Global Market Quick Take: Europe – 11 March 2024

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

Equities: Strong session in China with Hang Seng futures up 1.5% while Nikkei 225 futures are down 2.5% catching up with the stronger JPY which is negatively impacting the export-driven stocks in Japan. A similar dynamic is happening in Europe as the EUR is strengthening sending the Stoxx 50 futures down 0.8% in early trading hours. S&P 500 futures are starting the week down only 0.2%. Remember the US went on daylight savings time over the weekend, so the US cash equity open starts an hour earlier. The big single stock story on Friday was the huge intraday move in Nvidia with the stock moving 11% from the high to the low. This is a very bad signal in terms of market health and tells us that speculation is running rampant. Key focus this week is whether the market will reverse, and volatility will pick up, but also earnings from Oracle (today), Inditex (We), Adidas (Wed), Lennar (Wed), Adobe (Thu), and Rheinmetall (Thu).

FX: The dollar traded steady in Asia after falling on Friday with traders looking ahead to Fed rate cuts and as US exceptionalism is starting to weaken. Yen heavily in focus this week, with speculation around BOJ meeting on March 19 continuing to gather pace (read Macro section below) and early results of wage talks awaited. USDJPY slipped to 147 breaking below the 100DMA and 200DMA comes next at 146.22. EURJPY heading for a test of 100DMA at 160.10 and break could open the door to 200DMA at 158.37. GBP also extended its gains to 1.29 handle before USD staged a recovery, bringing GBPUSD back to 1.2850. EURGBP heading lower to test 0.85 handle, a level that held throughout 2023. AUDUSD holds above 0.66 after touching a two-month high on Friday at 0.6668.

Commodities: Gold ended an exceptionally strong week with gains of 4.6% with some profit taking emerging ahead of $2200. Strong momentum throughout the week received an additional boost from Friday’s US jobs report which traders interpreted as dovish, strengthening a call for rate cuts. Geopolitical tensions also persisted with lack of a ceasefire as the fasting month of Ramadan began. Crude meanwhile can’t get a break, ending the week lower despite Middle East tensions and OPEC+ production cuts and focus remains on demand outlook as China measures again fell short of market expectations. Focus on Tuesday with US inflation, as well as oil market reports from OPEC and EIA on tap.

Fixed income: This week, it’s all about US CPI numbers coming out tomorrow. The consensus is for headline CPI to remain flat at 3.1% YoY and Core CPI to drop from 3.9% in February to 3.7% YoY in March. Any surprises on the downside or the upside will lead the bond future markets to adjust expectations for interest rate cuts this year. Currently, markets are pricing four rate cuts on the basis that the Federal Reserve is way too restrictive for current inflation levels. Still, if the economy begins to crumble, there is scope to price a more aggressive rate-cutting schedule. It will also be a busy week for the US Treasury, which will issue 3-, 10- and 30-year notes today, tomorrow, and Wednesday. Also, in Europe, inflation is going to be in the spotlight, with investors trying to understand whether an ECB April rate cut may be in the cards. This morning, better-than-expected GDP data from Japan reignited expectations that the BOJ might begin to normalize monetary policy this month. If that were to be confirmed, it would have serious consequences for sovereign bonds in the US and Europe. Overall, we remain constructive on sovereign bonds versus corporate and emerging markets credits and see reason to extend the duration up to the ten-year tenor. We believe that QT tapering might come as soon as next week’s FOMC meeting, as the Bank Term Funding Program (BTFP) expires and the RRP facility continues to fall (for more, click here).

Macro: US NFP report for February showed that job growth is slowing but labor market remains resilient. The headline job growth beat at 275k vs 200k expected, but January print as revised lower to 229k from 353k. Dovish hints also came from higher unemployment rate and softening wage pressures. The unemployment rate saw a notable move higher to 3.9% from 3.7% despite expectations for this to be left unchanged, and wages came in at 4.3% YoY (vs. 4.4% prior, 4.4% exp) and 0.1% MoM (vs. 0.3% exp). Market pricing was broadly unchanged, and February CPI now in focus, due on Tuesday. Japan’s Q4 GDP was revised substantially higher and confirms that Japan is not in a technical recession. Annualized Q4 GDP now at 0.4% QoQ vs. -0.4% QoQ in the preliminary print. Furthermore, a weekend report from a Japanese media outlet said the bank may decide to end negative interest rates as soon as the next policy meeting concluding on March 19. Jiji also said that BOJ will stop its program to guide benchmark 10-year government bond yields to around 0%, as part of its efforts to normalize monetary policy.

Technical analysis highlights: S&P 500 & Nasdaq 100 Bearish Engulfing top and reversal pattern. Key support for S& 500 and 17,808 for Nasdaq 100. Dow Jones formed top and reversal two weeks ago, downtrend established. DAX key support at 17,620. Below expect sell-off to 17,326-17,118.
EURUSD rejected at 0.618 retracement at 1.0970, expect minor correction before likely move higher to 1.1045. USDJPY finding support at 0.786 retracement at 146.95, could see rebound. EURJPY testing 0.618 retracement at 160.23, likely to rebound. GBPUSD above key resist at 1.2828 likely push to 1.2945-1.30. USDCHF range bound 0.8886 - 0.8740.
Gold reached 1.382 projection at 2,195, possible correction to 2,134-2,115 before next bullish move.

Volatility: On Friday, the VIX increased to $14.74 (+0.30 | +2.08%), and the VVIX saw a more significant rise to 86.56 (+4.43 | +5.39%), signaling heightened market volatility anticipation. This week is set to potentially bring higher volatility, with key economic data releases on the horizon, including CPI, Treasury note and bond auctions, retail sales data, PPI, and Initial Jobless Claims. The expected market moves for the week have adjusted upwards, with the SPX at +/- 72.55 (+/- 1.42%) and the NDX at +/- 339.54 (+/- 1.88%), indicating the market is bracing for significant shifts. This comes as earnings season winds down, with notable reports expected from Oracle tonight and Adobe on Thursday, both garnering close market attention. VIX futures edged up to 15.140 (+0.065 | +0.42%) this morning, while S&P 500 and Nasdaq 100 futures show slight declines at 5188.50 (-4.00 | -0.08%) and 18274.25 (-23.00 | -0.12%), suggesting a cautious market stance. Friday's most traded stock options were, in order: NVDA, TSLA, AMD, AAPL, META, GOOGL, PLTR, TSM, COIN, and RIVN, with Nvidia experiencing an exceptional trading volume of over 4 million contracts, marking a recent record high.

In the news: Fed Officials to Signal Interest Rate Cuts Are Getting Closer (Bloomberg), China’s housing minister says real estate developers must go bankrupt if necessary (CNBC), Japan weather bureau says 80% chance El Nino will end in spring (Reuters), Bank of Japan leaning toward exiting negative rates in March, sources say (Reuters), Tech stocks see biggest weekly outflow on record, Bank of America says (Reuters), Novo Nordisk confident of amycretin obesity drug launch this decade (Reuters)

Macro events (all times are GMT):  Norway Feb CPI YoY est. 4.7% vs prior 4.7%

Earnings events: An interesting week ahead on earnings with the most important releases being Oracle (today), Inditex (We), Adidas (Wed), Lennar (Wed), Adobe (Thu), Rheinmetall (Thu), and CATL (Fri).

• Monday: BNP Paribas Fortis, Oracle
• Tuesday: Generali, Archer-Daniels-Midland
• Wednesday: Inditex, Foxconn, Snam, Geberit, Lennar, Volkswagen, Adidas, E.ON, Dollar Tree, Williams-Sonoma, UiPath
• Thursday: AIA Group, East Money Information, Ping An Bank, Hapag-Lloyd, Verbund, Adobe, Ulta Beauty, Wheaton Precious Metals, Bollore, Dollar General, RWE, Swiss Life, Rheinmetall
• Friday: CATL, Vonovia, Jabil

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