4.95%, and 10-year yields rose by 4.5 basis points to 4.58%. Today, the focus shifts to the import and export price index and the University of Michigan survey.

Macro: US PPI was slightly cooler than expected. Headline rose 2.1% YoY (exp 2.2%) but accelerating from the 1.6% prior, with the M/M rising 0.2%, beneath the 0.3% forecast but down from 0.6% in February. Core PPI however was above forecast Y/Y at 2.4% (exp. 2.3%), while the M/M was in line at 0.2%. The data relieved the markets after a third consecutive print of hot CPI earlier this week that led to markets paring their expectations for Fed rate cuts this year. The ECB kept its policy rate unchanged, but the statement changed modestly noting a key addition that if the Governing Council was to gain further confidence that inflation is converging to the target in a sustained manner, it would be appropriate to reduce the current level of monetary policy restriction. Markets see that as key to ECB’s rate cut in June. Fed member Willaims (voter) said there is no need to change monetary policy "in very near term", saying rate hikes are not part of his forecast but "eventually", the Fed will need to cut rates. Barkin (voter) said that it is smart for the Fed to take its time and see if inflation slows. Collins (2025 voter) said she still expects rate cuts this year but a strong job market reduces the urgency to cut rates.

Technical analysis highlights: Correction looming for US Indices but not yet confirmed. S&P500 key support at 5,057. Nasdaq 100 key support at 17,808 for confirmation. Uptrend if close above 18,417. DAX correction unfolding testing key support 17,900, next 17,620. 
EURUSD downtrend testing support at 1.0695, could drop to 1.0660. GBPUSD likely to bounce from support at 1.25. USDJPY broken above resist at 151.95 upside potential to 154.25. USDCHF above resist at 0.9108, no resist until 0.9245, EURCHF correction likely unfolding, support at 0.97. EURJPY failed to reach previous peak at 165.35, could slide back to 163.10. AUDUSD rejected at 0.6640, likely to test 0.6485 support. Gold top and reversal cancelled; uptrend extended target 2,450-2,500. Silver uptrend resumed, likely move to 30. US 10-year T-yield bullish, no resist until 4.70

Volatility: No update today.

In the news: US quarterly earnings to feature big growth in tech-related companies (Reuters), Rivian, Lucid at New Lows as Ford Price Cut Fans EV Concerns (Bloomberg), Apple Plans to Overhaul Entire Mac Line With AI-Focused M4 Chips (Bloomberg), Is time starting to run out for Benjamin Netanyahu? (FT)

Macro events (all times are GMT):  China trade balance (Mar) exp $69.1bn vs $39-7 prior (0700), IEA’s monthly Oil Market Report (0800), U of Mich Sentiment (Apr) exp 79 vs 79.4 prior (1400), CFTC weekly commitment of traders report (1930), China will remain the world’s No. 1 growth driver, says the Asian Development Bank (CNBC)

Earnings events: Today is the first real earnings day in the new Q1 earnings season with US major financials such as JPMorgan Chase, Wells Fargo, and Citigroup reporting earnings. Analysts expect all three banks to report lower EPS compared to a year ago, but given the latest developments on interest rate expectations the market will put all its weight on the outlook for FY24 and recent credit developments.

• Today: Progressive, Aeon, JPMorgan Chase, Wells Fargo, State Street, Citigroup, BlackRock

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