Global Market Quick Take: Europe – 11 December 2023

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

Equities: With USDJPY rebounding above the 145 level Nikkei futures are up 1.6% in today session while Hang Seng futures are down another 1% as the recent inflation report has ignited fears of deflation. The EU agreed late Friday to its long-waited AI Act which is the first of its kind globally and the big question is how the market will interpret the rules during 2024 as companies related to AI must deal with the new rules. This week is huge with key macro figures across ZEW survey, US inflation report, central bank meetings from the Fed and ECB, and finally fresh PMI figures from the US, Europe, and UK. On earnings, key releases to watch this week are Oracle (today), Carl Zeiss (Tue), Inditex (Wed), Adobe (Wed), Costco (Thu), Lennar (Thu) and Darden Restaurants (Fri).

FX: Dollar ended last week on a high note after a beat on NFP questioned the pace of rate cuts priced in for 2024 and odds of a March rate cut declined from 60% to 45%. JPY was a notable gainer too last week, although USDJPY returned to the 145 handle on Friday after a sharp move lower to 141.71 the day before on expectations of a BOJ pivot as early as December. The AUDUSD has lost momentum but holds above its 21-DMA at 0.6550. EURUSD trades near its 100DMA at 1.0761 ahead of Fed and ECB decisions this week. USDCNH trades at month highs just shy of 7.20 after weak CPI and PPI figures over the weekend, indicating China’s persistent growth issues.

Commodities: Energy and industrial metals found a bid on Friday despite a higher USD, although Gold slipped, and currently trades back below $2k as the NFP beat pushed yields higher and rate cut expectations for 2024 eased back a bit. Gold’s rally towards a record high in 2024 will not be a straight line with bulls likely to be challenged on several occasions. Crude oil recovered following its worst rout since 2018 on US SPR refilling news and worries about additional OPEC measures to prop up prices. Copper was boosted by China’s Politburo announced that fiscal policy would be stepped up appropriately and emphasised the importance of economic progress, although Saturday’s deflation report may raise concerns again about China’s slowing economic momentum.

Fixed income: Treasuries sold off across the yield curve on Friday, with short end yields rising the most amid an increase in headline payrolls beating expectations and an unexpected fall in the unemployment rate, as well as stronger hourly earnings. The 2-year yield surged 13 bps to 4.72%, and the 10-year rose 8 bps to 4.23%. The focus shifts towards today’s 3- and 10-year US Treasury auctions, and to tomorrow’s 30-year bond sale on the back of the U.S. CPI release. It can be a volatile week for sovereigns across the Atlantic with the Federal Reserve, the European Central Bank and the Bank of England meeting for the last time this year.

Macro: US NFP surprised to the upside with 199k job adds in November against 185k expected and 150k prior. Unemployment rate also saw a notable move lower to 3.7% from 3.9%, even as the participation rate edged higher to 62.8% from 62.7%. Wages were also on the hot side, accelerating 0.4% MoM from the prior and expected 0.3%. US University of Michigan consumer sentiment survey for December saw a huge beat. Headline sentiment rose to 69.4 from 61.3, above the 62.0 forecast, driven by gains in both current conditions and the forward-looking expectations sub-index. Current conditions rose to 74.0 from 68.3, well above the 68.5 forecast. The Chinese leadership discussed economic plans for 2024 in a Politburo meeting on Friday. The readout from the meeting highlighted 'stability' and 'proactive fiscal policies.' This discussion served as a prelude to the upcoming annual Central Economic Work Conference, expected to convene this week which will formulate a blueprint for the economic plan for 2024. China’s November CPI fell 0.5% Y/Y, a larger contraction than the -0.2% in the prior month and the median projection of -0.2%. On a month-on-month basis, CPI declined 0.5% as well. Excluding food and energy, the November Core CPI increased 0.6% Y/Y, the same as in October. PPI plunged 3.0% Y/Y in November, falling faster than the -2.8% projected and the -2.6% in October. On a month-on-month basis, PPI slid 0.3%.

Technical analysis highlights: S&P 500 testing 4,607, support at 4,458. Nasdaq 100 resuming uptrend, support at 15,744 and 15,535. DAX uptrend very stretched, support at 16,469. EURUSD strong support at 1.0760-1.0730. USDJPY retraced 0.382 expect range bound trading, resistance at 147.35. EURJPY spiked down to 153.08 support, expect rebound, resist at 157.70. GBPUSD rejected at 1.2745, support at 1.2445. Gold broken support at 2,009 could drop to 1,975.  WTI Crude oil support at 67. Brent support at 71.93. 10-year T-yields could bounce to 4.35

In the news: Europe reaches a deal on the world’s first comprehensive AI rules (Associate Press), Macy’s Is Said to Get $5.8 Billion Offer From Investor Group (Bloomberg), China adds Nio, BMW-backed Spotlight to approved car manufacturers list (Reuters), Nvidia CEO aims to set up a base in Vietnam (Reuters), Standout Emerging-Market Bond Bet Set for Another Boost in 2024 (Bloomberg), India’s NSE set to take Hong Kong’s spot among world’s largest markets (FT)

Macro events (all times are GMT): UK’s CBI publishes latest economic forecast

Earnings events: Key earnings releases today from Oracle reporting after the US market close with analysts expected revenue growth of 6% y/y and EPS growth of 93% y/y.

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