Global Market Quick Take: Europe – October 20 2023 Global Market Quick Take: Europe – October 20 2023 Global Market Quick Take: Europe – October 20 2023

Global Market Quick Take: Europe – October 20 2023

Macro 3 minutes to read
Saxo Strategy Team

Summary:  US and European equity futures point to continued weakness after US stocks ended lower on Thursday following a volatile session pivoting around Fed Chair Powell’s speech. While sending a signal the Fed is done hiking rates, his claim that monetary policy was not causing a recession saw US 10-year Treasury yields hit a fresh cycle peak at 4.99%. The war premium in crude oil jumped again as the Mideast crisis deepened while gold and the Swiss Franc continue to attract haven demand. China and Hong Kong stocks plunged further as concerns over the property sector and local government debt weighed on sentiment. Another risk off day probably awaits with Mideast tensions and a weak earnings calendar unlikely to attract buyers ahead of the weekend.


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

Equities: Stocks had a choppy ride around Powell’s speech, initially higher but sinking to close 0.9% down for both the S&P 500 and the Nasdaq 100.  This came after the Fed Chair stated that monetary policy wasn't causing a recession, and the 10-year Treasury yield surged toward 5%. In the realm of individual stocks, Tesla tumbled 9.3% due to disappointing Q3 results, while Netflix soared by 16.1% on the back of strong subscriber gains. AT&T also surged by 6.4% after reporting Q3 results that surpassed estimates and raising its free cash flow guidance.

FX: Dollar pushed lower on Thursday ahead of Powell’s speech, and his cautious message caused some wobbles before focus shifted back to geopolitical worries with Israeli defense chief warning of an invasion and reports of drone attacks in Iran and Syria. Safe haven CHF was the biggest gainer on the G10 board, with USDCHF below 0.8930 and EURCHF below 0.9440. EURUSD attempted another break above 1.06 but failed, and AUDUSD also still getting supported at 0.63. USDJPY very close to 150 and verbal jawboning from authorities has picked up.

Commodities: Oil prices raced higher on Thursday as deepening Middle East tensions puts market on edge, while demand concerns eased as Chair Powell did not clearly signal any more rate hikes. Gold’s impressive performance continues and with silver and platinum being left behind this rally is not only driven by a haven and speculative momentum bid, but also rising concerns the rapid rise in US Treasury yields may cause something to brake, especially as unrealised losses on “held to maturity” positions continue to explode. Focus on $1885/90 area of resistance next. Meanwhile, US agricultural futures have seen a strong week with gains being led by wheat and corn.

Fixed Income: US Treasuries are rebounding this morning; however, yields remain at a multi-decade high. Bond futures pushed back on interest rate cuts for next year and expect the Federal Reserve to cut rates only to 5% by the end of 2024. Powell speech reiterated the higher-for-longer message, but alluded to the fact that we might be already at the peak of the hiking cycle, and there might not be need for further hikes if rates continue to rise. Overall, we remain defensive, favour short-term maturities and quality.

Volatility: Powell’s speech on Thursday caused wild swings on the stock market, initially boosting the S&P 500 and Nasdaq but ultimately sending them lower to close negative on the day. VIX passed the important $20 mark, ending at 21.40. Vix Volatility (VVIX) rose to 116.47, a 7-month high, suggesting that market volatility is here to stay and could even get worse. Tesla options volume surged to 3.6 million contracts after earnings, with a put/call ratio near 1, suggesting a neutral market outlook after the sharp drop in its share price.

Technical analysis highlights: S&P 500 downtrend, support at 4,195. Nasdaq 100 downtrend support at 14,254. DAX is likely to test 14,933 support. USDJPY uptrend intact. EURUSD could test resistance at 1.0635. Gold testing resistance 1,985. WTI Crude oil resumed uptrend, could test previous peak. US 10-year yields expect setback after reaching 5%

Macro:

  • Fed Chair Powell spoke at the Economic Club of New York last night. The key message was the FOMC is ‘proceeding carefully.’ His comments were supportive of the recent sentiments from other Fed members that the FOMC is likely to be on hold in November. Powell said policy was restrictive and there may still be tightening in the pipeline. Market is now pricing in a very slim chance of 25% of a rate hike by end of the year.
  • US initial jobless claims were hot falling to 198k, their lowest level since January, from a revised 211k (from 209k) despite expectations of a rise to 212k. Continuing claims rose to 1.73m, the highest level since July. That pattern is consistent with more difficulty finding employment and so longer spells out of work, but still low layoffs.
  • Japan’s September CPI was as expected on the headline, coming in at 3.0% YoY from 3.2% previously, but core and super core measures beat estimates. Core inflation was at 2.8% YoY in September, softer than August’s 3.1% but a notch higher than 2.7% expected, while core-core measure was at 4.2% YoY vs. 4.1% expected and 4.3% prior.

In the news:

  • Nick Timiraos: Jerome Powell Signals Fed Will Extend Interest-Rate Pause (WSJ)
  • Israeli defense chief says troops will soon see Gaza 'from inside' (Reuters)
  • US warship shoots down missiles fired by Iranian-backed rebels (FT)
  • Israel at Risk of Moody’s Debt Rating Downgrade (Bloomberg)
  • China’s Home Prices Drop at Faster Pace in Blow to Sentiment (Bloomberg)
  • American Airlines beats profit estimates, sees steady holiday bookings (Reuters)
  • OpenAI Is in Talks to Sell Shares at $86 Billion Valuation (Bloomberg)

Macro events (all times are GMT): UK Retail Sales (Sep) exp –0.4% MoM & -0.2% YoY inc Auto Fuel vs 0.4% & -1.4% prior (0600)

Earnings events: American Express, Shlumberger

For all macro, earnings, and dividend events check Saxo’s calendar and Peter Garnry’s earnings update here

Disclaimer

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 https://www.home.saxo/en-au/legal/.

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 (https://www.home.saxo/en-au/legal/disclaimer/saxo-disclaimer)
- Analysis Disclaimer (https://www.home.saxo/en-au/legal/analysis-disclaimer/saxo-analysis-disclaimer)
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)

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

Contact Saxo

Select region

Australia
Australia

The Saxo trading platform has received numerous awards and recognition. For details of these awards and information on awards visit www.home.saxo/en-au/about-us/awards

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.