Global Market Quick Take: Europe – 9 April 2024

Key points:

• Equities: Japanese and Chinese equities are up 1%. Focus on miners and NFIB Small Business Optimism.
• FX: Weaker dollar pushes smaller currencies higher
• Commodities: Crude’s tensions bid returns; gold continues higher
• Fixed Income: U.S. Treasuries now pay the highest yield since November 2023.
• Economic data: Next key focus being US inflation data on Wednesday

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

Equities: Nikkei 225 and Hang Seng futures are up 1% respectively in today’s session as the good mood in equities continues. Equity futures are flat in the US and Europe with market participants waiting for tomorrow’s US March CPI report that risks playing into the current momentum of the market increasingly questioning the number of rate cuts this year. Today, key focus in equities is on European miners as iron ore prices continue to rebound and on macro the key focus is on NFIB Small Business Optimism Index for March estimated to rise again from February. Yesterday’s survey figures in Europe also showed increased optimism in Europe and ECB’s eurocoin growth indicator (tracking real-time GDP growth) is also the highest level in more than a year.

FX: The dollar was unable to go higher again despite rising Treasury yields and NY Fed bumping up their 3-year inflation forecast to 2.9% (see below). The weaker dollar pushed smaller currencies higher, led by MXN, SEK, NZD, NOK and AUD. EURNOK drifted lower to 11.60 from highs of 11.66 yesterday. AUDUSD rose back above 0.66 with 6% gain in iron ore prices and general strength in broader commodities. EURUSD surged back above 1.0850 and 100DMA test comes in at 1.0874, while USDCAD was back below 1.36 and both ECB and Bank of Canada could show a dovish tilt at their meetings this week. USDJPY remains pinned just below 152 and eyes will be on the US inflation release on Wednesday. Crypto FX was flying again as Bitcoin halving draws closer, and XBT rose over 3% to inch above $72k again but reversed lower in Asia, while Ethereum was up about 9%.

Commodities: A short-lived deflation of the geopolitical risk premium saw Brent trade back below $90 before gaining fresh strength as tensions in the Middle East and the Russia-Ukraine conflict continue to trigger supply worries. Prices also underpinned by sign of robust demand after Saudi Aramco hiked its Asian selling price for May to $2/bbl.  Gold continued higher amid strong underlying demand, not least from central banks in India and China, as well as retail demand from China. Silver meanwhile has seen two rejections above $28, copper has run into technical resistance at $4.30/lb, while platinum’s discount to gold has reached a fresh record at $1370/oz

Fixed income: Yield curves in both Europe and the U.S. bear-flattened yesterday, as market expectations for interest rate cuts diminished. Two-year Schatz yields climbed to 2.93%, and Bund yields rose to 2.44%. Concurrently, 10-year U.S. Treasury yields closed at 4.42% and 4.79%, the highest close since November. Meanwhile, Federal Reserve officials underscored the resilience of the U.S. economy, suggesting a smaller number of rate cuts than previously suggested by the dot plot. The outlier was Bullard, which still pins three rate cuts in 2024, however says that the long-term neutral rate is uncertain. Markets’ attention pivots to the U.S. CPI and PPI reading tomorrow and to the ECB meeting on Thursday. A note of caution from Lagarde could imply that the ECB's decisions remain closely tied to the Fed's policy moves, as a weakened Euro could inadvertently fuel another inflation surge (See full report here). Within this environment, we maintain a cautious stance and continue to favor bonds with a maturity of up to five years, while avoiding ultra-long issuances.

Macro: Fed’s Kashkari was on the wires again, after his comment last week that no rate cuts may be needed this year. The Fed Minneapolis President the inflation rate is running around 3% and the Fed must get back down to 2% suggesting that the inflation fight is not over. On labor market, he said that it is not red hot like last year, but still tight. The NY Fed inflation expectations saw the 1-year measure unchanged at 3.0%, while the 3-year expectations rose to 2.9% from 2.7%.

Technical analysis highlights: S&P500 correction unfolding, key support at 5,057. Nasdaq 100 Correction unfolding, needs to close below 17,808 for confirmation. DAX top and reversal, correction likely to 17,900.
EURUSD likely resuming downtrend, above 1.0885 uptrend GBPUSD resuming downtrend support at 1.25, uptrend above 1.2685. USDJPY range bound 151.95 – 150.85. EURJPY likely to test 165.35, a break above push to 166.40. AUDJPY testing previous peak at 100.40, a close above next is 101.15. Gold reached 2,350 target, but despite uptrend quite stretched it is intact, could reach 2,400. Silver resistance at 28.75 and 30. Copper testing resist at 430, close above next resist at 447. Brent Crude oil uptrend, resist at 93.05, support at 82.56. US 10-year T-yield uptrend likely to test 4.50 resistance

Volatility: Yesterday's market dynamics saw a significant reduction in volatility, with the VIX closing at $15.19, marking a decline of -0.84 or -5.24%. This move reflects a broader easing of market concerns, echoed by the VVIX and SKEW indices, which fell to 86.26 (-4.32 | -4.77%) and 140.63 (-2.01 | -1.41%), respectively. Notably, the VIX1D experienced a sharp decrease to 9.65, a drop of -4.85 or -33.45%, signaling a significant contraction in short-term volatility expectations. With no major economic announcements scheduled for today, the market seems poised to remain in a holding pattern, anticipating tomorrow's critical CPI data release. VIX futures slightly decreased to 15.250 (-0.095 | -0.63%). Meanwhile, S&P 500 and Nasdaq 100 futures showed minimal adjustments, with values at 5256.00 (+2.75 | +0.05%) and 18315.00 (+20.00 | +0.12%) respectively. Yesterday's most traded stock options, in order, were: TSLA, NVDA, AAPL, AMD, VZ, AMZN, META, T, MU, and INTC

In the news: Jamie Dimon Warns U.S. Might Face Interest-Rate Spike (WSJ), US Treasury's Adeyemo warns 'malign' actors are using virtual assets (Reuters),Biden’s Student-Loan Plan Seeks to Slash Debt for 30 million Americans (WSJ), China Has Too Much at Stake in Industry Push to Listen to Yellen (Bloomberg), US to award Samsung up to $6.6 billion chip subsidy for Texas expansion, sources say (Reuters),TSMC expands U.S. investment to $65bn after securing $6.6bn grant (Nikkei Asia), ‘They can’t get it wrong again’: Economists are increasingly uncertain about Fed rate cuts this year (CNBC), Ex-Fed Bullard Says Three Fed Rate Cuts This Year Is ‘Base Case’ (Bloomberg)

Macro events (all times are GMT):  Mexico CPI (Mar) exp 0.36% & 4.5% vs flat & 4.4% prior (1200), EIA’s Short-term Energy Outlook (1600)

Earnings events: The Q1 earnings season starts this week with Delta Air Lines earnings out tomorrow and then major US banks on Friday. Delta Air Lines will give clues into consumer demand for leisure and business travel while banks will provide insights into credit growth and the overall economy.

• Wednesday: Seven & I, EXOR, Delta Air Lines, Tesco
• Thursday: Fast Retailing, Fastenal, Constellation Brands, CarMax
• Friday: Progressive, Aeon, JPMorgan Chase, Wells Fargo, State Street, Citigroup, BlackRock

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