Global Market Quick Take: Europe – April 11, 2023

Global Market Quick Take: Europe – April 11, 2023

Macro 8 minutes to read
Saxo Be Invested
Saxo Strategy Team

Summary:  US treasury yields rose yesterday as markets came back from the long weekend and absorbed Friday’s US jobs data, which was released on a bank holiday. US stocks closed almost flat after an intraday sell-off. USDJPY jumped higher on the rise in yields and as the new Bank of Japan governor Ueda affirmed commitment to continuity of policy. Chinese March inflation data released overnight showed further disinflation.


Q2 2023 Outlook: The Fragmentation Game

Saxo’s quarterly outlook is out, and it looks at global fragmentation and how it will impact a variety of asset classes, geographical regions and macroeconomic topics in Q2 and beyond. Discover how it challenges the outlook for equities, creates discrepancies between forex pairs, shapes intriguing investment opportunities in different Asian regions, and how commodities and interest rates may affect and be affected by the Fragmentation Game. Get our in-house analysts' views on the investment landscape in a tough macroeconomic world and plan your investment strategy for Q2 2023 and beyond

What is our trading focus?

US equities (US500.I and USNAS100.I): sentiment remains strong as Q1 earnings loom

S&P 500 futures tested yesterday for the third time the 4,100 level and bounced back suggesting a technically strong equity market as the Q1 earnings season starts this week. The index futures are trading around the 4,140 level this morning with the 4,153 closing level from 3 April being the key level to watch on the upside should momentum extend further. The VIX Index remains below the long-term average and the US 10-year yield remains well anchored around the 3.4% level.

Chinese equities (HK50.I) and (02846:xhkg): CSI300 down 0.5% on tech weakness

The Hong Kong equity market returned from the Easter holiday with a strong open but fading nearly all gains by mid-day. Hang Seng Index was flat from last Thursday’s pre-holiday close. Technology stocks underperformed as Hang Seng TECH Index shed 1% and Baidu (09888:xhkg) plummeted 6.8%. Chinese developers gained, with leading names rising over 5%. In A-shares, CSI300 dropped by 0.4%, as white liquor and solar stocks led the decline. China is reportedly going to conduct a security review of AI-generated content services. On economic data, China’s CPI growth fell to 0.7% y/y in March from 1.0% in February, below the 1% consensus estimate. The fall in PPI accelerated to -2.5% y/y in March from -1.4% in February.

FX: USD now flat after rally yesterday. JPY weak on Ueda rhetoric

The US dollar was sharply stronger yesterday as US yields rose, perhaps partly in delayed reaction to resilient, if mixed, US jobs- and earnings data from Friday, which was a banking holiday, but mostly as a function of USDJPY buying on new Bank of Japan governor Ueda out affirming continuity of BoJ policy (more below). The USD rally was mostly erased in some places as risk sentiment rebounded from an early sell-off in yesterday’s session, but the broad JPY weakness on Ueda’s press conference comments remained. The data highlights on the US economic calendar this week include tomorrow’s March CPI and Friday’s March Retail Sales data.

Crude oil trades sideways with demand worries offsetting OPEC cuts

Crude oil prices remain stuck in a tight range and following last week’s production cut related jump, Brent has traded close to $85 and WTI to $80 with a lack of follow-through buying highlighting a market torn between macroeconomic risks and tightening conditions. A stronger dollar has been added to the mix after Friday’s US job report raised the odds of further tightening from the US Federal Reserve. Hedge funds meanwhile responded to the OPEC+ production cut by increasing their WTI net long by 56% to 176k lots with the bulk of the buying being driven by short covering. Failure to break decisively higher may increase the focus on closing gaps, to $80 in Brent and $75.72 in WTI.  Focus this week on US CPI and China’s credit data. In addition, monthly oil market reports from the three major forecasters, starting today with the EIA, followed by OPEC on Thursday and IEA on Friday.

Gold (XAUUSD) steadies around $2k with data pointing to another rate hike

Gold managed to recover back to $2k overnight after recording a two-day correction driven by a sharply stronger dollar and bouncing yields after Friday’s strong US jobs report led to speculation the FOMC would go for another rate hike. Hedge funds lifted bullish gold bets to a one-year high at 145k lots in the week to April 4 as positive momentum and lack of major correction continued to feed speculative demand for gold, silver and platinum. Data on inflation and retail sales this week will be watched closely for clues about the short-term direction of rates. Support at $1970, the 21-DMA, and $1950 while a renewed push above $2032 would signal a return to the March 2022 record high of $2070.

Treasuries (TLT:xnas, IEF:xnas, SHY:xnas): 2-year yield above 4% as odds for hikes increase

Following the solid employment report last Friday, investors continued to adjust upward the odds for a 25bp rate hike at the May FOMC and took it up to 80%. The upcoming supply of USD90 billion refunding auctions from Tuesday to Thursday also weighed on Treasury prices.  Yields across the curve climbed 2-3bps with the 2-year yield back above the 4% handle to 4.01% and the 10-year yield rose to 3.42%.

What is going on?

MF/World Bank spring meetings bring growth worries

The International Monetary Fund released its latest World Economic Outlook (WEO) that argued that US and other industrial countries will revert to ultra-low levels of interest rates that prevailed before the pandemic, with the US neutral rate comfortably below 1%. This would be driven by aging populations and sluggish productivity which suggest that growth will remain meagre. Meanwhile, the World Bank revised its 2023 global growth outlook slightly upward to 2% from a January forecast of 1.7% but said that the slowdown from stronger 2022 growth will increase debt distress for developing countries. But this didn’t come without a warning that turmoil in the banking sector and higher oil prices could again put downward pressure on growth prospects in the second half of 2023.

Samsung cuts memory production, TSMC misses sales estimates

Samsung, one of the world’s largest semiconductor manufacturers, is cutting its memory chip production as its profitabilty hits lowest levels since 2009. Lower inventories on memory chips were recently highlighted by Micron Technology as necessary to restore meaningful inventory levels and pricing. TSMC also missed sales estimates in its preliminary Q1 earnings release suggesting investor expectations are still too high for economic growth.

Bank of Japan’s new chief Ueda stays away from hawkish signals at debut press conference

After a decade at the helm, Kuroda retired as the Bank of Japan chief on April 8 and Kazuo Ueda was appointed to the job. In his first press conference as the Governor, Ueda reaffirmed his commitment to yield curve control in the current economic conditions and prices. His policy stance appears to be a continuation of Kuroda’s dovish steps, but he has also kept the door open for any tweaks in policy if markets are under pressure. That means that market participants will continue to expect some tweaks in the BOJ policy, especially as we head into Ueda’s first policy meeting on April 27-28. FinMin Suzuki was also on the wires this morning and said that Ueda and PM Kishida do not think that an immediate re-think on joint policy accord on inflation will be needed.

Buffett kicks off yen bond sale and vows to invest more in Japanese equities

Berkshire Hathaway made several successful investments across a group of Japanese commodity trading houses back in the early days of the pandemic and the investment group has more appetite for Japanese investments. Berkshire has kicked off a yen bond sale and Warren Buffett recently said that he had increased his equity allocation in Japanese equities to 7.4% from 5%. Japanese equities trade at a significant discount to global equities and Japanese companies have in aggregate terms a negative net debt position (more cash than debt) and is priced at a 12-month forward dividend yield of 2.7%.

Fed’s Williams dismisses link between rate hikes and bank failures

Federal Reserve Bank of New York President John Williams said on Monday that financial system troubles that drove the central bank to provide large amounts of credit to banks is not collateral damage from the Fed’s aggressive effort to lower inflation. Williams said he viewed the trouble at the two banks as unique in nature and unlikely to reflect broader trends in the financial system. Still, the turmoil in the banking sector has led market participants to believe that the rapid pace of tightening from the Fed has broken something or will break something.

Apple’s PC shipments decline by over 40%

Apple’s personal computer shipments declined by 41% y/y in the first quarter, marking a tough start to the year for PC makers still grappling with a glut of unsold inventory. Shipments by all PC makers combined slumped 29% to 56.9mn units, and fell below the levels of early 2019, as the demand surge driven by pandemic-era remote work evaporated, according to IDC’s latest report. Lenovo and Dell also registered drops of over 30%, while HP’s shipments were down 24%.

Wheat prices trade higher as drought puts Kansas wheat at risk

Chicago wheat futures were higher on Monday, as dry weather put Kansas City wheat at risk and after Russia threatened to bypass a UN-brokered grain deal. Corn also closed higher, though soybeans dipped as warm and dry weather improved the US planting outlook. Russia on Friday threatened to bypass the UN-brokered grain deal unless obstacles to its agricultural exports were removed, while talks in Turkey agreed removing barriers was a necessary condition to extending the agreement beyond next month. Drought in Kansas, which accounts for 25% of US winter wheat output and 17% of the total US output, continues to support the KCB HRW futures contract (KEc1) with the premium over Chicago Wheat (ZWc1) continuing to reach new highs. In today’s WASDE report, traders will primarily be watching South American production US ending stocks.

What are we watching next?

China data dump to test the China reopening story this week

Several important data points from China will be reported this week and focus will remain on how supportive authorities remain on driving economic growth. Data for March credit financing will be in focus (no specific date for this report) to assess the liquidity provisions and support to the property sector. March Inflation was out overnight and showed producer prices falling –2.5% YoY as expected, with the CPI softer than expected at +0.7% YoY (vs. 1.0% exp.). Inflation data this soft will likely continue to provide room for the People’s Bank of China to announce targeted easing measures if economic momentum fails to pick up in-line with their expectations. Trade data for March is also due on Thursday, and both exports and imports are expected to show a YoY decline.

Earnings to watch

The Q1 earnings season starts this week with US banking earnings as the highlight on Friday. S&P 500 12-month forward EPS estimates have been rising since late February by 1.2% suggesting analysts are less worried about credit conditions, the recent banking crisis, and the slowing economy.

Analysts expect JPMorgan Chase to report Q1 net revenue of $39.7bn up 18% y/y and EPS of $3.39 up 21% y/y, but with the recent banking crisis the outlook is more important and especially JPMorgan’s comments about funding costs and loan growth outlook. Delta Air Lines earnings on Thursday are also worth watching for insights into business traveling. Analysts expect Q1 revenue growth of 28% y/y and EBITDA of $1.17bn up from a loss of $282mn a year ago.

This week’s earnings releases:

  • Tuesday: Albertsons, CarMax
  • Wednesday: Aeon
  • Thursday: Fast Retailing, Tesco, Fastenal, Delta Air Lines
  • Friday: JPMorgan Chase, UnitedHealth, Wells Fargo, BlackRock, Citigroup, Progressive, PNC Financial Services

Economic calendar highlights for today (times GMT)

0900 – Eurozone Feb. Retail Sales

1000 – US Mar. NFIB Small Business Optimism

1600 – USDA's World Agriculture Supply and Demand Estimates (WASDE)

1600 – EIA's Short-term Energy Outlook (STEO)

1700 – US Treasury to auction 3-year notes

1730 – US Fed’s Goolsbee (Voter 2023) to speak

2200 – US Fed’s Harker (Voter 2023) to speak

2330 – US Fed’s Kashkari (Voter 2023) to speak

2030 – API's Weekly Crude and Fuel Stock Report

Quarterly Outlook

01 /

  • 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...
  • 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 ...
  • 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