Global Market Quick Take: Europe – 12 February 2024

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

Equities: Nikkei 225 futures are up 1% in today’s session and European equity futures are also pointing higher this morning. This week will continue to focus on earnings and tomorrow’s important US January inflation report with consensus looking for core inflation at 0.3% MoM highlighting the entrenched inflation dynamic in the US economy. Late Friday, ECB warned European banks of potential capital charges if commercial real estate risks are mismanaged. Cisco joins the rank of other larger companies announcing thousands of job cuts.

FX: EURUSD continues to rebound from the lows reached on 5 February and tomorrow’s US inflation report is naturally important for whether the momentum can continue. Comments from several ECB speakers last week about rate cuts coming sooner rather than later in Europe are also supporting the momentum in EUR. USDJPY has so far failed to push back again to 150 and the cross is trading lower in today’s session at around the 149.14 level. A weaker than expected US inflation report tomorrow could send USDJPY lower in the weeks ahead.

Commodities: Following strong momentum last in Brent crude the key commodity market is starting the trading week on a weaker footing trading around the $81.89 level. Strong production outlook from US oil producers and weak economic fundamentals in China will continue to weigh on the global oil market, while the tension in the Red Sea lurks as an upside risk. Gold remains stuck in a tight trading range hovering around the 2,025 level with tomorrow’s US inflation report being the next potential directional catalyst for gold. In wheat futures momentum remains negative with prices stuck in a tight trading range hovering around the 595 level.

Fixed income: Ten-year yields closed on Friday at 4.17%, on the top part of the trading range they have been trading since mid-December. If they break and close above 4.20%, there is the chance that yields might continue to rise to 4.40%. To fuel a move up in yields might be a busy week of economic data ahead, showing that disinflationary trends may be lagging expectations. The US CPI data for January will be released tomorrow. The Empire State Manufacturing survey, retail sales, import price index, and initial jobless claims will be released on Thursday. If data confirm disinflationary trends, it’s likely that 10-year yields will drop to 4% and will continue to trade rangebound. It’s going to be a busy week in Europe as well, with the UK releasing the unemployment rate and average weekly earnings tomorrow, CPI data for the month of January on Wednesday, and Q4 GDP estimates on Thursday. Strong demand for ultra-long sovereign bonds last week suggests that investors are positioning for strong disinflationary forces ahead, with consensus expecting inflation to drop below 2% in the UK by summer.

Macro: The key themes to watch this week are the cracks in the global commercial real estate market and whether more weakness will surface at banks and private equity funds. The weak Chinese economy also remains a source of uncertainty, but because of the Chinese Lunar New Year news flow may be subdued over the coming days. Finally, the US January inflation report and German ZEW January report tomorrow are the key events to track on macro.

Technical analysis highlights: S&P 500 uptrend stretched but could move to 5,110. Nasdaq 100 uptrend likely moving to 18,030. DAX dancing around 17K, uptrend potential to 17,255-17,410. EURUSD bouncing from 1.0730 key support likely to around 1.08 before resuming down trend, below 1.0730 next support 1.0660. USDJPY above key resistance at 148.80, now resist at 149.75 and 152. EURJPY testing 161 resistance. USDCHF uptrend likely move to 0.8820 resistance. Gold range bound 2,065 – 2K. 10-year T-yields key resistance at 4.20, above potential to 4.38  

Volatility: The VIX saw a slight increase on Friday, closing at $12.93 (+0.14 | +1.09%), signaling some caution within its gradual uptrend. The VVIX had a modest decrease to 81.94 (-1.13 | -1.36%). The SKEW index's rise to 156.62 (+6.26 | +4.16%) further emphasizes the market's preparation for potential outlier events, with its value continuing to hover above its typical range. The expected moves for the week ahead have are +/- 53.65 (+/- 1.07%) for the S&P 500 and +/- 264.78 (+/- 1.47%) for the Nasdaq 100, marking a slight decrease from the previous week's projections. Futures remained mostly unchanged in their initial overnight session, pointing towards a market in wait-and-see mode.

In the news: French energy giant Total chief says energy transition will lead to higher energy prices (Bloomberg). Chinese consumers are holding as deflation bites (Bloomberg). Trump questions NATO support at a campaign rally in South Carolina (Reuters). Nvidia CEO argues that every country must have its own AI infrastructure (Reuters).

Macro events (all times are GMT): ECB Lane speaks (09:45), Fed’s Barkin speaks (17:00), Japan PMI Jan 0.1% MoM vs 0.3% prior (23:50)

Earnings events: Another week with earnings as the US earnings season is around 75% complete. The picture is overall good with companies generally beating expectations and most outlooks remain positive.

• Today: CSL, Arista Networks, Cadence, Waste Management
• Tuesday: Japan Tobacco, Marriott, Airbnb, AIG, Coca-Cola, Shopify, Zoetis, Moody’s Ecolab
• Wednesday: CBA, Sony, Heineken, Tokio, CME, EssilorLuxottica, Cisco, Occidental Petroleum, Barrick Gold, Genmab, Norsk Hydro, Kraft Heinz
• Thursday: Schneider Electric, Stellantis, Southern Co, Applied Materials, Airbus, Deere, Safran, RELX, Pernod Ricard, Renault, Commerzbank
• Friday: Eni, Sika, Swiss Re

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