Global Market Quick Take: Europe – 24 April 2024

Key points:

• Equities: Extending the bounce back on weaker US PMI figures and Musk growth hopes
• FX: USD retreating from its highs on weak PMI figures vs Europe. AUD bid on Q1 GDP
• Commodities: Risk-on tone and soft dollar boost sentiment
• Fixed Income: After a solid 2-year US Treasury action, today’s 5-year notes sale is in focus
• Economic data: German April IFO expected to confirm European growth rebound

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

Equities: Strong gains across all equity markets (Nasdaq 100 futures up 0.7%) after weaker than estimated US PMI figures for April induced a halt to the “no US rate cut this year” narrative and then a sharply higher reaction in Tesla shares after Musk’s growth outlook. Tesla shares gained 13% in extended trading despite a huge miss on both revenue and operating income leading to Q1 free cash flow being $-2.53bn as Elon Musk delivered growth hopes. He announced an early production schedule (first half of 2025) of more affordable models (Model 2) and hinted of a “revolutionary” manufacturing process for its “Robotaxi” (Musk called it a “Cybercab”) which has been given a dedicated investor day on August 8. The US Senate also approved the $95bn aid package for Ukraine and Israel which is also including measures to force Chinese based ByteDance to sell its US TikTok business or face a ban. A lot of European earnings out this morning with luxury stocks in focus as Kering issues profit warning.

FX: Weak US PMIs were a contrast to the improving European PMIs, questioning how long the US exceptionalism will continue just as we highlighted in our Q2 FX outlook. Dollar slumped with the DXY index back below 106, boosting all of the other G10 currencies. GBPUSD rushed back above 1.24 to trade around 1.2450 as BOE speaker Haskel was hawkish. However, comments from BOE Chief Economist Pill seemed to make room for a rate cut in the summer, and we continue to be on the lookout for market pricing of the BOE rate cuts to shift dovish, suggesting GBP downside. AUDUSD also pushed above 0.65 with Australia’s Q1 CPI coming in higher than expected suggesting there may not be an urgent need for markets to price in RBA rate cuts. EURUSD marched above 1.07 but the break appeared fragile, while USDJPY printed fresh highs of 154.88 even as comments from authorities are hinting towards a clear intent to intervene.

Commodities: Crude oil prices trade marginally higher following another rollercoaster session on Tuesday that saw it end higher supported by a US stock draw, focus on Iranian sanctions and a general improvement in the risk sentiment. Ahead of EIA’s weekly crude and fuel stock report, the API reported a 3.2 million barrel decline in crude stocks. Copper holds above $4.40 after Tuesday’s correction triggered a buy-the-dip response, but some doubts remain about the timing of the latest surge. Gold meanwhile is consolidating after finding bids around $2300. The current correction was long overdue, and it will test its mettle and strength of underlying demand. Read our thoughts on the gold and silver correction in this article. Chicago wheat trades lower for the first time in five sessions, although losses could be limited by worries over adverse weather in the US and Russia, two key northern hemisphere exporters

Fixed income: Better-than-expected European composite PMI data spurred an increase in sovereign bond yields across the eurozone. Ten-year Bund yields climbed by 1.6 basis points to 2.5%, while Italian BTPs held steady, with 10-year yields remaining flat throughout the day. In contrast, Gilts underperformed European sovereigns, with Huw Pill's cautious stance on inflation leading markets to push back on expectations for BOE interest rate cuts, now anticipating two cuts over the year. We still favor short-term Italian BTPs over German Schatz; to know more, click here. Meanwhile, in the U.S., the yield curve twist-steepened as PMI data fell short of estimates, and a record-sized 2-year U.S. Treasury auction garnered strong demand. Two-year yields closed the day 3.6 basis points lower at 4.93%, while 30-year bond yields rose by 1.6 basis points to 4.72%. The focus turns to the upcoming 5-, and 7-year U.S. Treasury auctions (for a preview click here), along with preliminary U.S. GDP figures tomorrow and the PCE deflator on Friday. ECB’s De Cos, Villeroy, Cipollone and Nagel speak today.

Macro: US S&P Global Flash PMIs for April were soft, as Manufacturing fell into contractionary territory printing 49.9 (exp. 52.0, prev. 51.9). Services fell to 50.9 from 51.7, and shy of the forecasted 52.0, leaving the Composite at 50.9 from 52.1. ECB's de Guindos said a June rate cut looks like a set deal (unless there are surprises) with the end of inflation fight is in sight. Eurozone PMIs were supported by the services sector (France 50.5, Germany 53.3, and Euro-area 52.9) and Germany’s return to growth with composite PMI back above the 50-mark at 50.5 from 48.6 previously. UK firms also reported the strongest growth in almost a year withs services PMI at 54.9 from 53.0 previously although manufacturing was back in contraction at 48.7 from 50.4 in March. Eurozone’s PMI numbers hint that despite ECB cutting rates in June, it may remain difficult for them to commit to further rate cuts BOE speakers Haskel and Pill sounded cautious on rate cuts after Ramsden’s dovish comments last week. Haskel said UK food price inflation is "unusually high"; UK labour market is "extremely tight". Chief Economist Pill did appear to make room for rate cut as he said that they are now seeing signs of a downward shift in the persistent component of inflation dynamic, and a cut will not entirely undo the restrictive policy stance.

Technical analysis highlights: S&P500 rebound to minor resist at 5,070, trend still down, support at 4,845. Nasdaq 100 rebound to 17,478 resist from support at 16,963, strong resist at 17,808. DAX bouncing from support at 17,620, strong resist at 18,192, above bullish trend resumed. 
EURUSD range bound between 1.06 and 1.07, above 1.07 potential to 1.0777. GBPUSD rebounded to 0.382 retracement, support at 1.2375, no support until 1.2225. USDJPY uptrend struggling but potential to 155.30. EURJPY above resistance at 165.18 potential to 166.30, maybe 167. AUDJPY bullish potential to 102.00. AUDUSD 0.618 retracement at 0.6535, expect set back. Gold managed to close back above 2,319 strong support. Silver spiked down almost to 0.618 retracement at 26.42 support. Copper top and reversal pattern correction to 430-420 in the cards. Above 455 uptrend 470. Crude oil correction could be over, resuming uptrend. US 10-year T-yield uptrend likely to reach 4.70-4.75

Volatility: Volatility (VIX) continued its sharp decline on Tuesday, closing down $1.25 (7.38%) at $15.69. Starting the week at $21.33, the VIX is now nearly 27% lower. This drop, along with easing geopolitical tensions, fueled a strong rally in tech stocks and a positive market response. Bargain hunters pushed indices higher on anticipation of upcoming earnings reports. Tesla's less-worse-than-expected earnings report after-hours sent its price soaring over 10%. Today's focus shifts to Meta, Qualcomm, IBM, ServiceNow, AT&T, and Boeing, with potential for market volatility. Tomorrow, tech giants Microsoft and Alphabet (Google's parent), Caterpillar, and Intel are expected to significantly impact US markets. Futures markets reflect yesterday's trends: VIX futures are down ( -$0.145 | -0.91%), while S&P 500 and Nasdaq 100 futures are up (+0.40% and +0.76%, respectively). Tuesday's top 10 traded stock options were TSLA, NVDA, AMD, AAPL, MARA, AMZN, PLTR, C, RIOT, and WMT. Options volumes are returning to normal levels after last Friday's busy options-expiry session.

In the news: Apple iPhone sales drop 19% in China as demand for Huawei smartphones soars, research says (CNBC), Tesla shares jump 13% after Musk says company aims to start production of affordable new EV by early 2025 (CNBC), Traders Add Bets That Fed Will Skip Interest-Rate Cuts This Year (Bloomberg), UK stocks may finally be back in fashion (Reuters), Japan finance minister says groundwork laid to take appropriate FX action (Reuters)

Macro events (all times are GMT): German Ifo Survey (Apr) exp 88.8 vs 87.8 prior (0800), US Durable Goods (Mar) exp 2.5% vs 1.3% prior (1230), EIA’s weekly crude and fuel stock report (1430), Speakers: ECB’s Cipollone; Schnabel

Earnings events: The earnings season continues today at full speed with Meta Q1 earnings tonight after the US market close being the most important release. Analysts expect a blowout quarter from Meta fuelled by strong ads pricing and demand. Read our earnings preview for this week here.

• Today: Meta, IBM, ServiceNow, Thermo Fisher Scientific, DSV, Kone, Orange, Eni
• Thursday: Kweichow Moutai, Airbus, AstraZeneca, Caterpillar, Union Pacific, Microsoft, Alphabet, T-Mobile, Intel, Merck & Co, Comcast, Neste, Sanofi, BNP Paribas, Dassault Systemes, STMicroelectronics, BASF, Deutsche Bank, Keyence
• Friday: Chevron, Exxon Mobil, AbbVie, TotalEnergies

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