Key points:
The Saxo Quick Take is a short, distilled opinion on financial markets with references to key news and events.
Equities: Quiet start to the new week. Japanese equities are up 1% and Australian equities are up 0.6%. Equity futures in Europe and the US are pointing slightly higher. Key earnings focus today is Palantir reporting after the US market close. Key macro focus is the Eurozone May Sentix Investor Confidence figure out in early trading hours of the European session. Mainland China equities are up another 1.4% today as Chinese equities are playing catchup with the rest of the global equity market. Over the weekend, Berkshire Hathaway hosted its annual shareholder meeting and here Warren Buffett said several interesting things such as Indonesia will be a big and interesting market for Berkshire Hathaway in the future.
FX: The dollar fell by around 1% last week with losses sees against its major peers, not least the Japanese yen which jumped 3.5% after the BoJ initiated several rounds of intervention to prop up the under-pressure currency. Friday’s weaker-than-expected US jobs report helped revive bets on FOMC rate cuts, forcing some additional long liquidation from speculators holding overextended dollar longs. However, overnight the USDJPY rebounded again with Japan’s wide interest rate spread against all its major peers, continuing to weigh on the currency until there are clear signs of them narrowing. Traders will be watching several central bank meetings this week, led by a likely hawkish Reserve Bank of Australia on Tuesday following stronger-than-expected inflation data last month.
Commodities: All sectors but grains where corn hit a 3-month high, traded lower last week led by the softs sector where cocoa slumped, with coffee and cotton following suit. The energy sector, apart from natural gas, suffered a broad setback with crude oil prices seeing their steepest weekly decline in three months on demand uncertainty and easing tensions in the Middle East reducing supply risks. Precious metals traded lower for a second week, despite some emerging support from yen-led dollar weakness and lower bond yields following the dovish FOMC meeting and Friday’s weaker-than-expected US jobs report. More in our weekly commodity update here. In early trading Monday some of last week's losses are showing signs of reversing, led by gains in silver, copper, gold and crude oil.
Fixed income: U.S. Treasuries rallied on Friday following weaker-than-anticipated April jobs data, resulting in 10-year yields, closing the day at 4.5%, roughly 6 basis points lower from the opening. Later in the day, Treasuries pared some of their gains as the ISM services report revealed a notable rise in the prices paid component. Meanwhile, two-year yields ended the day at 4.81%, marking a decrease of over 11 basis points spurred by the NFP report, alongside comments from Fed’s Bowman hinting at the potential for a rate hike. Market projections now anticipate rate cuts of 47bps and 75bps for the Federal Reserve and the ECB respectively by year-end. In the spotlight this week is the health of the US economy, with the release of the Senior Loan Officer Survey by the Fed today, along with the University of Michigan consumer survey. Additionally, the busy US Treasury auction agenda includes plans to sell $125 billion in 3-, 10-, and 30-year US Treasury bonds. Attention will be paid to bidding metrics as the Treasury conducts its largest net sale in two years this quarter.
Technical analysis highlights: S&P500 Key resistance at 4,146. Above bullish trend. Nasdaq 100 above key resist at 17,808, could resume uptrend. DAX rejected at key resistance at 18,192. A close above bullish
EURUSD spike to just above 1.08 only to collapse, correction likely to be over. GBPUSD spiked to 0.786 retracement at 1.2622, likely to slide back. JPY pairs likely to rebound strongly: USDJPY sold off to 0.618 retracement at 151.75, rebound potential to 157. EURJPY finding support around 0.786 retracement at 164.29, rebound potential to 168.75. AUDUSD spiked to key strong resist at 0.6650 but failed to close above, likely setback. USDCAD spiked below key support at 1.3618, closed above i.e., still bullish outlook. USDCHF bouncing from support at 0.90
Gold seems to have strong support around 2,280. US 10-year T-yield spiked below 4.47 support but closed above, close below next support at 4.34
Volatility: VIX ended Friday at a five week low, at $13.49 (-1.19 | -8.11%), and clearly shows that volatility is dropping fast to its lows of earlier this year. Also the short term VIX-indicators (VIX1D and VIX9D) are returning to their 'normal' levels, indicating that price fluctuations on the very short term are less expected. An image that is also reflected in the expected moves for the coming week: S&P500 has a expected move of plus or minus 58.11 ( or +/- 1.13%), while the Nasdaq 100 is at plus or minus 288.32 (or +/- 1.61%). Volatility will be a lot less than the previous weeks, with much less economic news, and also earnings-wise there are still a lot of earnings but much less of big names as the previous weeks. Biggest names this week are Walt Disney, Uber and AirBnb. VIX futures are at 14.550 (-0.04 | -0.28%). S&P500 and Nasdaq 100 futures are also nearly unchanged: 5158.00 (+3.25 | +0.06%) and 17997.75 (-3.00 | -0.02%) respectively. Last Friday's most traded stock options, in order: AAPL, TSLA, NVDA, AMD, AMZN, META, PLTR, GME, GOOGL and COIN.
Macro: April U.S. jobs report showed softness all-around with lower job gains, higher unemployment rate, and weak labor income proxy. The headline payrolls figure increased by 175k month-on-month, lower than the anticipated 240k, marking the smallest monthly growth in six months. Additionally, the unemployment rate edged up to 3.9%, compared to the expected 3.8%, while both average hourly earnings and hours worked were slightly below forecasts, with increases of 0.2% and 34.3 hours respectively.
In the news: Finland boosts war readiness in face of Russian aggression (FT), Buffett Says India Holds ‘Unexplored’ Opportunities for Future Berkshire Leaders (Bloomberg), Truce Talks Drag as Hamas Hits Israel Crossing in Deadly Attack (Bloomberg), ECB rate cut case getting stronger, says chief economist Lane (Reuters), Gasoline demand growth to slow this year on EV growth in China, U.S. (Reuters), Hamas says latest cease-fire talks have ended. Israel vows military operation in ‘very near future’ (CNBC)
Macro events (all times are GMT): Eurozone May Sentix Investor Confidence est. -5.0 vs –5.9 prior (08:30), ECB’s Villeroy speech (11:15), ECB’s Nagel speech (11:30), USDA’s weekly corn and soybean planting and winter wheat conditions (20:00)
Earnings events: This week is another busy one on earnings with several hundred earnings releases. The six most important in terms of potential price action and sentiment for the market are Palantir (today), Walt Disney (Tue), Infineon Technologies (Tue), Airbnb (Wed), Uber Technologies (Wed), Shopify (Wed), and ARM (Wed). Earnings and especially the outlook from ARM will be important to watch as the company will be a good barometer of AI demand. Palantir that report today after the US close is expected to report 17% revenue growth YoY and EBITDA of $205mn up from $12mn a year ago.
For all macro, earnings, and dividend events check Saxo’s calendar
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.
