Global Market Quick Take: Europe – 14 March 2024

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

Equities: Equity futures in the US and Europe are higher this morning with S&P 500 futures up 0.2% and STOXX 50 futures up 0.2%. In Asia, the session was a bit more mixed with a rebound in Nikkei 225 futures up 0.6% and Hang Seng futures down 1%. In yesterday’s session, investors did not buy the conservative message from Adidas pushing shares higher by 3.8% to the highest level the past year. Inditex, another consumer company in Europe, saw its shares rise 7.7% to a new all-time high. In both cases the comments from ECB Stournaras about the necessity to do two rate cuts before summer. We expect a quiet session in equities with limited macro figures expected except for US February PPI and initial jobless claims. On earnings, the focus is Adobe reporting results after the US trading session.

FX: Narrow ranges in FX with Fed in a blackout. The dollar pushed slightly lower in the late US session but recovered subsequently and was seen with a mildly positive bias in Asia. Low volatility continues to fuel carry trades, and funding currencies CHF and JPY were sold off. USDCHF rose to 0.8790+ and USDJPY touched 148 despite positive signals on wage negotiations, suggesting that BOJ March pivot may be well priced-in. AUDUSD stayed above 0.66 despite dollar strength as a rally in metals prices underpinned. EURUSD rose to highs of 1.0964 for the week, with immediate resistance at 1.0970. GBPUSD is stuck at 1.28, and we see risks of dampening equity sentiment coming to hurt. EURGBP is back at 0.8550+ and could re-test 0.8570.

Commodities: Gold resumed its rally and pared the losses seen after the hot US CPI release, coming back to the $2,170+ levels. PPI today could be key, and another hot inflation print can derail the momentum and result in a short-term pullback before the yellow metal can continue higher. Iron ore prices continued to grind lower towards USD100/ton amid growing concerns of China’s economic growth prospects and lack of supportive measures at the NPC. Copper meanwhile broke higher, driving up Global X Miners ETF (UCITS) 6% to a seven-month high, after China’s smelters pledged to control capacity to support processing fees, thereby tightening the supply of refined products. Crude oil prices rose after EIA data showed the first crude stock draw in seven weeks, with markets also being jittery due to Ukrainian drone attacks on three Russian oil refineries. Focus on monthly oil market report from the IEA.

Fixed income: US Treasuries continued to sell yesterday on the back of the US CPI numbers released on Tuesday. The yield curve bear-flattened, with two-year US Treasury yields rising by +5bps and 10-year yields by 4bps. The selloff continued even if the $22 billion 30-year US Treasury auction received solid demand, recording the highest bid-to-cover ratio since June last year and stopping through by 2.1bps. The auction benefitted from the recent rise in yield, which saw 30-year yields rising by more than 20bps in just a week. Today, the focus shifts onto the US PPI numbers, which feed into the Fed's favorite measure of inflation: the PCE index. European sovereign bonds also sold off yesterday, with Gilts underperforming peers and the 10-year Gilt yields rising by 7.5bps as UK GDP data returned positive in January. Ten-year Bund yields rose by roughly 4bps, while Italian BTP remained resilient, causing the BTP-Bund spread to tighten to 123bps, the lowest since November 2021. Besides the US PPI, the focus will be on the weekly jobless claims and ECB policymaker's speeches.

Macro: Japan’s wage negotiation results started to come through, although the first tally of consolidated results from Rengo – the federation of unions – will be released on Friday. Second tally is due March 22, followed by the third tally on April 4 and final tally in early July. Toyota agreed to meet its union’s pay demands in full with record raises. Honda agreed for wage hike of 5.6% while Nippon Steel agreed for 14.2%. Overall wage hike in 2023 was 3.58% for 2024 forecast is over 4%, the highest in three decades. The Atlanta Fed's Wage Growth Tracker was 5.0% in February, the same as for January. For people who changed jobs, the Tracker in February was 5.3%, down from 5.6% in January. For those not changing jobs, the Tracker was 4.7%, unchanged from January. US PPI and retail sales will be on the radar today, and any hints of a hot PPI would send hawkish waves to the market increasing the odds of a dot plot shift from the Fed next week.

Technical analysis highlights: S&P 500 & Nasdaq 100 Bearish Engulfing top and reversal pattern. Key support for S&P 500 and 17,808 for Nasdaq 100. DAX touched 18K, uptrend intact, key support at 17,620. Below expect sell-off to 17,326-17,118.
EURUSD rejected at 0.618 retracement at 1.0970, expect minor correction but likely to push higher. USDJPY range bound 146.45-148.15. EURJPY rebounding from 0.618 retracement at 160.23, likely resuming uptrend. GBPUSD uptrend but minor correction, potential to 1.2945-1.30. AUDJPY likely resuming uptrend, close above 98.20 will confirm.  Gold correction unfolding could test support at 2,134, break above 2,195 likely move to 2,233. Silver broken resistance at 14.60 potential to 26.00. US 10-year T-yields testing resistance at 4.20, expect sideways range

Volatility: Yesterday, the VIX edged down to $13.75 (-0.09 | -0.65%), suggesting a slight ease in market volatility. However, this contrasted with the VIX1D's rise to $11.88 (+1.43 | +13.68%), and increases in the VVIX to 86.27 (+2.51 | +3.00%) and the SKEW to 144.17 (+1.94 | +1.36%), hinting at short-term market nervousness. Today's economic announcements, including Retail Sales, Initial Jobless Claims, and PPI numbers, could be key volatility drivers. VIX futures slightly decreased this morning to 15.000 (-0.035 | -0.24%), while S&P 500 and Nasdaq 100 futures showed modest gains to 5242.00 (+9.50 | +0.18%) and 18386.00 (+57.50 | +0.31%), respectively, indicating a cautiously optimistic market outlook. Wednesday's most active stock options trading focused on TSLA, NVDA, AAPL, AMD, WMT, AMZN, SOUN, META, PLTR, and MSFT. Notably, increased trading volume in Walmart (WMT) options may reflect market speculation in anticipation of upcoming retail data.

In the news: Toyota agrees to biggest wage hike in 25 years, paves way for BOJ shift (Reuters), BOJ to discuss negative rate exit next week as Japan pay raises grow (Nikkei Asia), US House overwhelmingly passes bill to force ByteDance to divest TikTok (SCMP), Nissan weighs EV partnership with Honda (Nikkei Asia), EV euphoria is dead. Automakers are scaling back or delaying their electric vehicle plans (CNBC)

Macro events (all times are GMT): US retail sales (Feb) exp 0.8% vs –0.8% prior (1130), US PPI (Feb) exp 0.3% & 1.2% vs 0.3% & 0.9% prior (1130), US Initial jobless claims exp 218k vs 217k (1130), During the day: IEA’s Oil Market Report

Earnings events: Today’s key US earnings release to watch is Adobe reporting FY24 Q1 (ending 28 Feb) results tonight after the US market close. Analysts expect revenue growth of 11% YoY and EPS of $4.38 up 57% YoY. Adobe remains one of those companies in the AI application part of the value chain that is still struggling to see any tailwind from the AI trend.

• Today: AIA Group, East Money Information, Ping An Bank, Hapag-Lloyd, Verbund, Adobe, Ulta Beauty, Wheaton Precious Metals, Bollore, Dollar General, RWE, Swiss Life, Rheinmetall
• Friday: CATL, Vonovia, Jabil

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