Global Market Quick Take: Europe – 9 November 2023

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

Equities: S&P 500 futures closed at the 4,400 level yesterday putting US equities into the recent resistance area from back in October and cyclical sectors, reflecting growth sentiment, have risen to a new high this year against the defensive sectors showing that equity investors remain positive on the economy. This obviously increases the risks in equities should the economy materially slow down over the coming months. On earnings, we got disappointing outlook from Arm causing shares to decline 6%, Disney shares rose in extended trading as the company is on track to more cost savings than analysts expected, and finally Adyen updated its mid-term outlook surprising the market as the company kept a rather high revenue growth outlook with shares rallying 36%.

FX: The dollar trades broadly unchanged against its G10 peers despite the run lower in long-end yields. Fed Chair Powell did not comment on monetary policy, while Cook spoke on risks to the financial system, but focus is again on Powell speaking at the IMF on Thursday where he may try to push back on market’s dovish interpretation of the last FOMC meeting. AUDUSD continued to lose ground and slid lower again to test the 0.64 handle while Yen bears returned, taking USDJPY back higher for a test of 151 and verbal intervention risks escalate at these levels. The EURUSD is pushing back above 1.07 even as Draghi painted the recession picture and GBPUSD attempted a move back above 1.23 after BOE Governor Bailey tried to push back on market pricing for rate cuts after dovish comments from Huw Pill a day ago.

Commodities: Crude oil has moved into a long capitulation phase with Brent trading below $80 and WTI near $75 as front-end curve spreads collapse amid slowing demand, not least in China, the world's top importer. Metals trade mixed with nickel at a two-year low, copper losing ground while iron ore trades near a 7-month high on expectations of support to China’s property sector. Gold’s correction continues with a potential delay in peak rates weighing on prices with focus now on key support around $1935. Ahead of USDA’s supply and demand report today (WASDE), Chicago soybeans hit a two-month high on huge China demand and Brazil weather woes.

Fixed income: yield curves continue to bull-flatten on both sides of the Atlantic. Federal Reserve speakers’ remarks highlight that the fight against inflation is not over, but some recognized that financial conditions are tightened enough. The 10-year US Treasury auction was mediocre as the bid-to-cover was the lowest since June, and it tailed slightly When-Issued. Today the Treasury sells $24 billion 30-year notes and it will be important is demand for ultra-long duration has improved despite the recent drop in long-term yields. While yield curves are now flattening, we remain constructive on steepeners in the mid and long-term.

Volatility: The VIX continues its downwards trajectory ending yesterday’s session at 14.45, -36 cents (-2.43%). The index now had its 8^th consecutive day of decline. While it went upwards during the first half of its trading session, it soon reversed its course downwards, sending stocks from their mid-day negative lows to a slight positive at day’s end. With most (if not all) Fed speakers warning that interest rate cuts are not yet here, and we might be in a longer than expected period of high inflation, markets seem to be in denial. With Powell’s speech this afternoon, volatility may rise, and nervousness might return a bit, as it is clear that after 8 days of winning streaks in the stock market, it is losing a bit of momentum. VIX futures are down marginally at $15.970 (-0.47%). S&P 500 & Nasdaq futures are flat, -0.02% and +0.01% respectively. The Cboe SKEW-index (the OTM sibling of the VIX index) ended at 139.41, pointing to a slightly higher chance of outlier moves.

Technical analysis highlights: S&P 500 strong resistance at 4,400. Nasdaq 100 above falling trendline i.e., bullish trend, resistance at 15,561. DAX resistance at 15,280, down downtrend. EURUSD resistance at 1.0765. GBPUSD rejected at 1.2445. USDJPY could test 152.00, strong support at 148.80. EURJPY eyeing 163. Gold correction likely down to 1,933. Brent oil support at 78.20. WTI support at 73.85. US 10-year T-yields key support at 4.50, a close below next is 4.36

Macro: Eurozone October Retail sales -0.3% MoM vs -0.2% expected, though YoY it was at -2.9% vs. -3.1% expected. ECB’s 1yr inflation expectations jumped higher to 4.0% from 3.5% earlier, while 3yr was unchanged at 2.5%. Former ECB chief Mario Draghi said the Eurozone will be in recession by year end, though he pinned the blame for that partly on high energy prices. Final German October CPI unchanged from the preliminary release at 3.8% for the headline and 3.0% for HICP. Philadelphia Fed President Patrick Harker on Wednesday again argued the Federal Reserve should stop raising interest rates and hold them at their current 22-year highs, while warning rate cuts are not forthcoming in the near future.

In the news: China’s Consumer Deflation Returns as Recovery Remains Fragile (Bloomberg), BOJ debated groundwork for future easy-policy exit at Oct meeting (Reuters), Disney Tops Profit Estimates, Seeks Extra $2 Billion in Cost Savings (Bloomberg), Eli Lilly Wins FDA Nod for Obesity Drug That Rivals Wegovy, Ozempic (Bloomberg), Arm forecasts Q3 below Wall Street on deal delay, shares dive 8% (Reuters), Lyft beats third-quarter estimates, bookings underperform rival Uber (Reuters), China Vice President Sees ‘Positive Signals’ in Ties With US (Bloomberg)

Macro events (all times are GMT): US Initial Jobless Claims exp 218k vs 217k prior, USDA’s Oct World Agricultural Supply and Demand Estimates (1700), Fed’s Powell speaks on panel at IMF conference (1900)

Earnings events: Key earnings today from National Australia Bank, Sony, Merck, SoftBank, Honda Motor, AstraZeneca, Brookfield, Deutsche Telekom, and Becton Dickinson.

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