Global Market Quick Take: Europe – August 31, 2023

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

Equities: Momentum is extending with S&P 500 now firmly above the 4,500 up 3.3% over the past five trading days. Hang Seng futures are still very volatile due to policy uncertainty in China but up 4.4% over the past 8 trading sessions suggesting that traders are betting that Chinese equities have turned a corner; we remain cautious on China.

FX: More dovish data in the US put the dollar on the backfoot, while firmer inflation prints in Germany and Spain brought EURUSD above 1.09 although it failed an attempt of 1.0945. EZ inflation data in focus today. GBPUSD broke above 1.27 amid a data-light week with focus on US and EZ. AUDUSD extended its recent recovery before failing again above 0.65. USDJPY remains close to 146

Commodities: Gold holds near resistance at $1948 after US economic data weakness supported an extension of the recent rally. Crude oil holds gain after US stockpiles hit the lowest of the year following a large 10.6m barrel draw and speculation that OPEC+ will prolong current supply cuts. Coffee rose on worries about the El Niño impact on production in Brazil while cocoa hit a 12-year high on poor crop conditions in West Africa.

Fixed-income: Treasuries stay in demand with US 10-year yield down 25 bp since the August 22 peak as US economic data weakness raise the prospect for peak rates. The 2-10 spread trades steady around –77 bp.

Volatility: Yesterday the VIX continued its downward path to 13.88, heading towards the lows of this year at 12.73. In equities, volatility of Lululemon Athletica is still very high as they will be releasing their quarterly earnings. The put/call ratio of LULU was 1.52 yesterday, which indicates that traders are more bearish than bullish on the stock in the short term.

Macro: The 2nd estimate for Q2 2023 GDP was revised lower to 2.1%, softer than the expected and prior 2.4% with PCE prices and the deflator for the quarter also softer. Following on from the drop in JOLTS job openings on Tuesday, the ADP private payroll data cooled to 177k (exp. 195k), down from the prior month's even hotter 371k print after a revision from 324k, both adding to hopes that Fed will not hike more. China’s Manufacturing PMI data rose for a third month in a row but at 49.7 vs 49.2 expected, it remains in contraction territory for a fifth month, while the services PMI showed expansion.

In the news: Salesforce shares up 5% in extended trading on better-than-expected profitability on cost cutting while outlook has improved - Full article in the WSJ. UBS reports first quarterly results post the Credit Suisse takeover beating expectations – Full article on CNCB.

Technical analysis: Shoulder-Head-Shoulder reversal pattern demolished in S&P 500, resistance at 4,527 and key support at 4,340. DAX has key resistance at 16,060, above uptrend, with key support at 15,482. EURUSD correction to 1.0960 before expecting downtrend to resume.

Macro events: EU CPI (Aug) est. 5.1% vs 5.3% prior (0900 GMT), US Cont. Claims est. 1706k vs prior 1702 (1230 GMT), US PCE Deflator (Jul) est. 3.3% vs prior 3% (1230 GMT)

Earnings events: Broadcom FY23 Q3 results (US aft-mkt)

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