Global Market Quick Take: Europe – October 6 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 failed to rebound above the 4,300 level and are trading slightly lower this morning at around the 4,284 level. Today’s key event is naturally the US September Nonfarm Payrolls report and especially after the much weaker than estimated ADP employment change figure on Wednesday suggesting the US labour market is cooling.

FX: The dollar trades softer as Treasury yields retreated further ahead of the US jobs report due today. Against a basket of major currencies, the greenback remains up on the week with heavy losses in MXN, AUD and CAD. AUDUSD also pushed higher, but unable to break above 0.6380 for now. Oil price declines put pressure on CAD and NOK, sending NZDCAD and NZDNOK surging as noted in yesterday’s FX note. EURUSD attempting a push above 1.0550 while USDJPY has bounced from the 21-day MA for a second day, last at 148.37.

Commodities: Crude oil is heading for its worst weekly loss since March with the sector taking a hit from a stronger dollar and a surge in bond yields. High prices killing demand also in focus as refinery margins for diesel and gasoline has slumped by more than one-quarter this week. In WTI, a long/short ratio above 15 has left the longs with a very narrow exit door through which they are now scrambling to squeeze through, thereby exacerbating the slump. Gold and silver look oversold ahead of Friday’s US jobs report, with recession worries lifting 2024 rate cut expectations.

Fixed income: US Treasuries remained stable above 4.7% yesterday despite comments from Federal Reserve member Daly suggesting that the Fed might be done with rate hikes already as the rise in long-term yields tightens the economy further. Dropping oil prices and a weak non-farm payroll report today could add to the rally, but Treasuries are headed towards an intense week of T-bills and coupon supply which could push again long-term yields higher. We expect yields to continue to soar with 10-year US Treasury yields peaking around 5%-5.25%. In the meantime, financing conditions will tighten further putting risky assets under pressure. We therefore remain cautious, and favour low duration, high-grade bonds.

Volatility: The VIX Index was unchanged yesterday reflecting no substantial changes in implied volatility in US equities. While volatility remains below average in equities, volatility is picking up in both bond and currency markets.

Macro: Fed’s Daly (2024 voter) showed increasing confidence in the lack of need for further hikes, citing the recent backup higher in yields (tightening financial conditions) removing the need to do more on hikes. Initial jobless claims data rose marginally to 207k from 205k in the week ending September 30th, beneath the expectations of 210k. Focus now shifts to September NFP report due today.

In the news: Amazon Used Secret ‘Project Nessie’ Algorithm to Raise Prices (WSJ), UK to examine Amazon and Microsoft's cloud dominance (Reuters).

Technical analysis: S&P 500 downtrend support at 4,212 and 4,100. DAX support at 14,933 if below next support at 14,458. EURUSD likely correction to 1.0620. GBPUSD likely correction to 1.2275, strong support at 1.20. USDJPY likely correction, key support at 147.30. Gold strong support at 1,800. WTI Crude oil correction, support at 81.35. US 10-year yields expect correction down to 4.56%

Macro events: US Non-Farm Payrolls (Sep) exp. 170k vs 187k prior, Average Hourly Earnings exp. 4.3% YoY vs 4.3% prior, Unemployment rate exp. 3.7% vs 3.8% prior. (1230 GMT)

Earnings events: No important earnings releases today.

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