Global Market Quick Take: Europe – 20 February 2024 Global Market Quick Take: Europe – 20 February 2024 Global Market Quick Take: Europe – 20 February 2024

Global Market Quick Take: Europe – 20 February 2024

Macro 3 minutes to read
Saxo Strategy Team

Summary:  US and European equity futures fell along with Asian stocks, after a bigger-than-expected reduction in China’s mortgage reference rate failed to dispel concerns about the world’s second largest economy. US markets re-open today with focus shifting back to earnings from Walmart and Home Depot today, ahead of AI giant Nvidia on Wednesday. With the current equity market strength relying on very few large-cap growth stocks, the risk of a pullback is rising should Nvidia fail to deliver. Gold trades steadily around $2020 with underlying demand offsetting strength in US Treasury yields, not least the 10-year which trades near resistance at 4.33%.


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

Equities: Chinese equities are higher today in both mainland and Hong Kong exchanges while European equity futures are slightly lower. The US equity market opens the week today after yesterday’s close due to US holiday. Key focus today is on earnings from Walmart and Home Depot with both results out before the open of US market. The US commercial real estate market continues to be a key downside risk to monitor with loss reserves rising to this segment among US banks. US bank Capital One has agreed to acquire Discover Financial for about $35bn in what is one of the biggest financial sector deals since 2008.

FX: Quiet US markets saw the dollar trading sideways, although modest gains came through in Asia after China’s larger-than-expected rate cut to 5-year loan prime rates. Kiwi reversed from the 0.6150 highs even as more banks delayed calls for RBNZ appears to have rate cuts. AUDUSD also did not get a boost from RBA’s meeting minutes keeping the door open for further rate hikes and slipped towards 0.6520 from 0.6540. Meanwhile, CHF remained the underperformer for reasons listed here, and USDCHF is testing 200DMA at 0.8840 while EURCHF has moved above 0.95.

Commodities: China optimism fizzled with iron ore prices losing almost 5% after the PBoC left MLF rate unchanged, and even after Chinese banks cut their five-year mortgage reference rate (LPR) by the most on record (see below). HG copper prices have nevertheless managed to hold on to a $3.8-handle following last week's strong bounce despite uncertainty about global demand. Oil prices held steady near the highest level of year amid focus on Mideast tensions and time spreads showing tightening market conditions. Gold remained steady around $2,020 having managed to shrug off the latest rise in yields amid continued underlying retail and central bank demand. FOMC minutes will be the next key focus this week.

Fixed income: the Bund yield curve twist steepened yesterday, with 10-year yields rising on the back of news that the EU mandates new bonds of the same maturity. The US market opens today after President's Day. The FOMC minutes and the 20-year US Treasury bond auction tomorrow will be in focus, together with the ECB account of the January meeting on Thursday. Overall, we continue to see scope for duration extension up to 10 years but remain wary of ultra-long maturities (for more information, click here).

Macro: Bundesbank said Germany is likely in a recession as external demand is weak and consumption also remains weak, while it added there is still no recovery in the German economy and output could decline again slightly in Q1 which would put the economy in a technical recession. Sweden’s January inflation came in higher-than-expected, and there were some concerns as the CPIF YoY print rose 1% pt to 3.3%. However, this was due to base effects, and the pickup will likely be ignored by the Riksbank. Banks in China cut their 5-year loan prime rate (LPR) by 25bps to 3.95% from 4.20% while keeping the 1-year LPR unchanged at 3.45%. The cut was larger than the 10bps expected by market economists. The cut is a positive to the economy and the market as well, but it is not going to change the big picture of the economy. The move sent a constructive signal, indicating the inclination of policies to boost growth even at the expense of some potential downward pressure on the renminbi because of the cut.

Technical analysis highlights: S&P 500 uptrend but RSI divergence indicating trend exhaustion, key support at 4,920. Nasdaq 100 uptrend stretched, RSI indicating trend exhaustion, key support at 17,478. DAX uptrend potential to 17,255-17,410, key support at 16,821. EURUSD range bound 1.07-1.08. USDJPY above key resistance at 149.75, next at 152. EURJPY testing 161 resistance. USDCHF uptrend potential to 0.90. AUDUSD testing resistance at 0.6545. Gold rebounded from 1,984 and 100 DMA, resist around 2,035. 10-year T-yields above key resistance at 4.20, double bottom pattern potential to 4.38-4.44 

Volatility: With the stock markets closed yesterday for Washington's Birthday, there were no movements in the main indexes. VIX futures saw a slight increase to $15.30 (+0.35 | +2.33%), indicating a hint of rising caution. S&P 500 and Nasdaq 100 futures dipped slightly to 5007.75 (-12.00 | -0.24%) and 17705 (-39 | -0.22%) respectively. Today, the market's attention shifts towards some earnings reports, with Walmart and Home Depot scheduled to announce before the bell, and Palo Alto Networks set for after the close. In the absence of economic news, these earnings could provide some volatility in the markets

In the news: BHP First-Half Profit Steady as Inflation, Lower Prices Bite (Bloomberg), Germany likely in recession, Bundesbank says (Reuters), China’s BYD launches cheaper plug-in hybrid EV to lure customers away from petrol-powered rivals by Volkswagen, Toyota (SCMP), JD.com considers takeover bid for UK electronics retailer Currys as China’s e-commerce giants look overseas (SCMP), China boosts property funding with first cut in key loan rate since June (CNBC).

Macro events (all times are GMT): Can CPI (Jan) exp 0.4% & 3.3% vs –0.3% & 3.4% prior (1230), US Leading Index (Jan) exp –0.3% vs –0.1% prior (1400)

Earnings events: Important day ahead for US retail industry with Walmart and Home Depot reporting earnings before the US market opens. Palo Alto Networks, the most valuable cyber security company in the world, is also reporting today (aft-mkt) with analysts expecting strong revenue growth of 19% y/y and EPS of $1.30 up 496% y/y.

  • Today: BHP, Air Liquide, Medtronic, Walmart, Palo Alto Networks, Home Depot, Barclays, Antofagasta
  • Wednesday: HSBC, Rio Tinto, Glencore, Analog Devices, Nvidia, Synopsys, BAE Systems, Nutrien, Rivian
  • Thursday: Fortesque, Zurich Insurance, Nestle, AXA, Booking, Copart, Intuit, MercadoLibre, EOG Resources, NU Holdings, Mercedes-Benz, Iberdrola, Pioneer Natural Resources, Danone, Anglo American, Wolters Kluwer, Rolls-Royce
  • Friday: Allianz, Deutsche Telekom, BASF
  • Saturday: Berkshire Hathaway

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

Disclaimer

Saxo Capital Markets (Australia) Limited prepares and distributes information/research produced within the Saxo Bank Group for informational purposes only. In addition to the disclaimer below, if any general advice is provided, such advice does not take into account your individual objectives, financial situation or needs. You should consider the appropriateness of trading any financial instrument as trading can result in losses that exceed your initial investment. Please refer to our Analysis Disclaimer, and our Financial Services Guide and Product Disclosure Statement. All legal documentation and disclaimers can be found at https://www.home.saxo/en-au/legal/.

The Saxo Bank Group entities each provide execution-only service. Access and use of Saxo News & Research and any Saxo Bank Group website are subject to (i) the Terms of Use; (ii) the full Disclaimer; and (iii) the Risk Warning in addition (where relevant) to the terms governing the use of the website of a member of the Saxo Bank Group.

Saxo News & Research is provided for informational purposes, does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. No representation or warranty is given as to the accuracy or completeness of this information. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. No Saxo Bank Group entity shall be liable for any losses that you may sustain as a result of any investment decision made in reliance on information on Saxo News & Research.

To the extent that any content is construed as investment research, such content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication.

None of the information contained here constitutes an offer to purchase or sell a financial instrument, or to make any investments.Saxo Capital Markets does not take into account your personal investment objectives or financial situation and makes no representation and assumes no liability as to the accuracy or completeness of the information nor for any loss arising from any investment made in reliance of this presentation. Any opinions made are subject to change and may be personal to the author. These may not necessarily reflect the opinion of Saxo Capital Markets or its affiliates.

Please read our disclaimers:
- Full Disclaimer (https://www.home.saxo/en-au/legal/disclaimer/saxo-disclaimer)
- Analysis Disclaimer (https://www.home.saxo/en-au/legal/analysis-disclaimer/saxo-analysis-disclaimer)
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)

Saxo Capital Markets (Australia) Limited
Suite 1, Level 14, 9 Castlereagh St
Sydney NSW 2000
Australia

Contact Saxo

Select region

Australia
Australia

The Saxo trading platform has received numerous awards and recognition. For details of these awards and information on awards visit www.home.saxo/en-au/about-us/awards

Saxo Capital Markets (Australia) Limited ABN 32 110 128 286 AFSL 280372 (‘Saxo’ or ‘Saxo Capital Markets’) is a wholly owned subsidiary of Saxo Bank A/S, headquartered in Denmark. Please refer to our General Business Terms, Financial Services Guide, Product Disclosure Statement and Target Market Determination to consider whether acquiring or continuing to hold financial products is suitable for you, prior to opening an account and investing in a financial product.

Trading in financial instruments carries various risks, and is not suitable for all investors. Please seek expert advice, and always ensure that you fully understand these risks before trading. Saxo Capital Markets does not provide ‘personal’ financial product advice, any information available on this website is ‘general’ in nature and for informational purposes only. Saxo Capital Markets does not take into account an individual’s needs, objectives or financial situation. The Target Market Determination should assist you in determining whether any of the products or services we offer are likely to be consistent with your objectives, financial situation and needs.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the US and other countries. AppStore is a service mark of Apple Inc.

The information or the products and services referred to on this website may be accessed worldwide, however is only intended for distribution to and use by recipients located in countries where such use does not constitute a violation of applicable legislation or regulations. Products and Services offered on this website is not intended for residents of the United States and Japan.

Please click here to view our full disclaimer.