Global Market Quick Take: Europe – 5 January 2024

Macro 3 minutes to read
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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

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