Global Market Quick Take: Europe – 16 November 2023

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

Equities: S&P 500 futures rose slightly yesterday but retreated meaningfully from an intraday high at 0.5% above the closing price suggesting a potential sign of fatigue in this latest rally. The JPMorgan GDP nowcast has declined sharply over the past month suggesting US economy activity is slowing down. The Xi-Biden summit in the US also failed to lift sentiment in Chinese equities with Hang Seng futures down 1.4%. Today’s key US earnings event is Walmart expected to show robust revenue growth and stable operating margin. In today’s session we are curious to see how the market will react and price the news that Microsoft is launching their own purpose chip for generative AI to save costs relative to acquiring Nvidia chips – the question is whether Nvidia will experience an Intel moment?

FX: The USD pared some of its steep losses from Tuesday, but the move was modest with PPI and retail sales sending mixed messages. GBPUSD was the worst performer in the G10 after CPI came in weaker-than-expected. GBPUSD returned from 1.25 to trade just above 1.24. Higher Treasury yields brought USDJPY back above 151. Scandis outperformed, with NOK leading gains despite lower oil prices, and SEK following. Overnight the Antipodeans were under pressure as risk of flows were evident throughout the session. The AUD trades back below 0.65 while the NZD is back below 0.60.

Commodities: Crude oil trades lower with fresh speculative selling emerging after prices failed to reach safer grounds earlier in the week. The trigger was a two-week 17.5m barrel jump in US crude stocks, partly explained by low demand from refineries during maintenance which is now ending.  Meanwhile, China data released saw the country's oil refinery throughput in October ease from the prior month's highs amid weakening industrial fuel demand and narrowing refining margins. Copper being supported after the PBoC pumped the most cash since 2016 into the financial system while gold is drifting after failing to break resistance above 1970.

Fixed income: ten-year US Treasury yields rose by 10bps amid better-than-expected retail sales numbers and pressure coming from corporate bond supply. Yet, markets have started to price chances for a rate cut in March, which is likely to continue to apply downward pressure on yields. The focus shifts to today's jobless claims and next Monday's 20-year US Treasury auction. We continue to favor a barbell strategy, involving front term bonds up to three years and the 10- year tenor.

Volatility: The VIX-index stayed put yesterday at $14.18, 2 cents (0.14%) up compared to Tuesday. The VIX’s own volatility index, the VVIX, closed at 84.91, up 1.14 or 1.36% from the day before. The Cboe SKEW index (the OTM sibling of the VIX) rose 4.60 (3.32%) to 142.98. Small signs of nervousness and uncertainty in the markets. S&P 500 and Nasdaq futures showed little movement during their overnight session; -2.25 (-0.05%) and -22.75 (-0.14%) respectively.

Technical analysis highlights: S&P 500 resistance at 4,540. Nasdaq 100 likely to test 16K. DAX above 15,575 resist, next 16K. EURUSD minor setback to 1.08 likely but uptrend to 1.0945. USDJPY rejected at 151.94, key support 149. GBPUSD possible setback to 1.2640 but could move to 1.26. Gold likely to bounce to 1,980. Crude oil Reversal: Brent potential to 84.80, support at 78.20. WTI potential to 81, support at 73.85. US 10-year T-yields bearish support at 4.36, future below key resistance 108 27/32

Macro: US retail sales fell 0.1% m/m in October, less than the 0.3% expected, suggesting consumption trends held up ahead of the holiday season. October US headline PPI fell 0.5% m/m instead of the expected 0.1% rise, and down from the prior month's 0.5% rise amid a plunge in energy prices, mostly in the gasoline segment but also electricity prices. Fed's Daly (2024 voter), in an FT interview, noted that data is showing further deceleration in inflation, and it is "very, very encouraging" and indicative of effective Fed policies. However, the San Fran Fed President refuses to rule out another interest rate hike and stresses that rate cuts are "not happening for a while".UK CPI for October dropped to 4.6% y/y from 6.7% previously, coming in below consensus expectation of 4.7% and BOE’s own forecast of 4.8%.

In the news:  China Housing Woes Worsen as Prices Fall Most in Eight Years (Bloomberg), Biden hails ‘real progress’ after four hours of talks with China’s Xi (Aljazeera), Cisco stock plunges on light guidance after product order slowdown (CNBC), Microsoft introduces its own chips for AI, with eye on cost (Reuters), Hamas agrees to tentative deal to free dozens of hostages, pending Israel’s approval (Washington Post), Target shares jump more than 17% after retailer posts big earnings beat, even as sales fall again (CNBC)

Macro events (all times are GMT):  US Initial Jobless Claims, exp 220k vs 217k (1330), Phili Fed Business outlook (Nov), exp –8 vs –9 (1330), US Industrial production (Oct) exp 0.4% vs 0.3% (1415),  EIA’s weekly Natural Gas Storage Change 1530)

Earnings events: Key earnings results from Siemens, Copart, NetEase, Walmart, Ross Stores, Applied Materials, and Alibaba. Our focus is on Walmart reporting FY24 Q3 results (ending 31 October) before the US market opens with analysts expecting revenue growth of 4% y/y and EBITDA of $9.2bn up from $5.5bn a year ago.

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