Global Market Quick Take: Europe – October 13 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 closed below the 4,000 level yesterday reacting negatively to the 15 basis points move higher in the US 10-year yield as the bond market was negatively surprised by the higher-than-expected US September super core inflation figure yesterday. Today’s key event in the US equity market is the batch of earnings releases from US financials such as JPMorgan Chase, Wells Fargo, Citigroup, and BlackRock with all reporting before market opens.

FX: Markets were in a risk off and dollar back in gains as hot US services CPI increased the odds of another Fed rate hike by the end of the year, although some relief came in the Asian session on reports that China was considering more measures to support its stock market. Risk sensitive currencies were the most badly hurt in the US session, with AUDUSD plunging all the way to just above 0.63 handle from 0.6420 and NZDUSD back below 0.60, touching lows of 0.5914. USDJPY jumped higher to 149.80 but intervention threat capped further gains. EURUSD also reversed from 1.0640 to 1.0530, and GBPUSD broke below 1.22.

Commodities:: Oil prices are heading for a small weekly advance with Israel-Hamas risks and OPEC reiterating its call for a major supply deficit this quarter, offsetting growth concerns and record US production. EIA’s weekly report showed US commercial crude oil stockpiles rose by 10.2mbbl last week although inventories at Cushing fell to its lowest since July 2022. Meanwhile, European gas reached a 7-month high on winter supply concerns, gold was hurt by CPI strength challenging the peak rate speculation, while grain prices surged higher after the USDA lowered production estimates for corn and especially soybeans.

Fixed income. Yield curves resumed to bear steepen yesterday amid mixed CPI data and an ugly 30-year US Treasury bond sale confirming that duration is lacking demand. The auction tailed by 3.7bps, the third biggest tail on record despite offering the highest yield since 2007. Primary dealers were left with 18.2% the most since December 2021. After the auction, yields continued to soar across maturities, with 30-year yields hitting 4.87% and 10-year yields hitting 4.72%. In the meantime, the Reverse Repurchase Facility (RRP) dropped to $1.15 trillions for the first time since September 2021 as investors can secure a higher yield in T-Bills with the spread between 3-month T-bills and the Overnight Index Swap (OIS) hitting 8bps from 4bps in September. Overall, we remain defensive favouring quality and short duration.

Macro: US Headline CPI was hotter than expected, coming in at 0.4% MoM (exp. 0.3%, prior 0.6%) and 3.7% YoY (exp 3.6%, prior 3.7%). Core inflation was in-line with expectations, coming at 0.3% MoM, same as prior and 4.1% YoY (prior 4.3%). While headline gains could be underpinned by energy and base effects, it was the rise in shelter and the core services inflation (0.6% MoM from 0.4% prior) that garnered a hawkish reaction in the markets. Fed rate hikes for Nov/Dec are now back close to 40% from ~30% earlier following less hawkish Fed comments over the week. Fed’s Collins (2025 voter) echoed the message on higher bond yields reducing the need for a near-term Fed rate hike. US jobless claims came in at prior week’s low of 209k once again, and just a notch below 210k expected. UK monthly GDP for August showed a 0.2% rise in line with expectations, for 0.3% on a 3M/3M basis, also as expected.

Technical analysis highlights: S&P 500 strong resistance at 4,400. Nasdaq 100 rejected at resistance at 15,245. DAX opened above but closed below resistance at 15,482. EURUSD rejected at resistance at 1.0635. GBPUSD rejected at 1.23. Likely resuming downtrend. USDJPY could resume uptrend. Gold above resistance at 1,870 likely move to 1,985. Crude oil slid lower: WTI supported at 81.50. US 10-year yields bouncing from 4.50, could resume uptrend

In the news: What Was So Bullish About the October WASDE? (AgWeb),

Macro events: University of Michigan Sentiment (Oct) exp. 67 vs 68.1 prior.

Earnings events (time in GMT): JPMorgan Chase (1045), Wells Fargo (1100), BlackRock (bef-mkt), UnitedHealth (bef-mkt), and Citigroup (1200)

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