Global Market Quick Take: Europe – 7 February 2024

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

Equities: The rebound in Chinese equities continues in today’s session in CSI 300 which represents mainland equities with a larger exposure to the state-owned enterprise sector while Hang Seng futures are slightly lower. Equity futures in the US and Europe are flat this morning. Today’s key earnings focus is on wind turbine and wind energy giants Siemens Energy, Vestas, and Orsted. Vestas has reported this morning an improving outlook as the wind industry slowly rebounding from its crisis moment last year. Orsted, which develops wind farm projects, is still in weak state cutting more jobs and pausing dividends to shore up the weakening balance sheet. Orsted shares are down 8% in pre-market trading. Yesterday, Snap announced 10% headcount reduction and Q1 outlook clearly missed market expectations sending shares down 31% in extended trading.

FX: Following gains earlier in the week, yields and dollar has taken a breather despite a number of Fed officials echoing Jerome Powell’s signals that the central bank will be in no rush to ease policy. The AUDUSD broke higher overnight to reach the 100DMA at 0.6537 in view with RBA staying relatively hawkish for now. The EURUSD attempting to push above 1.0750 after being rejected twice around 1.0725, while GBPUSD makes another attempt above 1.26 despite BOE Chief Economist Huw Pill suggesting a rate cut for this year. USDJPY back below 148.

Commodities: Sentiment in the commodities space received a boost on Tuesday as the dollar and yields retraced some of their recent gains with expectations for additional support measures from China also adding support. Crude oil traded higher for a second day, after speculators completed another round of long liquidation in response to lower prices with Red Sea supply risks, tight supply of diesel and the outlook for no US production growth this year supporting. Gold gained traction as Treasury yields pulled back, and Ole Hansen discusses what shifts in monetary policy expectations can mean for precious metals here. Meanwhile, the most shorted grains and oilseed sector since 2019 is focusing on Thursday’s monthly supply and demand report.

Fixed income: European sovereigns benefitted from solid demand for long-term sovereigns yesterday. The 30-year Gilts was oversubscribed the most since 2020, showing that investors are positioning for the Bank of England to begin to cut rates this year. Later in the day, the New York Community Bancorp’s stock slumped to the lowest since 2000, contributing to bond gains on both sides of the Atlantic. To intensify the rally was a solid 3-year US Treasury auction, which stopped through by 0.8bps the WI. US Treasury yields ended the day richer by 5 to 9 basis points across the curve, with the belly outperforming other maturities. We expect strong demand at today’s record $42bn 10-year bond sale but remain skeptical about tomorrow's 30-year auction. To know more about our take on the upcoming US Treasury auctions, click here.

Macro: Fed speakers continued to pushback on rate cut expectations. Mester (voter) said she sees no need to rush [on rate cuts], but she clarified that she still leans towards three rate cuts in 2024. Kashkari (non-voter) highlighted the "conundrum" that inflation has come down very quickly, but the labour market is very strong. To listen to our thoughts on the path of Fed from here, tune in to the latest episode of our Saxo Market Call podcast. Treasury Secretary Janet Yellen said she is “concerned” about losses in commercial real estate, but told Congress that regulators are working to ensure that loan-loss reserves and liquidity levels in the financial system are adequate to cope.

Technical analysis highlights: S&P 500 uptrend likely to test 5K but uptrend stretched. Nasdaq 100 minor correction, resuming uptrend. DAX closed above 17K, potential to 17,255-17,410. EURUSD bouncing from 1.0730 key support, a close below next support 1.0660. USDJPY rejected at key resistance at 148.80, a close above looking at +150. EURJPY key support at 158.55. GBPUSD trying to get back above 1.2610, but is in bearish trend support at 1.25. AUDUSD below key strong support at 0.6520. Gold range bound 2,065 – 2K. 10-year T-yields bouncing from previous low at 3.78, key resistance at 4.20

Volatility: Tuesday's trading session offered a varied landscape, with the VIX taking a significant dive to $13.06 (-0.61 | -4.46%), signaling a return to the lower end of a slowly ascending channel. This move, coupled with declines in the VVIX and SKEW by -3.28% and -1.72%, respectively, reflects a nuanced market sentiment. Despite the VVIX nearing its lower bounds, the SKEW's position at 152.82 underscores ongoing concern over potential outlier movements. The market response was mixed; the S&P 500 edged up by +0.23%, contrasting with a -0.23% dip in the Nasdaq 100. With a 10-year note auction on the horizon and key earnings reports from Walt Disney, Uber, CVS Health, and Paypal due, market participants remain on alert for potential volatility triggers. Overnight futures movements were minimal, suggesting a cautious wait-and-see approach among investors as they navigate through these varied signals.

In the news: Trump is not immune from prosecution in his 2020 election interference case, US appeals court says (AP), China intervenes as stock rout reaches US$5 trillion amid ‘uber-weak’ confidence; regulator heightens scrutiny reminiscent of 2015 crash (SCMP), Toyota raises profit forecast to record high amid strong sales (Nikkei Asia), China, Russia and Iran to hold navy drills aimed at ‘regional security’, admiral says as Middle East tensions flare (SCMP), Tucker Carlson to interview Russia's Putin (BBC), Moody's cuts NYCB ratings to junk, warns of more downgrades (Reuters)

Macro events (all times are GMT):  Germany Industrial Production (Dec) exp –0.5% & -2.4% vs –0.7% & -4.8% prior (0600), US Trade Balance (Dec) exp -$62bn vs -$63.2bn prior (1230), US Treasury 10-year auction (1700), Speakers: Fed Kugler (1500), Collins (1530), Barkin (1630), Bowman (1800), Remache (1915), Nordstorm (2030). BOE Catherine Mann.

Earnings events: Another busy week ahead on earnings with the list below highlighting the largest companies reporting earnings this week.

• Today: Equinor, Walt Disney, Alibaba, TotalEnergies, Uber Technologies, CVS Health, Siemens Energy, Vestas Wind Systems, Orsted, Carlsberg, ARM, PayPal
• Thursday: NTT, Siemens, AstraZeneca, Unilever, Philip Morris, S&P Global, L’Oreal, ConocoPhillips, Adyen, ArcelorMittal, Maersk
• Friday: Toyota Electron, Hermes International, PepsiCo, Coloplast

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