Global Market Quick Take: Europe – 1 December 2023

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

Equities: A strong November is behind markets in which inflation readings and the narrative of central bank rate cuts were bolstered. The question is whether the strong momentum in equities can continue throughout December. There are little signs that markets will be dealt a big blow and thus we lean on the prediction that markets will push higher despite we are getting worried about S&P 500 index concentration and valuations. Asian equities have started December on a slight negative note, but in Europe equity futures are around 0.4% this morning and figures from the European car association suggest that car sales are up more than 10% compared to a year ago.

FX: Dollar jumped higher on Thursday despite a softer PCE report, suggesting a dovish fatigue and potentially fuelled by relatively hawkish Fed speakers balancing Waller dovishness earlier in the week and a softer Eurozone CPI. AUDUSD reversed earlier gains coming on the back of additional China stimulus hopes after PMIs underwhelmed and slipped slightly to test the 0.66 handle support which has held up for now. EURUSD plunged back below 1.09 amid softer inflation but recovered slightly in Asia. GBPUSD also gave up the 1.27 handle and 1.26 support will be key. A reversal higher in Treasury yields also put a floor on yen gains, and USDJPY rose back to 148-levels.

Commodities: Crude oil traders were left unimpressed by the latest voluntary cuts from OPEC+ members as this were already priced in following rumour-led gains earlier in the week. The voluntary nature and some of the technical details left traders concerned about compliance and market tightness in the coming months will now depend on how the demand outlook shapes into a period that may see major economies cool.  Copper extended its gains despite China’s downbeat PMI as supply concerns underpinned, while Gold pared back some of its recent gains on yield and dollar rebound. Arabica coffee, the top performing commodity last month surged 7% on Thursday, driven by the lowest exchange monitored stock levels since 1999.

Fixed income: The decline in yields was stalled and Treasuries retreated after San Francisco Fed President Daly (non-voter) said she was “not thinking about rate cuts at all”. Market reactions to the initial claims and core PCE prints both were in line with projections, and an improvement in the Chicago PMI was muted. The 2-year yield climbed 4bps to 4.68% and the 10-year yield rose 7bps to 4.33%. The curve initially flattened but reversed to finish 3bps steeper (2-year vs 10-year) at -35bp. On Friday, investors will focus on Powell speaking and the ISM Manufacturing data.

Volatility: Yesterday the VIX declined 6 cents (-0.46%) to $12.92, ending November with a MoM drop of -28.78% ($18.02 -> $12.92), while the S&P500 saw a 8.92% increase (Nasdaq +10.67%) in that same period. The VVIX also declined yesterday, to 86.71 (-1.08 | -1.23%). The SKEW index rose to 144.54 (+4.72 | +3.38%). Futures of the VIX remain relatively unchanged and are at $13.800 (+0.04 | +0.31%). S&P500 and Nasdaq 100 futures saw slight declines: $4574.00 (-2.75 | -0.06%) and $15958.00 (-27.50 | -0.17%) respectively.

Macro: US headline PCE rose 3.0% y/y, coming in below expected 3.1% and previous 3.4%. Core exhibited a cooling trend as well, coming in as expected at 0.2% MoM (prev: 0.3%) and 3.5% YoY (prev: 3.7%). Personal income rose 0.2% in October, in line with expectations but cooler than the prior 0.4% gain while consumption also saw a notable easing, to 0.2% from 0.7%, in line with analyst forecasts. US jobless claims ticked higher to 218k from 211k previously but came in beneath the 218k expected. Surge in continuing claims – which rose 86k to 1927k – suggested that US labor market is likely cooling. Fed speakers turned more balanced after dovish Waller earlier in the week. Williams (voter) said the Fed is at or near the peak for interest rates, but did caveat that if inflation pressures persist, the Fed could hike again. Mary Daly (2024 voter) leaned hawkish, saying it is still too early to know if the Fed is done hiking rates. Eurozone CPI fell to 2.4% y/y in November, which was below 2.7% pencilled in by consensus, this was the slowest annual pace since July 2021. Market is now pricing in a 25bps rate cut by April next year compared to June earlier, and against expected Fed rate cut in May.

In the news: Salesforce shares jump as strong cloud demand drives stellar results (Reuters), OPEC+ Production Cuts Fail to Convince Oil Traders (Bloomberg), Occidental Petroleum in Talks to Buy Permian Producer CrownRock (WSJ), China Evergrande seeks to avoid liquidation with last-ditch debt plan (Reuters). Canadian private equity firm Brookfield raises capital for the largest infrastructure fund in history as investors seek protection from inflation (FT).

Macro events (all times are GMT): Eurozone Mfg PMI (Nov) exp 43.8 vs 43.8 prior (0800), US ISM Manufacturing PMI (Nov) exp 47.8 vs 46.7 prior. Fed speakers include Barr, Goolsbee, Powell and Cook. ECB speakers include Elderson and Lagarde.

Earnings events: No important earnings releases today

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