Global Market Quick Take: Europe – 10 January 2024

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

Saxo’s Q1 2024 Outlook titled “What happened to the future” is now out. You can read the executive summary here

Equities: Besides the renewed speculative fever in AI related stocks the other big development in equity markets is Japanese equities pushing to new all-time highs with Nikkei 225 futures up 2% in today’s session. One of the factors driving this trend is foreign investors leaving Chinese equities and another is the weak JPY with naturally also being the biggest risk should the JPY strengthen again. S&P 500 futures are trading just below the 4,800 level this morning and we do not expect big moves until tomorrow’s US inflation report has been released.

FX: The dollar continues to recover following Monday’s drop with the DXY holding well above the 102-level held up in DXY, with little data of relevance before Thursday’s US CPI release . USDJPY rose back to 144.70+, extending gains with the miss in labor cash earnings today. EURUSD tested support at 1.0910 with German data disappointing. GBPUSD also reversed to test the 1.27 handle support but staying supported for now.

Commodities: Oil prices trades higher for a second day as the tug-of-war between demand and supply concerns keep prices rangebound. The recent bid apart from short covering, being driven by a weekly drop in US stocks and more attacks on ships in the Red Sea. EIA’s STEO forecast a narrow global supply deficit this year while the front-end timespread in Brent show signs of a price supportive tightening. Copper trades lower on worries about global manufacturing and construction activity but hopes remain China will do more to stimulate its economy. Gold follows the ebb and flow of the dollar with key support around 2010 with a slump in ETF holding to a fresh four-year low weighing on prices

Fixed income: Strong demand at yesterday’s 3-year US Treasury auction drove yields slightly lower across maturities but failed to bring 10-year yields back below 4%. The auction stopped through When Issue by 1.1bps, pricing at a high yield of 4.105%, the lowest since May 2023. Today and tomorrow, the US Treasury will sell 10-year and 30-year bonds, respectively. The focus will be on auctions’ bidding metrics ahead of tomorrow’s CPI readings. The big question is whether duration continues to be appealing after the recent bond rally despite markets are priced to perfection reflecting the expectations of six rate cuts this year.

Macro: US NFIB small business optimism rose slightly to 91.9, a 5-month high, from expectations of 91.0. The increase was partly a reflection of holiday sales, but index remains subdued by historical standards. Sharp miss in German industrial production again highlighted concerns of Eurozone recession. November industrial production came in at -0.7 MoM from +0.3% expected and -0.3% last. Japan’s labor cash earnings came in below expectations at 0.2% YoY from +1.5% previously and expected. Real cash earnings were -3.0% YoY, much deeper than 2% drop expected by consensus, and may add to reasons for BOJ to continue to postpone a pivot.

Volatility: Volatility continues its descent with the VIX dropping to $12.76, hinting at calmer markets. The VVIX also fell to a low not seen since last September, reaching 78.59. Conversely, the SKEW-index climbed to 140.95, reflecting a rise in out-of-the-money option prices. Overnight, VIX futures and major index futures like the S&P 500 and Nasdaq 100 showed little change. However, with the VIX1D falling to 9.02, risk-reward ratios become challenging for 0DTE traders selling premium. As we approach earnings season, notable stocks such as Starbucks, Intel, and Microsoft display heightened implied volatilities, with IV Ranks surpassing 60%. With the CPI numbers due tomorrow, anticipate a potential spike in market volatility.

Technical analysis highlights: S&P 500 likely resuming uptrend, could test previous peak, support at 4,682. Nasdaq 100 likely resuming uptrend could test 17K, support 16,166. DAX likely resuming uptrend support at 16,470. EURUSD bounced from 0.618 retracement and support at 1.0882, could rebound to 1.10. USDJPY testing key resistance at 144.95 once again, a close above could lead to 146.60.  EURJPY testing key strong resist at 158.55, needs to close above for uptrend confirmation. Gold likely range bound 2,017- 2,065, could test 2K. Crude oil is struggling for upside momentum. 10-year Treasury yields rejected at 4.10 key resistance

In the news: Tesla lowers range estimates as U.S. regulators tighten vehicle-test rules (Reuters), SEC X Account Compromised to Falsely Say Bitcoin ETFs Approved (Bloomberg), With Trump present in court, judges express skepticism of claims that he’s immune from prosecution (AP), Boeing CEO admits mistake as investigators probe midair panel blowout (CNBC), Amazon’s Twitch to Cut 500 Employees, About 35% of Staff (Bloomberg), JD.Com's Dada identifies 'suspicious practices' in internal audit (Reuters)

Macro events (all times are GMT): EIA’s weekly crude and fuel stock report (1430), US to sell $37b 10-year notes (1700), Fed’s Williams give speech on 2024 economic outlook (1915)

Earnings events: No important earnings releases today.

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