Global Market Quick Take: Europe – 5 February 2024

Global Market Quick Take: Europe – 5 February 2024

Macro 3 minutes to read
Saxo Be Invested
Saxo Strategy Team

Summary:  Following Friday’s very strong US job report, the dollar and Treasury yields strengthened further after Fed Chair Powell on CBS’s 60 minutes program pushed back against March rate-cut expectations. Wall Street meanwhile reached another record close on Friday, led by Meta’s 20% rally and Amazon’s 8% jump, but with US equity futures pointing to a softer session in Europe. Asian markets broadly enjoyed the tailwind from Friday’s US gain with China and Hong Kong stocks advancing from earlier losses following another official statement about support to curb recent wild swings.


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

Equities: Flat start to the week in US and European equity futures. In Asia, Nikkei 225 futures are up 0.7% and on Sunday the China Securities Regulatory Commission said it would do more to stabilize the Chinese equities through technical measures of getting funds to flow into the market and clamp down on illegal activities. The week ahead will again be impacted by a busy earnings week with key earnings from McDonald’s, Toyota, Eli Lilly, AstraZeneca, L’Oreal, Hermes, and PepsiCo. The US strikes over the weekend on Iran-linked targets in the Middle East could evolve into a bigger risk depending on Iran’s response.

FX: The Dollar rose sharply in response to the Friday's blowout jobs report and Fed Chair Powell’s ’60 Minutes’ interview serving as a further pushback to March rate cut expectations. The DXY index rose to test the 104.20 resistance which is holding for now, but we see more catalysts for dollar strength as noted in our Weekly FX Chartbook. USDJPY rose to highs of 148.82, remaining just shy of the 149 handle with intervention risks on the rise again. For technical analysis on JPY pairs, see this article. EURUSD plunged to sub-1.08 again broke 100DMA support at 1.0784, and sterling bulls were also jolted as GBPUSD fell all the way to 1.26 from 1.2760+ after the less hawkish BOE last week. AUDUSD was one of the worst performers last week as RBA dovish bets picked up, and pair slipped to 0.65 handle from 0.66+ on Friday. RBA meeting tomorrow, and continued downbeat China rhetoric, could put focus on 76.4% fibo retracement level at 0.6412.

Commodities: Oil prices plunged again on Friday amid a stronger US dollar and fading hopes of a truce in the Israel-Hamas conflict. However, prices were firmer overnight with US forces launching attacks against the Houthis in Yemen and Houthis vowing to respond. Iron ore prices slid 3.6% before rebounding as Beijing prepares fresh measures to stop the market rout in equities. Gold and silver fell victim to the hot US job report and Fed Chair Powell pushing back against a March rate cut, now down to 20% with the number of cuts this year below 5 from above 6 a week ago. The uranium sector has been showing remarkable strength as the supply outlook continues to tighten, read our Commodity Weekly for more insights.

Fixed income: Treasury yields jumped sharply following the surprisingly large addition to the January non-farm payrolls and significant positive revisions to prior months as well. The increase in the 3-month moving average job creation to 289,000 from 165,000 caused traders to temper their bets on a March rate cut and anticipate the first cut coming in May. The 2-year yield surged 16bps to 4.36%, while the 10-year yield climbed 14bps to 4.02%. On Monday Asian morning, Powell said in a pre-recorded CBS 60 Minutes episode that it’s unlikely the first interest rate cut would come in March. Treasury yield rose further in Tokyo trading, with the 10-year yield reaching 4.08%. Bond markets’ attention shifts toward this week’s US Treasury auctions, where the auction size of the 10-year notes will be the largest on record, and the 30-year bonds the largest since November 2021. We expect strong bidding at the 10-year auction, however the performance of the 30-year bonds remains uncertain as demand will need to come from investors looking to extend their portfolio duration. A busy primary market might add to bearish sentiment as investment grade non-financials corporates are looking to sell between 25bn-30bn bonds this week.

Macro: US NFP jobs report showed 353k being added in January, well above 180k consensus. Net upward revision of over 100k for December and 400k for 2023. The underlying drivers also delivered a message of strength with private payrolls at 317k, against the expected 155k. The unemployment rate was unchanged at 3.7% despite expectations for a rise to 3.8%. Monthly earnings rose 0.6% (exp. 0.3%, prev. 0.4%), Y/Y earnings rose 4.5% (exp. 4.1%, prev. 4.4% - revised up from 4.1%). March rate cut probability is now down to less than 20%. Focus turns to ISM services, Fed’s SLOOS survey and Bostic’s comments due later in the day. The University of Michigan headline sentiment index for January was revised higher to 79.0 from 78.8, above the expected 78.9, while the conditions index was revised lower to 81.9 from 83.3 and the forward-looking expectations index was revised up to 77.1 from 75.9. On inflation expectations, 1yr ahead remained at 2.9% and the longer-term 5-10yr trend ticked higher to 2.9% from 2.8%.

Technical analysis highlights: S&P 500 cancelling correction, resuming uptrend likely to take out 5K. Nasdaq 100 minor correction, resuming uptrend. DAX rejected at 17K, needs to close above for upside, Likely correction to 16,500. EURUSD bouncing from 100 DMA, could dip to 1.0730 key support. USDJPY testing key resistance at 148-80, a close above looking at +150. EURJPY key support at 158.55. GBPUSD range bound 1.2610-1.2775. AUDUSD below key strong support at 0.6520. Gold rejected at strong resistance at 2,064 once again, if broken move to 2,121, key support at 2K. 10-year T-yields bouncing from previous low at 3.78, still below 200 DMA.

Volatility: The VIX remained steady on Friday, fluctuating between $13.70 and $14.20, and closing at $13.85. In contrast, the S&P 500 and Nasdaq 100 rallied, up 1.07% and 1.72%. This week's expected moves are slightly toned down to +/- 1.13% for the SPX and +/- 1.63% for the NDX, indicating a subtle shift in market volatility expectations. Despite reduced prospects of a March rate cut, markets are alert to further Fed communications. Earnings season continues, with significant company reports likely to influence market movements. Overnight, VIX futures nudged up 0.71% to $14.650, while S&P 500 and Nasdaq 100 futures saw minor pullbacks to 4970.75 and 176955.25, hinting at cautious trading as the market nears the critical 5000 mark. This milestone could heighten volatility, with investors balancing the potential for further advances against the risk of a retreat.

In the news: Fed Chair Jerome Powell shares why central bank hasn't yet cut interest rates, even as inflation falls (CBS 60 Minutes), US intends further strikes on Iran-backed groups, national security adviser says (Reuters), China Vows to Stabilize Markets After Rout, Offers No Detail (Bloomberg), Trump said he would impose more tariffs - possibly in excess of 60 per cent - on China if he is elected again (SCMP), Turkey's new central bank head plans tight monetary policy until inflation curbed (Reuters).

Macro events (all times are GMT): Eurozone Sentix investor confidence (Feb) exp –15 vs –15.8 prior (0830), Eurozone Producer Prices (Dec) exp. -0.8% & -10.5% vs –0.3% & -8.8% prior (0900), US S&P Services PMI (Jan, final) exp 52.9 vs 52.9 prior (1345),  US ISM Services (Jan) exp 52 vs 50.6 prior (1400), US Senior Loan Officer Jan Opinion Survey (1800), Fed’s Goolsbee on Bloomberg TV (1400),

Earnings events: Another busy week ahead on earnings with the list below highlighting the largest companies reporting earnings this week.

  • Monday: Mitsubishi UFJ Financial, Caterpillar, Vertex Pharmaceuticals, McDonald’s
  • Tuesday: Toyota Motor, UBS Group, Linde, Amgen, Gilead Sciences, Eli Lilly, BP, Fiserv, KKR
  • Wednesday: Equinor, Walt Disney, Alibaba, TotalEnergies, Uber Technologies, CVS Health
  • Thursday: NTT, Siemens, AstraZeneca, Unilever, Philip Morris, S&P Global, L’Oreal, ConocoPhillips
  • Friday: Toyota Electron, Hermes International, PepsiCo

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

Quarterly Outlook

01 /

  • Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges

    Quarterly Outlook

    Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges

    Althea Spinozzi

    Head of Fixed Income Strategy

  • Equity Outlook: Will lower rates lift all boats in equities?

    Quarterly Outlook

    Equity Outlook: Will lower rates lift all boats in equities?

    Peter Garnry

    Chief Investment Strategist

    After a period of historically high equity index concentration driven by the 'Magnificent Seven' sto...
  • FX Outlook: USD in limbo amid political and policy jitters

    Quarterly Outlook

    FX Outlook: USD in limbo amid political and policy jitters

    Charu Chanana

    Chief Investment Strategist

    As we enter the final quarter of 2024, currency markets are set for heightened turbulence due to US ...
  • Macro Outlook: The US rate cut cycle has begun

    Quarterly Outlook

    Macro Outlook: The US rate cut cycle has begun

    Peter Garnry

    Chief Investment Strategist

    The Fed started the US rate cut cycle in Q3 and in this macro outlook we will explore how the rate c...
  • Commodity Outlook: Gold and silver continue to shine bright

    Quarterly Outlook

    Commodity Outlook: Gold and silver continue to shine bright

    Ole Hansen

    Head of Commodity Strategy

  • FX: Risk-on currencies to surge against havens

    Quarterly Outlook

    FX: Risk-on currencies to surge against havens

    Charu Chanana

    Chief Investment Strategist

    Explore the outlook for USD, AUD, NZD, and EM carry trades as risk-on currencies are set to outperfo...
  • Equities: Are we blowing bubbles again

    Quarterly Outlook

    Equities: Are we blowing bubbles again

    Peter Garnry

    Chief Investment Strategist

    Explore key trends and opportunities in European equities and electrification theme as market dynami...
  • Macro: Sandcastle economics

    Quarterly Outlook

    Macro: Sandcastle economics

    Peter Garnry

    Chief Investment Strategist

    Explore the "two-lane economy," European equities, energy commodities, and the impact of US fiscal p...
  • Bonds: What to do until inflation stabilises

    Quarterly Outlook

    Bonds: What to do until inflation stabilises

    Althea Spinozzi

    Head of Fixed Income Strategy

    Discover strategies for managing bonds as US and European yields remain rangebound due to uncertain ...
  • Commodities: Energy and grains in focus as metals pause

    Quarterly Outlook

    Commodities: Energy and grains in focus as metals pause

    Ole Hansen

    Head of Commodity Strategy

    Energy and grains to shine as metals pause. Discover key trends and market drivers for commodities i...

Disclaimer

The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website. This content is not intended to and does not change or expand on the execution-only service. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Please read our disclaimers:
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
- Full disclaimer (https://www.home.saxo/en-gb/legal/disclaimer/saxo-disclaimer)

Saxo
40 Bank Street, 26th floor
E14 5DA
London
United Kingdom

Contact Saxo

Select region

United Kingdom
United Kingdom

Trade Responsibly
All trading carries risk. To help you understand the risks involved we have put together a series of Key Information Documents (KIDs) highlighting the risks and rewards related to each product. Read more
Additional Key Information Documents are available in our trading platform.

Saxo is a registered Trading Name of Saxo Capital Markets UK Ltd (‘Saxo’). Saxo is authorised and regulated by the Financial Conduct Authority, Firm Reference Number 551422. Registered address: 26th Floor, 40 Bank Street, Canary Wharf, London E14 5DA. Company number 7413871. Registered in England & Wales.

This website, including the information and materials contained in it, are not directed at, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in the United States, Belgium or any other jurisdiction where such distribution, publication, availability or use would be contrary to applicable law or regulation.

It is important that you understand that with investments, your capital is at risk. Past performance is not a guide to future performance. It is your responsibility to ensure that you make an informed decision about whether or not to invest with us. If you are still unsure if investing is right for you, please seek independent advice. Saxo assumes no liability for any loss sustained from trading in accordance with a recommendation.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the U.S. and other countries. App Store is a service mark of Apple Inc. Android is a trademark of Google Inc.

©   since 1992