Global Market Quick Take: Europe – 11 April 2024 Global Market Quick Take: Europe – 11 April 2024 Global Market Quick Take: Europe – 11 April 2024

Global Market Quick Take: Europe – 11 April 2024

Macro 3 minutes to read
Saxo Strategy Team

Key points:

  • Equities: Equities are in waiting mode ahead of today’s ECB rate decision.
  • FX: Dollar near five-month high, USDJPY above key level
  • Commodities: Gold strength despite strengthening headwinds,
  • Fixed Income: growing divergence between the Federal Reserve and the ECB is in focus
  • Economic data: Eurozone ECB rate decision

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

Equities: US and European equities took a hit yesterday as the US March inflation report surprised to the upside highlighting the once again inconvenient truth that inflation is more entrenched than the market had priced due to excessive fiscal policies. Today’s key market event is ECB rate decision at 12:15 GMT and later US March PPI figures. The market is clearly expecting a June cut from the ECB so any language at the ECB press conference in the light of yesterday’s US inflation report leaning away from a June cut will upset European equities. Delta Air Lines shares were down 2.3% yesterday after starting higher following better than expected Q1 results and Q2 earnings outlook beating estimates. The changed pricing of lower probability of rate cuts is not good news for airliners.

FX: The dollar surged to near a five-month peak after a third consecutive monthly CPI beat with focus on PPI today as another strong print could send jitters about a hot PCE print for March. Dollar strength weighed the most on activity currencies, and losses in G10 were led by AUD and NOK despite another surge in oil prices. Japanese yen remains a key focus as USDJPY finally pierced through 152 and rose to fresh record highs of 153.24 and verbal intervention from Japanese authorities gathered momentum. The threat of an actual intervention remains limited ahead of US PPI today, and because yen weakness post-CPI has been primarily against the USD and not so evident on the crosses. EURUSD hit a trough of 1.0730 and ECB meeting is eyed today. USDCAD broke above resistance at 1.3625 and touched the 1.37 handle. In Asia, the PBOC yuan fixing came in lower than expectations, suggesting that the Chinese central bank is still trying to keep a firm hold on the yuan

Commodities: Geopolitical risks once again drove Brent back above $90 following reports of an imminent Iran attack on Israel despite a higher dollar post-CPI which together with a 5.8 million barrel rise in US crude stocks, more than double of the expected increase, had seen prices lower earlier in the day. Focus on OPECs monthly oil market report. Gold put up a strong defense against persistent price pressures that may further delay Fed interest rate cuts. However, the prospect for sticky inflation and geopolitical risks continue to offset the negative impact of dollar strength, rising yields and fewer rate cuts. Base metals meanwhile suffered amid the prospect of rates staying higher for longer, potentially hurting the economic growth and demand outlook. Grains trade steady ahead monthly US crop reports which will focus on ending stocks and SouthAm production levels.

Fixed income: Hotter-than-expected inflation data in the U.S. propelled sovereign bond yields higher worldwide as traders tempered their expectations for interest rate cuts this year. Currently, markets are pricing in 40 bp of rate cuts from the Federal Reserve, down from 60 bp just a day earlier. A disastrous 10-year US Treasury auction exacerbated the sell-off. The auction tailed by 3.1 bps, the most significant tail since December 2022, with primary dealers left holding 24% of the issue, the highest since November 2022. Consequently, the US yield curve bear-flattened, with 2-year yields closing 23 bps higher at 4.93%, and 10-year yields ending the day at 4.54%, up 19 bps. On the back of the US CPI report, German 10-year Bunds closed the day 6.4 bps higher at 2.43%, while Gilts underperformed their European peers, with 10-year yields climbing by 11.7 bps to 4.14%. Market expectations still anticipate a 20 bp rate cut by the ECB in June. Today, all eyes will be on the ECB meeting, particularly the press conference, as the growing divergence between the EU and the USA comes into focus. Click here to access our ECB preview.

Macro: US CPI came in hotter than expected for a third consecutive month in March. Headline was up 0.4% MoM (vs. 0.3% exp and 0.4% prev) and 3.5% YoY (vs. 3.4% exp and 3.2% prev). Core CPI also came in higher at 0.4% MoM (vs. 0.3% exp and 0.4% prior) and YoY measure unchanged at 3.8% despite expectations of a cooling to 3.7% YoY. Gains were broad-based across goods and services categories and the door for a June rate cut seems to have closed. Market now expects 20% odds of a rate cut by June and is pricing in less than 50bps of rate cuts for the year. FOMC minutes were stale, with most Fed members agreeing it would be prudent to begin slowing the pace of balance sheet runoff soon. Bank of Canada held rates unchanged at the meeting yesterday and a dovish shift in language and comments from Governor Macklem was seen, opening the door to a June rate cut especially after the dismal jobs report seen last week. We discussed the BOC meeting in this article, and continue to expect hard landing risks for the Canadian economy to rise if BOC was to wait for the Fed to make the first rate cut. ECB Preview: While no change to interest rate is expected, the ECB is likely to lay the ground at the press conference for a rate cut in June. This could send European equities running higher as two-year Schatz yield drops towards 2.8% and EURUSD could test 1.07. China’s consumer prices were 0.1% higher YoY in March, lower than the 0.7% in February and below the 0.4% expected, underlining the challenges for the world’s second-largest economy as it tries to boost domestic demand.

Technical analysis highlights: S&P500 correction unfolding, key support at 5,057. Nasdaq 100 Correction unfolding, needs to close below 17,808 for confirmation. DAX top and reversal, correction likely to 17,900. 
EURUSD resumed downtrend with potential to 1.07-1.0660 GBPUSD downtrend with potential to 1.2410, support at 1.25. USDJPY broken above resist at 151.95 upside to 156.38. USDCHF above resist at 0.9108, no resist until 0.9245, EURJPY failed to reach previous peak at 165.35, could be caught range bound down to 163. AUDJPY collapse. Downtrend if below 99.19. AUDUSD rejected at 0.6640, likely to test 0.6485 support. Gold top and reversal pattern, correction likely unfolding to 2,281, maybe down to 2,230. Silver correction likely, possibly to 26.80. Copper top and reversal pattern, correction likely to 420-410. Cocoa new high could move to 11,000. Brent Crude oil uptrend, resist at 93.05, support at 82.56. US 10-year T-yield likely to move to 4.60-4.70

Volatility: No update today.

In the news: Fed looks to slice balance sheet runoff pace by half (Reuters), Biden and Kishida Enlist Amazon, Nvidia to Fund AI Research (Bloomberg), Meta debuts new generation of AI chip (Reuters), Delta expects summer travel demand to produce record second-quarter revenue (Reuters), Goldman Says It’s Time to Take Tech Profits and Invest Elsewhere (Bloomberg), Germany May Be Europe’s Achilles’ Heel in First-Quarter Earnings (Bloomberg), The ‘supercore’ inflation measure shows Fed may have a real problem on its hands (CNBC), Weak China inflation data fuels concern over consumer demand (FT)

Macro events (all times are GMT): ECB Rate Announcement (1215), OPEC’s MOMR (during the day),  US PPI (Mar) exp final demand YoY at 2.2% vs 1.6% prior with ex food and energy at 2.3% vs 2% prior (1230), EIA’s weekly natural gas storage change, exp +11 bcf vs –37 bcf prior (1430), USDA’s World Agriculture Supply and Demand Estimates (1600)

Earnings events: Today’s earnings releases will not move markets, so instead we are looking ahead for tomorrow’s earnings from major US banks such as JPMorgan Chase, Wells Fargo, and Citigroup. With the recent change in markets on rate cuts (more market participants now believe there will be no cuts) these three banks will tomorrow most likely provide a positive outlook for their banking business.

  • Today: Fast Retailing, Fastenal, Constellation Brands, CarMax
  • Friday: Progressive, Aeon, JPMorgan Chase, Wells Fargo, State Street, Citigroup, BlackRock

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

Disclaimer

The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website. This content is not intended to and does not change or expand on the execution-only service. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research 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. To the extent that any content is construed as investment research, you must note and accept that the 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 under relevant laws.

Please read our disclaimers:
Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
Full disclaimer (https://www.home.saxo/legal/disclaimer/saxo-disclaimer)
Full disclaimer (https://www.home.saxo/legal/saxoselect-disclaimer/disclaimer)

Saxo Bank (Schweiz) AG
The Circle 38
CH-8058
Zürich-Flughafen
Switzerland

Contact Saxo

Select region

Switzerland
Switzerland

All trading carries risk. Losses can exceed deposits on margin products. You should consider whether you understand how our products work and whether you can afford to take the high risk of losing your money. To help you understand the risks involved we have put together a general Risk Warning series of Key Information Documents (KIDs) highlighting the risks and rewards related to each product. The KIDs can be accessed within the trading platform. Please note that the full prospectus can be obtained free of charge from Saxo Bank (Switzerland) ltd. or the issuer.

This website can be accessed worldwide however the information on the website is related to Saxo Bank (Switzerland) Ltd. All clients will directly engage with Saxo Bank (Switzerland) Ltd. and all client agreements will be entered into with Saxo Bank (Switzerland) Ltd. and thus governed by Swiss Law.

The content of this website represents marketing material and has not been notified or submitted to any supervisory authority.

If you contact Saxo Bank (Switzerland) Ltd. or visit this website, you acknowledge and agree that any data that you transmit to Saxo Bank (Switzerland) Ltd., either through this website, by telephone or by any other means of communication (e.g. e-mail), may be collected or recorded and transferred to other Saxo Bank Group companies or third parties in Switzerland or abroad and may be stored or otherwise processed by them or Saxo Bank (Switzerland) Ltd. You release Saxo Bank (Switzerland) Ltd. from its obligations under Swiss banking and securities dealer secrecies and, to the extent permitted by law, data protection laws as well as other laws and obligations to protect privacy. Saxo Bank (Switzerland) Ltd. has implemented appropriate technical and organizational measures to protect data from unauthorized processing and disclosure and applies appropriate safeguards to guarantee adequate protection of such data.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the U.S. and other countries. App Store is a service mark of Apple Inc.