Global Market Quick Take: Europe – 10 November 2023

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

Equities: S&P 500 futures dipped yesterday on Powell’s hawkish marks hinting that the policy rate might have to be raised further. As we said recently it was an irony that Powell’s recent dovish talk at the FOMC citing rising long-end bond yields as the key deliver on financial conditions caused long-end bond yields to go down, which implies the Fed would then have to raise more again. S&P 500 futures traded 0.7% lower driven by declines in the consumer discretionary and health care sectors. Earnings this morning from Allianz and Richemont are a bit mixed. Richemont misses slightly against estimates as consumers are pulling back from high-end luxury, while Allianz beats against estimates with strong inflow into its Pimco asset management unit.

FX: The dollar traded steady in overnight with no follow through seen from yesterday’s spike that was driven by Powell’s hawkish remarks and a poor 30yr Treasury auction sending bond yields higher while money markets pushed back the timing of the first rate cut to July from June. The BBG dollar index is heading for a weekly gain of 0.8% with losses being led by AUD (-2.3%) following RBA’s dovish tilt and weak China data, MXN (-1.7%) and JPY (-1.3%) which at 151.40 is once again exposed to verbal intervention risks. EURUSD meanwhile trades lower to challenge support around 1.066.

Commodities: The sector is heading for its worst week since March led by steep declines in crude, fuel products and natural gas prices, together with semi-industrious metals like platinum and silver. In crude oil, the focus has switch to demand fears triggering a cascade of selling from wrong-footed longs and fresh short selling, potentially raising the risk of prices once again overshooting to the downside. Gold holds above key support in the 1930 area with selling pressures showing signs of easing despite headwinds from silver weakness and hawkish Powell comments. Chicago corn futures slumped after the USDA raised US production this year to a record while soybeans were weighed down by the prospect for a record global stockpile at the end of this season.

Fixed income: yesterday’s 30-year US Treasury auction was the worst on record for this tenor. It tailed by 5.3 basis points, the biggest on record, and direct and indirect bidders were the lowest since October 2020 and November 2021, respectively. Following the auction, the thirty-year yield spiked by 11bps and drove yields higher across the whole yield curve, reigniting a bear-steepening of the yield curve. The 10-year yield closed at 4.62%. Jerome Powell's remarks at the IMF panel left no respite to investors as he said he doesn’t know whether rates are restrictive enough. He added that although policymakers will progress carefully, another rate hike is still possible. We expect the bear-steepening trend to continue throughout the end of the year. While the front part of the yield curve remains anchored, long-term yields are likely to break above 5% before the end of the year. We continue to favor a barbell strategy that involves maturities of up to three years and the 10-year tenor.

Volatility: The main volatility index (VIX) had its first uptick in 9 days, rising 84 cents (or 5.81%) to $15.29. The fear-index remained flat during the day just until Fed Chair Powell gave his comments at the IMF conference. Sentiment turned from wait-and-see to negative, pushing the VIX higher and sending the stock markets from flat to negative territory: S&P 500 and Nasdaq ended -0.81% and -0.82% respectively. VIX futures eased marginally overnight to 16.52 (-0.135 or -0.81%). S&P 500 & Nasdaq futures were mostly flat in their nightly session: +6.50 (+0.14%) and -3.00 (-.02%) respectively. Nvidia (NVDA closed at $469.50) saw unusual options activity yesterday with larger than normal volume in the 475 and 480 put strike prices. Overall, Nvidia options volume was very high yesterday with almost 1.7 million contracts traded, compared to an average below 900K per day over the last year.

Technical analysis highlights: Expect minor correction in US equities: S&P 500 strong resistance at 4,400. Nasdaq 100 resistance at 15,561. DAX still in downtrend needs to close above 15,280 for reversal. EURUSD resistance at 1.0765. GBPUSD rejected at 1.2445. USDJPY could test 152.00, strong support at 148.80. Gold correction likely down to 1,933. Rebound likely in Crude oil: Brent oil support at 78.20, WTI at 73.85. US 10-year T-yields could bounce to 4.80

Macro: Fed Chair Powell’s comments at the IMF conference struck a hawkish tone as he attempted to dial back the dovish repricing seen following the FOMC meeting and NFP miss last week. He said that the Fed is not confident they have achieved a sufficiently restrictive stance, and that if it becomes appropriate to tighten policy further, they will not hesitate, adding the bigger mistake is not getting rates high enough. US initial jobless claims were close to consensus at 217k vs. 218k expected, and consistent with a still tight and resilient labour market. There was commentary from BoE Pill again, who said to assume rates are to stay restrictive for an extensive period while adding they do not need to raise rates to bear down on inflation.

In the news: US says Israel agrees to daily pauses in Gaza attacks but fighting rages on (Reuters), Russian fuel export ban to be lifted next week (Reuters), Apple Risks $14 Billion Tax Bill in Setback at Top EU Court (Bloomberg), Ransomware attack on China's ICBC disrupts Treasury market trades (Reuters), Nvidia develops AI chips for China in latest bid to avoid US restrictions (FT), China can raise 2024 budget deficit ratio to spur growth – PBoC adviser (Reuters)

Macro events (all times are GMT): UK GDP (Sep/Q3) exp –0.1% vs 0.2% QoQ (0700), Norwegian CPI (Oct) exp 0.5% & 3.5% vs –0.1 & 3.3% prior (0700), US Uni. of Michigan Prelim. (Nov) exp 63.8 vs 63.8 prior (1500)

Earnings events: Key earnings today from Allianz (bef-mkt), Richemont (bef-mkt) and NIO (bef-mkt). Our key focus is on NIO Q3 earnings results expected to show revenue growth of 49% y/y but still a red blood bottom line as Chinese EV-makers struggle to become profitable.

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