Global Market Quick Take: Europe – 4 April 2024

Key points

• Equities: US equities recovering from Monday’s setback. Low volatility ahead of tomorrow’s Nonfarm Payrolls figures.
• FX: Weaker dollar after miss in US ISM services questioned the pushback to rate cut expectations
• Commodities: Copper and silver breaks higher with gold hitting a fresh record above $2300
• Fixed Income: US 10-year yields remain elevated ahead of US jobs report
• Economic data: Focus on ECB minutes and eurozone PPI ahead of Fridays US jobs data

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

Equities: Powell’s comments yesterday about wanting clearer signs before cutting the policy rate did not move much and he downplayed recently strong US economic data. US equities recovered a bit of ground yesterday and Nasdaq 100 futures are up 0.3% in early trading hours. Asian equity futures are higher in today’s trading as the weaker USD is easing financial conditions. The equity market is quite muted ahead of tomorrow’s Nonfarm Payrolls figures and we do not expect a lot of volatility. The equity market is looking ahead to next week’s earnings releases. As we just published in our Quarterly Outlook, we think the probability is rising for an equity market that could see a setback in Q2, and especially in technology stocks, as we have now had an equity market rising for six months uninterrupted by any setbacks which is quite unusual. Spotify was the big single stocks story yesterday rising 8% as the music streaming platform announced $1-2/month price hikes across several markets.

FX: The dollar weakened further with the miss in ISM services once again questioning the pushback to rate cut expectations that has been priced in by markets. Strong NFP data can bring some gains back for the dollar, but it remains hard to see a strong and sustained rally from here given seasonality and technicals remain out of favor for the dollar. Japanese yen, however, failed to gain despite lower yield and dollar, and USDJPY traded to highs of 151.95 before retreating to 151.60 on dollar weakness. Lack of intervention at these levels is a clear signal that Japanese authorities are unlikely to let the markets be fixated at certain levels, but NFP beat is a key risk for yen intervention. EURUSD rose to 1.0840 despite softer EZ inflation, while GBPUSD reclaimed 1.2650. China markets are closed today so there was no CNY fixing and USDCNH traded close to 7.25. Read our FX note on CNH bearishness to know more. 

Commodities: The BCOM index rose 1.2% on Wednesday on broad sector strength, led by precious and industrial metals. Well ahead of time, gold reached our 2024 target at $2300 with war and debt worries having more than offset dollar and yield headwinds. With rate cuts still to come, as affirmed by Fed Chair Powell, we believe the upside may not yet be exhausted, but expect some consolidation soon. Silver reached a June 2021 high above $27, supported by copper which hit a 14-month high on growth optimism spiced with supply concerns. Brent trades near $90 after OPEC+ reaffirmed its commitment to keep a 2mb/d output cut at least until June while EIA stock data saw a surprise crude build being offset by lower fuel stocks.

Fixed income: Euro-area inflation for March slowed more significantly than anticipated, yet this did not uplift European sovereign bonds across all maturities amid strong US employment figures. Ten-year Bund yields ended slightly lower by 1 basis point at 2.40%, with 2-year Schatz yields marginally up by 1.5 bps at 2.84%. Meanwhile, the US yield curve saw further steepening yesterday. At the beginning of the day, ten-year yields climbed to 4.42% following robust ADP employment data, then dropped to close just under 4.35%. US Treasuries recovered from early declines as the March ISM prices-paid index hit a four-year low, and Fed Chair Powell's comments kept alive the anticipation of two to three rate cuts within the year. We still favor the front part of the yield curve while we remain cautious about ultra-long maturities.

Macro: US data was mixed. ADP employment for March came in better than expected, but ISM services was soft but still in expansion. ADP for March came in at 184k, above the expected 148k, and the prior, revised higher, 155k. Headline ISM services printed 51.4 for March printed 51.4, falling short of the 52.7 expected and 52.6 prior. Prices paid fell to 53.4 (prev. 58.6), its lowest reading since March 2020, which was a welcome sign for the markets after the pushback seen to Fed rate cut pricing recently. Fed’s Bostic said he thinks it is appropriate to cut rates in Q4 this year if the economy evolves as he expects. He also said he still only expects one rate cut in 2024. Chair Powell still believes that the recent pickup in prices was a bump and does not see a material change in the overall picture. He reiterated that it will likely be appropriate to cut rates at some point this year. Euro-area March CPI came in a notch lower than expected at 2.4% YoY (vs. 2.5% exp and 2.6% prior) suggesting that the move below 2% maybe just a few months ahead. June rate cut is priced in with 85% odds, and the probability could pick up further.

Technical analysis highlights: S&P500 correction likely unfolding, potential to 5,057. Nasdaq 100. Top and reversal pattern could sell-off to 17,808. Needs to close above 18,417 to cancel. DAX top and reversal, correction likely to 17,900.
EURUSD rebound from minor support at 1.0723 could continue to 1.0883, but downtrend intact. GBPUSD downtrend intact despite bounce, likely to test support at 1.25. USDJPY range bound 151.95 – 150.85. EURJPY correction over, likely resuming uptrend, resist at 165.35. AUDJPY resuming uptrend likely to move to 101, USDCHF expect setback to 0.8955.   Gold uptrend quite stretched but could touch 2,350. Silver above resist at 26.77, potential to 28.75-30. Brent Crude oil pushing towards resist at 90.50. US 10-year T-yield spiked higher, but struggling to get upside momentum towards 4.50 resist

Volatility: Yesterday, market volatility dipped as the VIX receded to $14.33, a 1.92% decrease. The VVIX and SKEW followed suit, registering modest declines. The slightly positive interpretation of economic data has tempered market volatility for the time being. VIX futures hovered close to the previous close at 14.85 (-0.095 | -0.63%). Futures for the S&P 500 and Nasdaq 100 edged up slightly to 5275.00 (+8.50 | +0.16%) and 18423 (+49.75 | +0.27%). Yesterday's top 10 most traded stock options, in order: TSLA, NVDA, AAPL, AMD, INTC, JD, MU, AMZN, META, and JPM.

In the news: Taiwan Quake Jolts Production of World’s Most Advanced Chips (Bloomberg), Yellen won't rule out more protections for US clean energy sector amid Chinese excess capacity (Reuters), Apple reportedly exploring personal home robots (CNBC), Malaysia emerges as a hotspot for semiconductor firms amid U.S.-China chip tensions (CNBC), Diverging inflation raises prospect of rate cuts by ECB before Fed (FT)

Macro events (all times are GMT): ECB Minutes (Mar), Riksbank Minutes (Mar), Swiss CPI (Mar) exp 0.3% & 1.3% vs 0.6% & 1.2% prior (0730), EZ/UK Services and Composite Final PMI (Mar), Eurozone PPI (Feb) exp –0.6% & -8.5% vs –0.9% & -8.6% prior (1000), US Goods Trade Balance R (Feb) exp -$67.6b vs -$67.4b prior (1330), EIAs Weekly Natural Gas Storage Change exp –43bcf vs –36 bcf prior (1530)

Earnings events: Quiet earnings week before the Q1 earnings season starts next week with major US financials such as JPMorgan Chase, Wells Fargo, and Citigroup reporting.

• Today: Dollarama, Lamb Weston, RPM International, Conagra Brands
• Friday: Yaskawa Electric

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