Global Market Quick Take: Europe – 26 April 2024

Key points:

• Equities: Strong risk-on sentiment. Focus on earnings from Microsoft and Alphabet.
• FX: Yen drops further on BoJ non-action in choppy trading ahead of US PCE
• Commodities: A fifth week of gains with grains and energy offsetting metal weakness
• Fixed Income: Higher-than-expected PCE data sends yields higher.
• Economic data: US PCE Deflator (March)

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

Equities: All equity markets are surging ahead of the weekend with Stoxx 50 futures up 1% and Nasdaq 100 futures up 1.3% as Microsoft and Alphabet delivered strong earnings results after the US market closing. Bank of Japan’s decision to hold the policy rate despite acknowledging upside risks to inflation also added to sentiment with Japanese equities rising 0.8%. However, with fresh lows in the JPY the risks are increasing that China will devalue its currency setting off a chain of currency and trade war measures across Asia. Microsoft shares were up 4% in extended trading on a strong demand outlook with the cloud business Azure expected to grow 30-31% in the current quarter. Microsoft also announced that it has 1.8mn paying subscribers on its new Copilot AI offering. Alphabet, the parent company of Google, shares rose 12% in extended trading on much better-than-expected results across all its businesses with AI demand driving strong cloud growth. Alphabet also announced an additional $70bn of share repurchases and declared its first dividend of $0.20 per share. In Europe, the French energy company TotalEnergies has reported better than expected Q1 results and announced a $2bn buyback in Q2.

FX: Choppy price action seen in the US dollar which rose to test the 106 handle as Q1 US GDP report garnered a hawkish reaction on the back of hot PCE print, but risk sentiment improved later in the session as equities recovered from the lows, pushing dollar lower. USDJPY surged to fresh highs of 156+ as BOJ announcement lacked a clear FX concern and details on bond purchases were patchy. Focus shifts to Governor Ueda’s conference and a steady dovish rhetoric could mean yen weakness may have room to extend as March PCE is on the radar late today in the US. We discussed the JPY weakness, intervention risks, and BOJ meeting in detail in this article. Cable was back at the 1.25 handle, but AUDUSD saw fresh buying and rose towards 0.6540. AUDJPY jumped above 102, while CNHJPY has also reached fresh record highs of 21.50+ prompting yuan devaluation concerns.

Commodities: The Bloomberg Commodity index is heading for a fifth weekly gain with gains in energy, and not least grains, led by a +9% gain in wheat on dry weather concerns in key production regions, more than offsetting profit taking in precious and some industrial metals, excluding copper. Gold rose after the weak Q1 GDP and accelerated price index sparked concerns about stagflation. Still down on the week with focus on today’s March PCE Deflator print. The recent behavior shows investors are increasingly concerned about inflation and a potential debt crisis as US Treasury yields continue to rise. Crude oil is heading for a weekly gain but overall remains range bound and with no clear signals, the focus is likely to remain on macro-economic developments. Copper trades at a fresh two-year high, supported by continued fund momentum buying following BHP’s merger announcement. However, while green transformation demand and a tightening supply outlook will support prices in the coming years, short term fundamentals are soft, raising the risk of a correction.

Fixed income: European sovereign yields surged broadly, with 10-year Italian BTP yields reaching 4% for the first time since December and 10-year Bunds breaking above 2.6% for the first time since November. This rise was fueled by stronger-than-expected core 1Q U.S. PCE data, showing a 3.7% annualized increase despite a decline in 1Q real GDP. In the US, ten-year Treasury yields breached resistance at 4.7% for the first time since November, while two-year yields climbed to 5%. The 7-year US Treasury auction saw decent demand, pricing in line with When-Issued at 4.716%, indicating investors' interest in locking in higher yields. However, bidding metrics didn't strongly hint to a bond rally. Attention now turns to today’s PCE deflator, which is expected to reveal an uptick in headline PCE data, and next week's Federal Reserve meeting and quarterly refunding announcement (for a previe, click here).

Macro: US Q1 GDP data sparked fears of stagflation as growth slowed and came in weaker-than-expected, but the price index measures accelerated. Headline GDP growth eased to 1.6% from 3.4%, beneath the 2.4% forecast, while the Core PCE Prices for Q1 surged to 3.7% from 2.0%, above the 3.4% forecast, and above the top-end of analyst expectations. PCE preview: the hot Q1 PCE print is especially key ahead of the March PCE due later today, where consensus expects the core print to ease to 2.7% YoY from 2.8% in February and come in unchanged MoM at 0.3%. Market pricing for the Fed has shifted hawkish to expect the first full rate cut only in December. If March core PCE came in above 0.4%, that will fuel risk aversion bringing equities lower, bonds higher, USD strength and a risk of intervention from the Bank of Japan if they fail to stem the yen weakness at their meeting today. If March core PCE, however, comes in at 0.3% or lower, that will be a relief for the markets but not enough of a reason to bring forward rate cut expectations. This could spell a relief rally with equities higher, bonds lower, dollar weaker and a recovery in yen and gold. The Bank of Japan kept policy settings unchanged, with the short-term interest rate unchanged at between 0.0-0.1% as expected and CPI outlook raised to 2.8% for 2024 fiscal year from 2.4% previously. There was no clear mention of FX concerns, and while there was a change in the language around bond purchases - the amount 6 trillion yen per month was not mentioned – details were patchy, and the message was not clearly hawkish. Details will be sought in Governor Ueda's press conference, and that will be the last hope of any "less dovish" shifts today.

Technical analysis highlights: S&P500 resistance at 5,080, downtrend intact, key support 4,953. Nasdaq 100 downtrend, key resist at 17,808, support at 16,963. DAX rejected at key resistance at 18,192, support 17,620 
EURUSD correction could push higher to 1.0777. GBPUSD correction likely up to 1.2553. USDJPY uptrend a bit stretched but potential to 157. EURJPY uptrend with potential to 168. USDCAD correction likely to 1.3620 before uptrend is likely to resume potential to 1.39. AUDJPY strong uptrend potential to 102.70. AUDUSD reached 0.618 retracement could climb to 0.6585, key support at 0.485. Copper cancelled top & reversal pattern, upside potential to 470. Gold hovering around key support at 2,319, above 2,350 likely resuming uptrend. US 10-year T-yield upside potential to 4.75

Volatility: While volatility initially rose after the volatility caused by the disappointing outlook of Meta's next quarterly results, VIX ended yesterday's session down at $15.37 (-0.60 | -3.76%). Yesterday after hours Microsoft and Google's parent Alphabet, both published better than expected results. This will surely influence market volatility. Another factor to take into account is the release of the PCE numbers, one of the FED's preferred gauges to determine inflation and interest rates. VIX futures continued their decline overnight and are now at 15.520 (-0.48 | -3.01%). S&P 500 and Nasdaq 100 futures reacted positively on the earnings surprises of the 2 tech behemoths and are now at 5126.75 (+44.50 | +0.88%) and 17768.75 (+201.25 | +1.15%) respectively. Thursday's top 10 traded stock options, in order: TSLA, META, PBR, NVDA, MSFT, GOOGL, AAPL, AMZN, SNAP and AMD.

In the news: Japanese yen weakens to 156 against dollar after Bank of Japan leaves rates unchanged (CNBC), Alphabet tempers fears that it’s falling behind in AI with blowout first-quarter results (CNBC), BHP shares fall as investors fret over £31bn offer for Anglo American (FT), Newmont Shares Soar Most in Four Years on Higher Gold Production (Reuters)

Macro events (all times are GMT): US PCE Deflator (Mar) exp 0.3% & 2.6% vs 0.3% & 2.5% prior with Core exp at 0-3% & 2.7% vs 0.3% & 2.8% prior (1230). COT reports from the CFTC and ICE Europe (2000)

Earnings events: Today is “energy day” with Exxon Mobil, Chevron, and TotalEnergies, two of the world’s largest oil & gas majors, reporting Q1 earnings before the US market opens. Analysts expect revenue growth of 4% YoY for Exxon Mobil and EPS of $2.19 down 22.5% YoY as oil prices were a bit lower in Q1 2024 compared to the same period last year.

• Today: Chevron, Exxon Mobil, AbbVie, TotalEnergies

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