Global Market Quick Take: Europe – 8 December 2023

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

Equities: JPY took centre stage yesterday rallying against the USD as traders are betting that BoJ will either end or modify their yield-curve-control already this month. With USDJPY just above the 144 level Japanese reacted in today’s session be declining 2%. A downside miss in today’s US Nonfarm Payrolls for November could extend the USDJPY slide putting more pressure on Japanese equities and complicating the picture for BoJ. Lululemon shares traded lower in extended US trading session after Q3 results beat estimates, but outlook failed to beat estimates as the company is seeing spending slowing ahead of the holiday season. US and European equity futures are flat to slightly higher in early trading hours.

FX: A dramatic move in JPY on as traders boosted bets of a December policy tweak from Bank of Japan, briefly saw USDJPY break below its 200DMA to 141.71 before recovering overnight to 144 as markets question whether an early policy move is likely. Further strength will force unwinding in carry trades and significant bond volatility. The move in yen pushed the dollar lower, but overall, the Greenback trades up on the week with the stronger yen being more than offset by broad losses, led by NOK and MXN, but with AUD and EUR also suffering a setback on China economic woes and widening yield gap between US and EC amid expectations for a 1.5% rate cut from the ECB next year.

Commodities: Crude oil prices have steadied with Brent trading around $75 but remains on track to record its longest weekly losing streak since 2018 amid ample global supply and doubts some OPEC+ producers will deliver their promised cuts, while a further drop towards $70 will likely raise the risk of an emergency OPEC+ meeting. Focus turns to US NFP data today and what signals it can bring for the demand outlook and future rate cut expectations. Copper pushed higher as imports of refined copper touched the highest levels this year as strong demand from energy transition underpins. Gold continues to find support at the $2,009 area ahead of today’s big US NFP test. The grains sector awaits a monthly supply and demand report from the US government.

Fixed income: The 10-year Treasury yield rose 5 bps to 4.15%, while the 2-year remained unchanged at 4.59% ahead of the US job data on Friday. The increase in Treasury yields was partly attributed to a 12 bps rise in the 10-year Japanese Government Bond (JGB) yield. On Thursday, during his testimony to the parliament, BoJ Governor Ueda said, 'the situation will become even more challenging from the end of the year to next year,' hinting that he was conscious of an exit from monetary easing. Later on Thursday, Ueda met with Prime Minister Kishida and reportedly exchanged views on monetary issues, according to Nikkei. Taken together with BoJ Deputy Governor Himion’s remarks that exiting the negative rate policy would have relatively little impact on Japan’s economy, these have raised market expectations of actions by the BoJ in its December 18-19 meeting. The results of the 30-year JGB auction on Thursday were very poor, with bonds awarded at over 7 bps higher than the level of the auction deadline.

Macro: Massive yen strength came on the back of comments from Bank of Japan governor Ueda’s parliamentary hearing. While he maintained that BOJ would continue patient monetary easing, there were elements of hawkishness such as a comment that it will become even more challenging to maintain easy policy towards the end of this year and into early 2024. He also said that BOJ has not decided whether to keep interest rate at zero or move it up to 0.1%, and at what pace short-term rates will be hiked after ending negative rate policy. This pushed the markets to price in odds of a tweak at the BOJ’s December 19 meeting. Weekly US jobless claims ticked up to 220k, in line with expectations, while continuing claims fell more than expected to 1.86 million. Headline figure could still be impacted by Thanksgiving holiday, and likely to smoothen into the new year. China’s November trade data fell below expectations, with imports showing a year-on-year decline of -0.6% in USD terms reflecting weak domestic demand. On the other hand, exports in USD terms improved to +0.5% in November from -6.4% in October, surpassing the projected zero growth. This better-than-expected performance was driven by a return to growth in exports to the US and a pick-up in exports to Russia.

Technical analysis highlights: S&P 500 resistance at 4,607, support at 4,458. Nasdaq 100 could be resuming uptrend, support at 15,744 and 15,535. DAX uptrend very stretched expect correction, support at 16,469. EURUSD strong support at 1.0760. USDJPY downtrend spiked to support at 141.54, expect rebound, resistance at 145. EURJPY spike down to 153.08 support, expect rebound. GBPUSD rejected at 1.2745, support at 1.2445. Gold likely bouncing from support at 2.009 to 2,057.  WTI Crude oil support at 67. Brent support at 71.93. 10-year T-yields below support at 4.20 could drop to 4.07

In the news: Yen climbs to 141 in volatile trading after BOJ hints at policy shift (Nikkei), Japan PM Kishida resigns as ruling party faction head amid funds scandal(Kyodo), Elon Musk's SpaceX Valued at $175 Billion or More in Tender Offer (Bloomberg), Tesla’s Dojo Supercomputer Head Exits in Blow to Efforts (Bloomberg), Talks on EU's AI Act to resume Friday after marathon debate (Reuters), Ukraine Funding Fight Stokes New Fears Over US Reliability (Bloomberg)

Macro events (all times are GMT): US Employment Report (Nov) exp 183k vs 150k prior (1230), University of Michigan (Dec P) exp 62 vs 61.3 prior (1400), USDA’s World Agricultural Supply & Demand estimates (1600)

Earnings events: No important earnings releases today.

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