Global Market Quick Take: Europe – 5 January 2024 Global Market Quick Take: Europe – 5 January 2024 Global Market Quick Take: Europe – 5 January 2024

Global Market Quick Take: Europe – 5 January 2024

Macro 3 minutes to read
Saxo Strategy Team

Summary:  US equity futures trade lower for a sixth day as US rate cut expectations continue to moderate after another set of stronger than expected employment prints helped lift US Treasury yields across the curve while swap traders lowered the chance of a March rate cut to 63% from around 90% a couple of weeks ago. Amazon declined 2.1%, while Apple dipped 1.2% following a second analyst downgrade citing inventory concerns. Crude oil’s risk premium deflated for a second time in three days with gold holding up well despite the changing outlook for rate cuts. Attention now turns to the eagerly awaited US jobs report.


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

Equities: The market is slowly repricing its aggressive Fed policy rate bets for 2024 as SOFR Dec 2024 futures declined another 9 bps taking the decline this year to 21 bps implying that almost one rate cut this year has been removed from forecasts. Yesterday’s strong macro figures across ADP employment and initial jobless claims suggest economic activity is still holding up well and the recent plunge in financial conditions will certainly hold a hand under the economy. This repricing has hit equities as well and equity futures are trading lower this morning ahead of the US Nonfarm Payrolls figures today with STOXX 50 futures down 0.6% and Nasdaq 100 futures down 0.2%.

FX: The Yen weakened as Treasury yields rose, coupled with diminishing expectations of changes to Japan’s ultra-loose monetary policy when a decision is due on January 23 following the BoJ’s two-day meeting. After the recent earthquake in Japan, some economists who were calling for policy changes in January removed their calls. USDJPY trades back above 145 with broad dollar strength this first week of January driving the greenback to its first weekly gain in four weeks.

Commodities: Crude oil’s geopolitical risk premium deflated for a second in three days after Islamic State claimed responsibility for the explosions in Iran the previous day, and after EIA’s weekly data showed signs of weakening US demand. Gasoline stocks jumped 11 million barrels, the most in three decades with implied demand for both gasoline and diesel continued to weaken. Looking ahead for Q1, Saxo expects Brent crude oil to be rangebound around $80 as non-OPEC+ supply and concerns about global growth offset OPEC+ production cuts and the impact of the Middle East tension. Day ahead power prices across (Northern) Europe spikes on a combination of falling temperatures and calm weather reducing output from renewables, thereby raising demand for more expensive gas and coal. Copper pared a weekly loss, on renewed investor optimism Chinese authorities will ease borrowing costs in 2024.

Fixed income: A stronger-than-expected increase in ADP private-sector employment data and a smaller-than-expected reading in initial jobless claims propelled yields higher across the curve. The 10-year Treasury yield trades back above 4% while the 2-year rises to 4.4%. Today, the Bureau of Labor Statistics will release the jobs report, in which investors will closely scrutinize non-farm payrolls (median forecast: +175k), hourly earnings (median forecast: +0.3% M/M, +3.9% Y/Y), and the unemployment rate (median forecast: 3.8%) to gain insights into the timing of the first rate cut by the Fed.

Macro: Initial jobless claims in the US fell to 202k last week, down from the prior week’s revised figure of 220k, which was below the economists' expected 216k. Additionally, continuous claims dropped to 1,855k from the prior week’s revised 1,886k, falling below the median forecast of 1,881k. The US ADP private employment increased by 164k in December, sharply more than the previous month’s revised 101k and the median forecast of 125k. However, the ADP data is not a reliable predictor of today's non-farm payrolls data. The S&P Global US services PMI for December came in at 51.4, showing a modest improvement of 0.1 point over the prior month’s reading and slightly surpassing this month’s forecast of 51.3.

Volatility: The VIX rose yesterday to $14.13 (+0.09 | +0.64%), while the VVIX, the VIX’s own volatility index, eased to 87.59 (-2.06 | -2.30%). The Cboe SKEW index (the OTM sibling of the VIX) also rose a little, to 136.60 (+2.37 | +1.77%), staying in a ‘normal’ range. With heightened volatility, while still low, markets are cautious and show the uncertainty where to go next. It seems likely that volatility will continue to rise in the coming days. S&P 500 and Nasdaq futures were flat to slightly red in the overnight session: 4727.25 (-2.25 | -0.05%) and 16419.25 (-25.75 | -0.16%) respectively.

Technical analysis highlights: S&P 500 correction unfolding, closed below key support at 4,697. Nasdaq 100 correction, support 16,166. DAX support at 16,470 and 16,060. EURUSD tested 0.618 retracement and support at support at 1.0882, could rebound. USDJPY rebounding, testing resistance at 144.95.  GBPUSD below rising trendline, support at 1.25. Gold bouncing from minor support at 2,030, likely range bound 2,030-2,070. 10-year Treasury future rejected at 113 8/32, support at 111 30/32, yields touched 4% , likely to break higher, resistance at 4.05

In the news: Islamic State claims responsibility for deadly Iran attack, Tehran vows revenge (Reuters), BOJ's Ueda keeps wage hike hopes, quake dampens bet of January policy shift (Reuters), Apple Hit With Second Downgrade This Week on iPhone Worries (Bloomberg), Trader Makes Massive Option Bet Treasuries Will Get Slammed After Jobs Report (Bloomberg)

Macro events (all times are GMT): UK PMI construction (Dec) exp 46.1 vs 45.5 prior (0830), Eurozone CPI (Dec) exp 0.2% & 2.9% vs –0.6% & 2.4% prior (0900), US non-farm payrolls 175k vs 199k prior, unemployment rate 5.9% vs 5.8% prior & average hourly earnings 0.3% vs 0.4% prior (1230)

Earnings events: Key earnings release to watch today is Constellation Brands reporting FY24 Q3 before the US market open with analysts expecting revenue growth of 4% y/y and EPS growth of 7% y/y as beverage markets in beer, wine and spirits remain stable.

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

Disclaimer

The Saxo Bank 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 Bank 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 Bank 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 Bank 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 Bank 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 Bank 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/legal/disclaimer/saxo-disclaimer)
- Full disclaimer (https://www.home.saxo/en-mena/legal/disclaimer/saxo-disclaimer)


Boulevard Plaza, Tower 1, 30th floor, office 3002
Downtown, P.O. Box 33641 Dubai, UAE

Contact Saxo

Select region

UAE
UAE

Trade responsibly
All trading carries risk. Read more. To help you understand the risks involved we have put together a series of Key Information Documents (KIDs) highlighting the risks and rewards related to each product. Read more

Saxo Bank A/S is licensed by the Danish Financial Supervisory Authority and operates in the UAE under a representative office license issued by the Central bank of the UAE.

The content and material made available on this website and the linked sites are provided by Saxo Bank A/S. It is the sole responsibility of the recipient to ascertain the terms of and comply with any local laws or regulation to which they are subject.

The UAE Representative Office of Saxo Bank A/S markets the Saxo Bank A/S trading platform and the products offered by Saxo Bank A/S.