Global Market Quick Take: Europe – May 31, 2023 Global Market Quick Take: Europe – May 31, 2023 Global Market Quick Take: Europe – May 31, 2023

Global Market Quick Take: Europe – May 31, 2023

Macro 9 minutes to read
Saxo Strategy Team

Summary:  The major US stock indices traded lower overnight on signs that the AI-hype fueled rally was running out of steam and after China manufacturing PMI weakened more than expected. Treasury yields softened on hopes the US Congress will pass a debt deal today that will avoid a default. In commodities copper and iron ore prices traded lower in response to the weakness in China data supporting a stronger dollar.

What is our trading focus?

US equities (US500.I and USNAS100.I): AI valuation risks and China growth woes

Equities headed lower yesterday following a strong opening across many AI-related stocks that were sold off during the session. S&P 500 futures closed above the prior session close, but this morning the weakness has continued with significant selloffs across Chinese equities as the country’s manufacturing PMI figures for May went deeper into contractionary territory as the inventory destocking wave continues to hurt global manufacturing production. S&P 500 futures are trading just above the 4,200 level and could easily break below this level again and back into the trading range established since early April. The key downside risk to US equities remains equity valuations and especially a turnaround in risk sentiment around AI-related stocks.

Chinese equities (HK50.I & 02846:xhkg): Manufacturing PMI plunges deeper into contraction

After a brief one-day pause, Chinese stocks traded in Hong Kong and the mainland resumed their downward spiral, with the Hang Seng Index falling by around 2.5%, down more than 20% from the January highs, and the CSI300 shedding over 1% as of Asian early afternoon. China’s official NBS manufacturing PMI plunged to 48.8 in May, deeper into the contractionary territory than expectations and the figure in April. The Non-manufacturing PMI slowed to 54.5, softer than the 55.2 expected and 56.4 in the previous month. The construction sub-index dropped sharply to 58.2 from 63.9 as well. Meanwhile, President Xi warned party officials at a national security meeting to “get ready for a tempest” on the national security front.

FX: whispers of BoJ intervention

Yesterday, speculations were surfacing that the BoJ is contemplating intervening in currency markets as the USDJPY had recently moved above 140 again. The last time the BoJ intervened was around the 146 level so as USDJPY gets closer to this level we could expect some action by Japanese policymakers. In the past currency intervention was driven solely around stimulating Japan’s exports but with inflation added to the equation the balance is now more complex than in the past as a weak currency aggravates inflationary pressures for Japan.

Crude oil slumps ahead of OPEC+ meeting

Oil prices slumped by more than 4% on Tuesday and remained on the defensive after China’s manufacturing PMI showed more signs of weakness in May, adding to concerns about the outlook for demand from the world’s biggest importer. Lower prices ahead of the OPEC+ weekend meeting may raise the temperature in the room with Russia continuing to pump while key Middle East producers have shown constraint. The front month spreads of Brent and WTI both trades in contango, a sign of ample supply. Support in Brent at $72.

Gold bouncing from $1934 support as yields drop

Gold bounced strongly on Tuesday after selling ran out of steam ahead of support at $1934, supported by softer US bond yields and the dollar pausing its recent advance in anticipation of US debt-ceiling deal will be voted through Congress today. Short-end rates fell on expectations the deal could limit the government's ability to support US growth, thereby lifting recession fears while reducing the potential for rate hikes beyond the one that has been fully priced in for July. Focus on today’s JOLTS data and Friday’s job report. Resistance at $1985 followed by $1992, the 21-day moving average.

Copper and Iron ore hit by China Manufacturing slump

HG copper traded lower to $3.63 a pound overnight but still well above support at $3.55 while iron ore traded back below $100 a tonne after China manufacturing PMI data showed a drop to 48.8, the lowest reading since last December, highlighting the current weakness in the world’s top metal consuming economy. The figure missed the median estimate of 49.5 which would still have indicated a contraction. Calls are getting louder for more stimulus measures, such as interest rate cuts, as investors turn more bearish about the growth outlook. Exports remain weak, a rebound in the property market has faded and businesses are being hit by falling profits.

Month-end bond index rebalancing push yields lower (2YYK3, 10YK3, 30YK3)

US Treasury yields dropped across the yield curve yesterday, and 2-year yields dropped for the first time in 12 trading sessions. We believe that the majority of the move is attributed to month-end bond index rebalancing. Indeed, rate hikes bets for June and July remain elevated despite markets’ concerns about the debt ceiling bill’s drag on the economy. The risk of a liquidity squeeze remains as the Treasury has to issue a total of $1 trillion to replenish its reserves. Approximately $500 billion will need to be raised in just five weeks. That would be the biggest quarterly issuance outside of a crisis such as during the pandemic and the global financial crisis. Thus, we expect the bear flattening of the yield curve to resume, probably surrounding Friday’s non-farm payrolls. In the short term, it may be possible to see the two-year yields to break above resistance at 4.63% and soar to 4.8%. Ten-year yields will rise at a slower pace but might test resistance at 4%. Thirty-year yields are likely to soar to 4.07%.

UK Gilts together with US Treasuries, but headwinds are ahead (FLGM3, FLGU3)

The Gilt yield curve bull flattens as US Treasury yields drop. However, the British Retail Consortium showed yesterday that shop price inflation accelerated by 9% YoY, the highest on record. Therefore, there continue to  be scope for yields to soar as the Bank of England prepares to hike rates further. Although 10-year yields are likely to break resistance at 4.59% and 2-year yields might soar test resistance at 4.68%, we believe rates will unlikely soar to break 5%. As yields rise towards the 5% level, the financial sector will begin to suffer as happened last September during Truss’ mini-budget crisis. Therefore, the BOE will need to step into rescue, limiting rates’ upside to avoid a financial crisis. Yesterday, the DMO announced it will issue GBP 2.5 billion bonds with maturity 2053 next week, testing investors’ appetite for long-term debt.

What is going on?

Australia’s CPI accelerated to 6.8% Y/Y

The April monthly CPI in Australia accelerated to 6.8% Y/Y, well above the 6.4% expected and the 6.3% in March. The upside surprise is attributed to higher holiday travel prices, new housing, and durable goods.

Governor Lowe says the RBA is in a data-dependent mode

Speaking to the Parliamentary Senate Committee this morning, the Reserve Bank of Australia Governor Lowe said the Australian central bank is in “data-dependent mode” while reiterating the commitment to fight inflation.

Earnings review: HP and HP Enterprise

HP reported worse than expected revenue in the previous fiscal quarter as PC sales continues to be weak amid inflationary pressures and hangover from excessive pandemic demand. The personal computer maker also lowered its fiscal year guidance a bit on earnings suggesting headwinds will persist in the next two quarters. HP shares declined 4% in extended trading. HP Enterprise reported disappointing revenue missing estimates and the outlook for the current quarter on revenue was much weaker than estimated suggesting lower technology spending for the company’s products. HP Enterprise shares declined 8% in extended trading.

Sweden reengages with Turkey over NATO bid

After the Turkish election that ended with Erdogan getting re-elected the Swedish government is now pursuing again to convince Turkey to accept its NATO bid. Sweden is saying it has bolstered its anti-terrorism policies and is cooperating with Turkey on its concerns related to Kurdish res

US grains slump on supporting weather and weak exports

U.S. wheat, corn and soybean futures tumbled on Tuesday, pressured by macroeconomic worries, strong competition for global grain export business and some forecasts for beneficial Midwest rains next month that could bolster production prospects. The Bloomberg Commodity Grains index trades near an 18-month low having dropped 3.7% in the last two trading sessions. US wheat exporters continue to be challenged by competition from Russia amid softer export prices as they try to clearout storage facilities ahead of the next harvest. The US corn and soybean growing season is off to flying start with corn planting at 92% complete, ahead of the five-year average of 84%, while soybeans at 83% complete is well ahaed of the 65% five-year average.

What are we watching next?

JOLTS job openings forecasted to decrease

The Bloomberg consensus forecast anticipates a decline of 190K job openings in the JOLTS report for April, settling at 9,400K compared to the previous month's figure of 9,590K. Should this projection materialize, it has the potential to bolster the Federal Reserve's confidence in the belief that the labour market's tightness could ease by means of a sustained reduction in job openings, without significant spikes in the unemployment rate.

Earnings to watch

Today’s US earnings watch is Salesforce which we wrote about last week – see our earnings preview here. With Salesforce shares up 65% this year the market is betting heavily on the software application maker to beat estimates and deliver on the market’s demand for higher profitability.

  • Wednesday: Salesforce, Crowdstrike, Okta
  • Thursday: Broadcom, VMware, Lululemon Athletica, Dell Technologies, MongoDB, Zscaler, Dollar General, Hormel Foods

Economic calendar highlights for today (times GMT)

  • 1200 – Germany May Flash CPI
  • 1400 – US April JOLTS Job Opening
  • 1730 – US Fed’s Jefferson (Voter) to speak
  • 1800 – Fed Beige Book
  • 2030 – API's (delayed) Weekly Crude and Fuel Stock Report

Latest Market Insights

Quarterly Outlook 2024 Q3

Sandcastle economics

01 / 05

  • Macro: Sandcastle economics

    Invest wisely in Q3 2024: Discover SaxoStrats' insights on navigating a stable yet fragile global economy.

    Read article
  • Bonds: What to do until inflation stabilises

    Discover strategies for managing bonds as US and European yields remain rangebound due to uncertain inflation and evolving monetary policies.

    Read article
  • Equities: Are we blowing bubbles again

    Explore key trends and opportunities in European equities and electrification theme as market dynamics echo 2021's rally.

    Read article
  • FX: Risk-on currencies to surge against havens

    Explore the outlook for USD, AUD, NZD, and EM carry trades as risk-on currencies are set to outperform in Q3 2024.

    Read article
  • Commodities: Energy and grains in focus as metals pause

    Energy and grains to shine as metals pause. Discover key trends and market drivers for commodities in Q3 2024.

    Read article

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

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 (
- Analysis Disclaimer (
- Notification on Non-Independent Investment Research (

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

Contact Saxo

Select region


The Saxo trading platform has received numerous awards and recognition. For details of these awards and information on awards visit

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.