Global Market Quick Take: Europe – April 5, 2023 Global Market Quick Take: Europe – April 5, 2023 Global Market Quick Take: Europe – April 5, 2023

Global Market Quick Take: Europe – April 5, 2023

Macro 8 minutes to read
Saxo Strategy Team

Summary:  Equity markets sold off from fresh cycle highs yesterday as confidence was dented by a US job opening survey that showed a surprise plunge in openings. US treasury yields dropped sharply all along the curve and US banks stocks posted a weak session. The US dollar weakened and JPY and gold surged above $2,000 per ounce for the first time in over a year. The RBNZ surprised overnight with a larger than expected rate hike of 50 basis points, out of synch with other central banks.


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): big miss on jobs openings resets narrative

S&P 500 futures exhausted their momentum yesterday after initially looking to push higher ending the session 0.6% lower. The decline in US equities was led by capital goods, energy and semiconductor industry groups as worse than expected JOLTS jobs openings for February tilted the probability in favour of the US economy is slowing down and could slip into a recession. The 12-month change in JOLTS jobs openings is now the most negative since the Great Financial Crisis if we remove the data points during the pandemic lockdown. Nervousness about the economy also pushed the 10-year yield to its lowest close for the cycle suggesting hedging. The narrative around interest rates could change here from that of lower yield being good for equities to that of lower yields are a sign of recession and thus negative impact on earnings ahead and thus lower equities.

FX: NZD jumps on larger than expected RBNZ hike. JPY firm, USD weak

After RBA’s pause yesterday, the RBNZ surprised with a 50bps rate hike today against expectations of a 25bps rate hike and a potential dovish turn in commentary. The RBNZ stressed that inflation remains too high and continued to diverge from the RBA as it said job losses will be needed to curb price pressures. NZDUSD jumped as high as 0.6379, nearly a percent higher than the prior day’s close before easing back in early European trading.  AUDNZD slid from 1.0780+ levels to sub-1.0650 levels amid the central bank divergence. RBA’s Lowe said in a speech today that a pause doesn’t signal rate cuts are coming and the balance of risks is still tilted towards more rate hikes. Meanwhile, GBPUSD reached the 1.25 handle to 11-month highs, largely on a eaker US dollar after the soft JOLTS job openings survey (more below). Traditional safe haven currencies CHF and JPY gained against the weaker US dollar and on lower yields.

Crude Oil: OPEC-driven rally running out of steam

Crude oil prices saw some further gains yesterday as the OPEC+ decision at the weekend to cut output continued to reverberate through markets, but prices slid lower as weaker US job openings data underpinned concerns of a slowdown in economic momentum. The White House also said that the US will continue to work with producers, and others, to ensure energy markets and lower prices for the American consumer. However, a weaker dollar provided support, as did the draw in API inventories which showed US crude inventories falling by 4.3mn barrels last week. Official EIA inventory data will be on tap today. WTI and Brent rebounded from dips overnight, with WTI near 81 and Brent near 85 in early European trading today.

Gold (XAUUSD) and silver (XAGUSD): strong rally as Treasury yields slip

The precious metals saw a broad rally on Tuesday as US job openings fell, escalating concerns of a growth slowdown and bringing Treasury yields lower. Rate cuts of 75bps from the peak are now fully priced in for this year. Both gold and silver rose to their highest levels in a year, with gains of 1.8% in gold and over 4% in silver. Gold prices pierced through $2,000 level to reach a high of $2,020, up over 25% from the lows in September. The previous high of $2,078 will be in focus with $2,000 serving as a support now. Silver touched $25 levels, and strong resistance is seen in the 25.85-26.45 area.

US Treasury yields fall further on soft US jobs openings survey

US treasury yields slump sharply on the soft US Feb. jobs opening survey (more below), with the 2-year dropping nearly 15 basis points to a low of 3.82% as Fed rate hike expectations for May were marked lower (and probability of cuts beginning as soon as Q3). The 10-year yield dropped to close near 3.35%, its lowest daily close since last September, with the intraday lows from March just above the 3.25% level the next downside focus.

What is going on?

US February JOLTS job openings tumble, weakening Fed tightening bets

The February JOLTS job openings survey in the US fell to 9.93mn from 10.56mn (revised lower from 10.82mn), more than the expected decline to 10.5mn and also outside of the range of analyst expectations (10.2-10.7mn). The latest print is the lowest since May 2021, and has prompted traders to pare bets for Fed’s tightening. Expectations of a 25bps rate hike in May have dropped from 57% to 45% as per the CME FedWatch, and the December 2023 FOMC meeting is priced at a policy rate of 4.18% (versus current 4.75-5.00% Fed Funds rate). The ratio of unemployed per job opening fell to 1.7, the lowest since November 2021, while the Quits Rate rose to 2.6% from 2.5%. Attention now turns to the NFP on Friday to further help shape Fed expectations, although the March CPI, PPI and PCE and retail sales data will also be key ahead of the Fed's May meeting.

China-Japan tensions on the rise

Last week, Japan announced plans to expand curbs on exports of 23 types of chipmaking equipment to countries including China as early as July. Together with measures from US and Netherlands, this is another step in the chip wars and more broadly, the fragmentation game. China has expressed “grave concern” and warned of “decisive measures” to safeguard its concerns. China is the world’s largest semiconductor market and Japanese companies that could get affected by these curbs include Tokyo Electron, Nikon Corp, Screen Holdings, or Lasertech Corp.

UK Ofcom says study suggests anticompetitive behaviour in cloud industry

The UK’s communications regulator says that the cloud industry should face an in-depth probe into its practices as the behaviour suggest anti-competitive forces are at play. The study finds that customers have difficulties switching to another cloud provider or use multiple providers at the same time. This could put focus on Microsoft, Amazon, and Alphabet in today’s session.

Donald Trump indicted on 34 felony charges linked to 2016 election

The charges by the New York court in Manhattan are that Trump tried to suppress information with a variety of payments to avoid embarrassing revelations about extramarital affairs during the 2016 election. Falsification of business records in recording payments is also a part of the accusations. Observers note that the bar for getting a conviction on these charges as felony (versus a misdemeanor) is high because the court must prove that the falsification of records was a crime committed in order to commit further crimes. Trump left New York after pleading not guilty and returned to Florida for a rally at which he claimed the case was a sham and purely politically motivated. He will not have to appear before a court again until December.

What are we watching next?

After weak JOLTS survey, next data take on added importance

The sharp market reaction to a more than month-old survey of US job openings (the Feb. JOLTS survey noted above) suggests the market will be highly sensitive to further incoming data that confirms a softening of the US economy, particularly employment data for now as the March CPI figure is not up until next Wednesday. Up today we have the ADP Employment Change data, a measure of private payrolls change that is often at odds with the official surveys. It is expected to show a rise in payrolls of +210k vvs. +242k in February. In past cycles, the weekly jobless claims numbers have been a more timely indicator thatn the monthly surveys of a deteriorating jobs market, generally showing a consistent rise on a moving average basis for several weeks before the official payrolls change data turn south. These claims data points have been consistently very low of late, but the latest is up tomorrow, expected at 200k. The official BLX nonfarm payrolls change release for March is up on Friday (a market holiday, it is worth noting) and is expected to show +240k growth in payrolls after a robust +311k in February.

Earnings to watch

Today’s earnings focus is Conagra Brands which is expected to deliver FY23 Q3 (ending 28 Feb) revenue growth of 6% y/y and EBITDA of $579mn up from $479mn a year ago as the US manufacturer of packaged foods continues to keep up with inflation.

This week’s earnings releases:

  • Wednesday: Industrivärden, Conagra Brands, Sodexo
  • Thursday: Seven & I, RPM International
  • Friday: Aoen, Yaskawa Electric

Economic calendar highlights for today (times GMT)

0715-0800 – Eurozone Final Mar. Services PMI

1200 – Mexico Mar. CPI

1215 – US Mar. ADP Employment Change

1230 – US Feb. Trade Balance

1230 – Canada Feb. International Merchandise Trade

1345 – US Mar. Final S&P Global Services PMI

1400 – ECB Chief Economist Lane to speak

1400 – US Mar. ISM Services

1430 – US DoE Weekly Crude Oil and Product Inventories

0130 – Australia Feb. Trade Balance

0145 – China Mar. Caixin Services PMI

Disclaimer

The Saxo 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 is not intended to and does not change or expand on this. 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 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 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 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 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 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-hk/legal/disclaimer/saxo-disclaimer)

None of the information contained here constitutes an offer to purchase or sell a financial instrument, or to make any investments. Saxo does not take into account your personal investment objectives or financial situation and makes no representation and assumes no liability as to the accuracy or completeness of the information nor for any loss arising from any investment made in reliance of this presentation. Any opinions made are subject to change and may be personal to the author. These may not necessarily reflect the opinion of Saxo or its affiliates.

Saxo Capital Markets HK Limited
19th Floor
Shanghai Commercial Bank Tower
12 Queen’s Road Central
Hong Kong

Contact Saxo

Select region

Hong Kong S.A.R
Hong Kong S.A.R

Saxo Capital Markets HK Limited (“Saxo”) is a company authorised and regulated by the Securities and Futures Commission of Hong Kong. Saxo holds a Type 1 Regulated Activity (Dealing in Securities); Type 2 Regulated Activity (Dealing in Futures Contract); Type 3 Regulated Activity (Leveraged Foreign Exchange Trading); Type 4 Regulated Activity (Advising on Securities) and Type 9 Regulated Activity (Asset Management) licenses (CE No. AVD061). Registered address: 19th Floor, Shanghai Commercial Bank Tower, 12 Queen’s Road Central, Hong Kong.

Trading in financial instruments carries various risks, and is not suitable for all investors. Please seek expert advice, and always ensure that you fully understand these risks before trading. Trading in leveraged products may result in your losses exceeding your initial deposits. Saxo does not provide financial advice, any information available on this website is ‘general’ in nature and for informational purposes only. Saxo does not take into account an individual’s needs, objectives or financial situation. Please click here to view the relevant risk disclosure statements.

The Saxo trading platform has received numerous awards and recognition. For details of these awards and information on awards visit www.home.saxo/en-hk/about-us/awards.

The information or the products and services referred to on this site may be accessed worldwide, however is only intended for distribution to and use by recipients located in countries where such use does not constitute a violation of applicable legislation or regulations. Products and services offered on this website are not directed at, or intended for distribution to or use by, any person or entity residing in the United States and Japan. Please click here to view our full disclaimer.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the US and other countries. AppStore is a service mark of Apple Inc. Android is a trademark of Google Inc.