Global Market Quick Take: Europe – 3 January 2024

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

Equities: Chinese equities in Hong Kong are down another 1% in today’s trading session as both US and European equity futures reversed initial gains yesterday falling on the first day of trading this year. The market is still hoping for the Chinese government to increase stimulus and European miners might be in focus today. In the US session, we expect Apple to be in focus again following yesterday’s drop of 3.6% as a negative sell-side report said volume remained negative for iPhone 15 and could extend into iPhone 16 models. European defence stocks have also started the year being bid as investors are positioning themselves for a year of Europe doing more heavy lifting on military spending to aid Ukraine.

FX: The dollar rallied against major currencies as Treasury yields rose, resulting in the DXY gaining 0.9%. USDJPY rebounded back above 142.00. EURUSD dropped by 0.9% to 1.0940 before rebounding ahead of German economic data. Traders are unwinding some of their dollar shorts ahead of key US labor market statistics this week, particularly the non-farm payrolls and unemployment rate to be released this Friday. In the week to December 26 speculators in the futures market increased their gross dollar short position by 55% to a four-month high.

Commodities: Crude oil failed to hold onto its gains on Tuesday after a general risk-off tone helped offset Red Sea concerns. EU gas, in a downtrend since late Oct, trades near a 20-handle, as the winter is running out of days to cause havoc with storage facilities being 86.5% full compared with a 5-yr average of 74%. Weak industrial demand and strong power production from renewables during the holiday period also weighing. Soybean futures meanwhile has fallen to a June low on improved Brazilian crop weather, and together with ongoing weakness across corn and wheat, the Bloomberg Grains index has slumped to a 2-½-year low. Gold traded softer in response to rising US yields but holding above $2050 support, and the market scaling back elevated rate cut expectations remains golds biggest short-term challenge.

Fixed income: Treasury yields surged across the curve as traders reassessed the anticipated amount of Fed rate cuts, now back below six 25 bps cuts this year, and considered the potential impact on liquidity due to ongoing quantitative tightening and the decline in reverse repo balances at the Fed. The 2-year yield jumped by 7 bps to 4.32%, and the 10-year yield increased by 5 bps to 3.93%. Today's focus will be on the JOLTS job openings data, with attention then shifting to the job report scheduled for release on Friday.

Macro: The final reading of the US S&P manufacturing PMI came in at 47.9, down from the previously reported flash reading of 48.2. The private survey of Caixin China manufacturing PMI picked up to 50.8 in December from 50.7 in November, better than 50.3 expected.

Technical analysis highlights: S&P 500 correction unfolding, key support at 4,697. Nasdaq 100 correction, support 16,166. DAX top and reversal pattern, support at 16,630 and 16,060. EURUSD correction, support at 1.0931 and 1.0882. USDJPY could rebound to 142.67 or even to 144.17. GBPUSD below rising trendline, support at 1.25. Gold potential to 2,100 but uptrend stalling and could slide lower to 2,030. 10-year Treasury future rejected at 113 8/32 expect correction to 111 12/32, yields likely back to 4% Crude oil resuming downtrend

In the news: China’s BYD overtakes Tesla as world’s largest maker of pure-electric vehicles on fourth-quarter EV sales surge (SCMP), China removed an official at a government body overseeing its press and publications regulator, days after Chinese gaming stocks were hit by proposed rules to curb spending on video games (Reuters), EV maker Rivian's quarterly deliveries miss expectations, shares tank (Reuters), OPEC+ Plans Oil Market Monitoring Meeting in Early February After Fresh Output Cuts Start (Bloomberg).

Macro events (all times are GMT): US ISM Manufacturing (Dec) 47.1 vs 46.7 prior (1500), US JOLTS Jobs Openings (Nov) 8821k vs 8733k prior (1500), FOMC 13 Dec Meeting Minutes (1900)

Earnings events: Next important earnings releases are tomorrow from RPM International, Walgreens Boots Alliance, Conagra Brands, and Lamb Weston.

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