Key points:
The Saxo Quick Take is a short, distilled opinion on financial markets with references to key news and events.
Equities: All major equity futures are pointing Monday morning with Hang Seng futures up 1.8%, Stoxx 50 up 0.6% and S&P 500 futures up 0.5%. On geopolitical risk the biggest event was the US House of Representatives approval of a major aid package to Ukraine that will give the country the necessary military equipment to starve off Russia’s planned summer offensive. Tesla is in focus as the EV maker cut prices on its Model 3 and FSD, adding more worries about profitability ahead of its Q1 earnings release tomorrow. Tencent shares are up 5.5% on the Chinese technology company’s plans for an earlier expected release of a anticipated mobile game that is reviving hopes of growth in 2024. Friday’s massive selloff in semiconductor stocks will naturally put this sector in focus today with Nvidia shares experiencing a heavy 10% decline.
FX: The dollar was only marginally higher in the week despite further pushback to Fed’s easing expectations, an escalation in geopolitical tensions and a pullback in equities momentum. Safe havens such as Silver, gold and Swiss Franc led the gains against the dollar for the week, while NOK, NZD and JPY underperformed. Sterling fell sharply on Friday, with GBPUSD breaking below the 1.24 handle for the first time since November. In the week to April 16, the non-commercial dollar long against eight IMM futures jumped to a November 2021 high. The AUD faces further downside risks this week as discussed in this Weekly FX Chartbook. AUDUSD was rejected at 0.6450 and Australia’s Q1 CPI will be key this week, while USDNOK may test a break below 11 again. USDJPY trades one big figure higher from the lows seen post-escalation of geopolitical worries on Friday at 154.60, and BOJ meeting this week will be the next key catalyst. Also, read our article on how FX can be used for portfolio diversification in this high inflation era when both equity and bond returns may come under pressure.
Commodities: Crude oil prices traded lower in Asia following last week’s 3.5% drop driving by a deflating geopolitical risk premium and a general deterioration in risk sentiment with the S&P 500 down 3% on the week. Base metals meanwhile going in the opposite direction supported by sanctions on Russian aluminum and nickel, with copper reaching a fresh two-year high overnight at $4.575, driven by robust AI and green transformation demand and tight supply. Gold made a couple of failed attempts above $2,400 last week, potentially signaling a short-term top followed by an overdue period of consolidation. To know more about our views on different commodities, read this Commodity Weekly update.
Fixed income: The Middle East's escalating geopolitical tensions spurred safe-haven demand on Friday, leading to a 3 basis point drop in 10-year Bund yields, closing the day at 2.99%. US Treasuries also saw gains, briefly dipping below 4.5% before bouncing back as tensions eased, closing the day at 4.62%. In Asia morning, US Treasuries continue to sell off amid a relief stock rally. With the focus now on a robust economy, there's speculation that the Fed might delay interest rate cuts further. This week, attention turns to the upcoming 2-, 5-, and 7-year U.S. Treasury auctions, along with preliminary U.S. GDP figures and the PCE deflator. Additionally, Lagarde's speech at Yale University today is on the radar.
Macro: Chicago Fed President Goolsbee (2025 voter) was on the wires on Friday, and echoed the same hawkish narrative that has now become the Fed baseline. He said the Fed has done great on the unemployment mandate, but not succeeded on the inflation mandate. But he did also mention the policy trade-offs and the likely impact on jobs if rates were restrictive for too long. With regards to a rate hike, he also said that “don't think anything is not on the table”. The Fed will be in the quiet period now ahead of its May 1 policy decision, and PCE data will be in focus for Friday. UK retail sales came in weaker-than-expected, fueling concerns about a consumer slowdown in Britain. Ex-auto retail sales were down 0.3% MoM in March from +0.3% previously.
Technical analysis highlights: Downtrend in Equities but ripe for a correction. S&P500 could see minor rebound from support at 4,953, support at 4,845. Nasdaq 100 could rebound from support at 16,963. DAX likely bouncing from support at 17,620.
EURUSD seems to be range bound between 1.06 and 1.07. GBPUSD hovering around support at 1.2375. USDJPY uptrend potential to 155.30. EURJPY resistance at 165.18 likely to be tested, break above potential to 166.30. USDCAD uptrend intact, potential to 1.39. Gold likely to test support at 2,319. Silver likely to test key support at 27.60, break below could drop to 26.40. Copper spiked to 455, could form top and reversal pattern, ripe for correction. US 10-year T-yield uptrend likely to reach 4.70-4.75
Volatility: VIX ended last week at $18.71 (+0.71 | +3.94%), after retreating from an intraday high of $21.36. With geopolitical tensions volatility rose significantly last week. Yet even when these cooled down, volatility remained high as a market correction is unfolding and uncertainty of interest rate cuts are persistent and even growing. Expected moves for this week show a similar picture: SPX expected to vary +/- 89.95 (+/- 1.81%) and the NDX +/- 417.49 (+/- 2.45%), both again higher than last weeks expected moves. Later this week volatility will also be influenced by a myriad of economic news to be published (S&P Global US Manufacturing PMI, Durable Goods Orders, GDP, Initial Jobless Claims and Core PCE Price Index) which will have effect on future interest rate decisions. And of course it's probably the most important week on the earnings front where big tech is about to publish their Q1 results. Big names as Visa, Tesla, PepsiCo, Meta, Microsoft, Alphabet and many more may cause noticeable market volatility. VIX futures this morning are down to 17.300 (-0.535 | -3.00%), while S&P 500 and Nasdaq 100 futures are at 5027.75 (+24.00 | +0.48%) and 17294.25 (+113.50 | + 0.66%). Friday's top 10 traded stock options, in order: NVDA, TSLA, AAPL, AMD, AMZN, META, NFLX, SMCI, ARM and MSFT.
In the news: Tesla cuts prices in China, Germany and around globe after US cuts (Reuters), China slaps anti-dumping levy on import of a US chemical amid rising trade tensions (Reuters), AmEx surpasses profit estimate; small-business strategy in focus (Reuters), Apple pulls WhatsApp, Threads from China app store after Beijing order (Reuters), The Bitcoin Halving Is Here, and With It a Giant Surge in Transaction Fees (CoinDesk), Salesforce's talks to buy Informatica fizzle, WSJ reports (Reuters), China Is Front and Center of Gold’s Record-Breaking Rally (Bloomberg)
Macro events (all times are GMT): Chicago Fed National Activity Index for March est. 0.09 vs prior 0.05 (12:30), Eurozone April preliminary Consumer Confidence est. -14.5 vs prior 14.9 (14:00)
Earnings events: This week’s key earnings releases that will drive sentiment in equities are Tesla, Meta, Caterpillar, Microsoft, and Alphabet (Google). SAP is only important earnings release today reporting tonight after the European market close with analysts expecting revenue growth of 8% YoY and EBITDA of €1.96bn up from €1.69bn a year ago.
2024: The wasted year
Markets are driven by election optimism, overshadowing growing debt and liquidity concerns. The 2024 elections loom large, but economic fundamentals and debt issues warrant cautious investment.
As US economic slowdown hints at a shift away from exceptionalism, USD faces downside with looming Fed cuts. AUD and NZD set to outperform as their rate cuts lag. JPY gains on carry unwind bets and BOJ pivot.
Amid AI and obesity drug excitement, equities see varied prospects: neutral on overvalued US stocks, negative on Japan due to JPY risks, positive on Europe. European defence stocks gain appeal.
With the economic slowdown, quality assets will gain favour, especially sovereign bonds up to 5 years. Central banks' potential rate cuts in Q2 suggest extending duration, despite policy and inflation concerns.
Commodities poised for rebound. The "Year of the Metal" boosts gold and silver, copper awaits rate cuts. Grains may recover, natural gas stabilises. Gold targets $2,300-$2,500/oz, copper's breakout could signal growth.
Markets are driven by election optimism, overshadowing growing debt and liquidity concerns. The 2024 elections loom large, but economic fundamentals and debt issues warrant cautious investment.
As US economic slowdown hints at a shift away from exceptionalism, USD faces downside with looming Fed cuts. AUD and NZD set to outperform as their rate cuts lag. JPY gains on carry unwind bets and BOJ pivot.
Amid AI and obesity drug excitement, equities see varied prospects: neutral on overvalued US stocks, negative on Japan due to JPY risks, positive on Europe. European defence stocks gain appeal.
With the economic slowdown, quality assets will gain favour, especially sovereign bonds up to 5 years. Central banks' potential rate cuts in Q2 suggest extending duration, despite policy and inflation concerns.
Commodities poised for rebound. The "Year of the Metal" boosts gold and silver, copper awaits rate cuts. Grains may recover, natural gas stabilises. Gold targets $2,300-$2,500/oz, copper's breakout could signal growth.
