Global Market Quick Take: Europe – 22 November 2023 Global Market Quick Take: Europe – 22 November 2023 Global Market Quick Take: Europe – 22 November 2023

Global Market Quick Take: Europe – 22 November 2023

Macro 3 minutes to read
Saxo Strategy Team

Summary:  US equities slipped while bonds and dollar gained in thin pre-Thanksgiving trading on Tuesday with FOMC minutes attracting little reaction, while commentary from BOE officials was more hawkish. Nvidia, the company delivering the shovels to the AI gold rush handily beat but the bullish earnings expectations built into this stock drove some aftermarket weakness. While the FOMC minutes talked about proceeding carefully the market is now pricing in a 25% chance of cut in March. Oil prices steadied on signs of another US stockpile gain with gold once again challenging key resistance above $2k.

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

Equities: US equities pulled back modestly, with the S&P500 declining 0.2% to 4,538 and the Nasdaq shedding 0.6% to 15,934. Information tech was the worst-performing section in the S&P500. Microsoft dropped by 1.2% as OpenAI was in discussion with Sam Altman, including possibly his reinstatement as CEO. Retailers underperformed. Lowes slid 3.1% after cutting forecasts and Kohl’s and Best Buy declined after missing estimates and downbeat outlooks.  After the market close, Nvidia reported results surpassed analysts’ forecasts for revenue and profits but warned that advanced chips that are subject to US licensing requirements to ship to China “will decline significantly.” Nvidia’s shares dropped by over 1% in the extended trading.

FX: The dollar firmed on Tuesday, reversing higher from 103.20 as some consolidation ensued after the dollar’s sharp decline earlier in the week. GBPUSD pushed higher to 1.2560 highs amid hawkish BOE commentary and focus shifts to Autumn statement today where premature tax cut announcements could upend the ensuing disinflation trajectory. EURUSD slipped back to 1.09 with 1.0960 the key resistance level currently preventing a move above 1.10. USDJPY shot higher to previous support-turned-resistance at 149 with AUDUSD softened to sub-0.6560 despite hawkish RBA minutes yesterday. USDCNH bounced off the 200DMA and PBOC’s fixing was again strong today which suggests more yuan gains could be likely.

Commodities: Crude oil’s initial short covering sprint on fresh OPEC+ production cut speculation has run out of steam with Brent trading around its 200-DMA. The API reported another weekly US stock build but with product stocks declining the impact was limited. Copper touched 2-month highs buoyed by continued Yuan strength, China stimulus hopes, strong demand from the renewable industry and supply concerns. Gold traded back above USD 2,000/oz but has yet to make a clean break above $2010 which - if successful - may point to an end of year rally as investors gear up for rate cuts next year. Wheat jumps almost 4% after Russian forces struck port infrastructure on one of Ukraine’s key export routes.

Fixed income: Treasury yields edged lower in a choppy session, with the 2-year yield falling 4bps to 4.87% and the 10-year yield sliding 3bps to 4.39%. The FOMC minutes offered no significant information. The results from the $15 billion 10-year TIPS were weak and the inflation-protected securities were awarded at 3.2bps higher in yield than the level traded at the auction deadline, a low 2.18x bid-to-cover ratio and softer non-dealer demand.

Volatility: VIX stays in the lower range of the year, ending at $13.35 (-0.06 | -0.45%). The VVIX ended at 81.77, the SKEW index ended at 140.80, down -2.98 (-2.07%). VIX futures are nearly flat as we go into the long (US) Thanksgiving weekend, at 14.50 (+0.050 | +0.33%). S&P 500 and Nasdaq futures traded within yesterday’s range, now at 4548 (-3.25 | -0.07%) and 15957.75 (-32.25 | 0.20%) respectively.

Technical analysis highlights: S&P 500 testing resistance, likely to push to 4,607. Nasdaq 100 above 16K, potential to 16,500 but expect short-term correction. DAX strong resist at 16K. EURUSD at resist at 1.0945 and 0.618 retracement, likely setback. USDJPY bouncing from support at 147.30., testing resistance at 149.05. GBPUSD uptrend resistance at 1.2545. Gold uptrend likely higher to 2,040.  WTI Crude oil bouncing from support at 72.65, Brent from 77.24. Copper rejected at strong resistance at 382. 10-year T-yields bearish, key support at 4.36

Macro: FOMC minutes were balanced and garnered little market reaction, as they noted that all participants agree to ‘proceed carefully’ and would be watching whether sufficient progress has been made in bringing down inflation. Officials generally agreed to keep rates on hold for some time and noted that financial conditions had tightened significantly. Bank of England speakers including Governor Bailey pushed back on market pricing for rate cuts. He said inflation risks were still on the upside, with wage pressures and Mideast conflict risks underpinning. BOE’s Mann also said a further interest rate increase was warranted. ECB’s Lagarde said that it may be too early to declare victory over inflation. She emphasized that the ECB will ‘remain attentive’ to “ensure that our policy rates will be set at sufficiently restrictive levels for as long as necessary” but “can act again if we see rising risks of missing our inflation target.”

In the news: Nvidia’s revenue triples as AI chip boom continues (CNBC), China Guides Banks to Cap Early 2024 Loans, Shift Some Forward (Bloomberg),  US retailers brace for a tough holiday season despite discounts (Reuters), Israel Approves Hostage Deal and Pause in War with Hamas (Bloomberg), UK's Hunt to cut taxes to boost economy and election prospects (Reuters), Sam Altman to return as OpenAI CEO (Reuters)

Macro events (all times are GMT): UK Autumn Statement, Dutch Elections, US Durable Goods (Oct), US Uni. of Michigan Final (Nov) exp 61 vs 60.4 prior (1400), EIA’s weekly crude and fuel stock report (1430)

Earnings events: Today’s key earnings release is Deere expected to report FY23 Q4 earnings (ending 31 October) before the US market open with analysts expecting revenue growth of negative 12% y/y and EBITDA $2.9bn vs $3.5bn a year ago.

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