Global Market Quick Take: Europe – 18 December 2023

Global Market Quick Take: Europe – 18 December 2023

Macro 3 minutes to read
Saxo Be Invested
Saxo Strategy Team

Summary:  The buy everything rally, led by US heavy weight stocks, was questioned in Asia today after the rally in US equities and bonds faded on Friday amid a pushback to Powell pivot from some Fed members including Williams. PMIs also continued to highlight a divergence in US and Eurozone economies, pushing the euro lower. Swap traders trimmed their 2024 rate cut expectations to five from six while ECB members warned the market about getting ahead of themselves in betting on policy easing. Focus now turning to Tuesday’s Bank of Japan meeting and whether the world’s last negative-rate regime will continue. Specs cut bullish oil bets to an 11-year low ahead of FOMC leaving it exposed to short covering.


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

Equities: The new week is starting with fresh negative sentiment in Asia with Hang Seng futures down 1.2% dragging down European equity futures with STOXX 50 futures down 0.3% in early trading hours. Today’s key macro events are IFO survey (0900 GMT) in Germany expected to improve from November and later NAHB Housing Market Index (1500 GMT) also expected to improve from November. Later this week we will get key earnings releases from FedEx and Nike which will provide a glimpse into global logistics demand and consumer confidence in consumder discretionary items. Tomorrow’s rate decision at the BoJ is also a key event should the central bank hint of future changes to its monetary policy that surprises the market.

FX: Another down-week for the US dollar as Fed Chair Powell adopted a dovish tone but other major central banks such as ECB and BOE stuck a relatively hawkish tone, although trends reversed slightly on Friday amid some pushback from Fed officials. A surprise rate hike from Norges Bank pushed NOK to be the outperformer on the G10 board last week. USDNOK moved below 10.50 for the first time in four months. BOJ comes next, and USDJPY traded flat around 142 with risk of a pushback on hawkish expectations likely to threaten a move back towards 145. EURUSD returned to 1.09 levels after failing at the 1.10 resistance and 200DMA at 1.0830 may be a key test, watch German Ifo due for a release today. GBPUSD was also back at sub-1.27 levels although AUDUSD held on the 0.67 handle and RBA minutes due tomorrow in Asia will be on the radar.

Commodities: Powell’s pivot towards rate cuts helped a struggling commodity sector end last week with gains, led by the industrial metals sector with palladium being the highflyer, up 24% on the week. Ahead of last week's FOMC meeting the net long position across 24 major commodity futures collapsed by 46% to a three-year low at 274k with net short positions being held in nine, and potentially exposing several knocked down commodities to strong rebounds should the technical and/or fundamental outlook change. An example being the energy sector where the hedge fund long in WTI and Brent has slumped to an 11-year low, with short covering being supported by Red Sea jitters. Gold also pared some gains on Friday but ended the week higher and continues to hold up above $2k begging the question whether a Santa rally could come. Copper remains in focus amid supply concerns and China easing property curbs, and China’s LPR announcement will be key this week.

Fixed income: The 2-year Treasury yield rose 6bps to 4.44% on Friday after Fed officials pushed back on discussion of imminent rate cuts, before drifting a bit lower today in Asia. However, yields at the long end of the curve continued to decline, with the 10-year yield falling 1bp to 3.91% and the 30-year yield down 3bps to 4.01%.

Macro: Fed’s Williams pushed back on the Powell pivot by saying that "we aren't really talking about rate cuts right now”, a clear divergence from Powell’s comment at the FOMC press conference last week when he said that the committee had discussed rate cuts. Later in the day, Fed's Bostic also came out considerably less dovish, suggesting just two rate-cuts in 2024, and likely after Q3. Fed's Goolsbee was dovish, but also less so than the market and the dots, saying that he expects rates to be lower next year than they are right now, but not significantly. Probability of a Q1 rate cut decline from 90% to less than 80%. US flash PMIs for December showed that the economy picked up some momentum as looser financial conditions helped to boost demand, business activity and employment in the services sector. The improvement in services PMI to 51.3 from 50.8 previously offset the increasing weakness in manufacturing with its PMI coming in lower at 48.2 from 49.4. Composite PMI therefore increased slightly to 51.0 from 50.7. Eurozone PMIs however escalated recession concerns. The composite flash PMI fell by 0.6pt to 47.0 in December with the manufacturing falling (by 0.5pt) to 44.1, and the services activity index falling (by 0.7pt) to 48.1. UK growth momentum however continued to pick up, particularly with services PMI expanding to 52.7 from 50.9 even as manufacturing cooled to 46.4 from 47.2.

Technical analysis highlights: S&P 500 forming top and reversal, expect minor correction but uptrend intact. Nasdaq 100 short term correction likely. DAX top and reversal pattern, support at 16,528 and 16,060. EURUSD rejected at key resistance at 1.10, a break above likely move to 1.1130. USDJPY still closing above support at 141.55, a close below potential to 138 otherwise expect rebound. GBPUSD above key resistance at 1.2745. potential to 1.29. Gold potential to 2,070.  WTI Crude oil rebound likely, resist at 72.65, Brent testing resist at 77.25. Copper resuming uptrend. 10-year T-yields below support at 3.95 next 3.83

In the news: Former PBOC advisor says China should trim its holdings of US Treasury bonds (Bloomberg). Bankruptcies are rising as refinancing and higher interest rates are biting (FT).

Macro events (all times are GMT): Germany IFO (Dec) est. 87.7 vs 87.3 prior (0900), NAHB Housing Market Index (Dec) est. 37 vs 34 prior (1500)

Earnings events: Today’s key earnings release is HEICO (US aft-mkt) reporting FY23 Q4 (ending 31 October) with analysts expecting revenue growth of 45% y/y and EPS of $0.67 down 5% compared to a year ago.

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

Quarterly Outlook

01 /

  • Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges

    Quarterly Outlook

    Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges

    Althea Spinozzi

    Head of Fixed Income Strategy

  • Equity Outlook: Will lower rates lift all boats in equities?

    Quarterly Outlook

    Equity Outlook: Will lower rates lift all boats in equities?

    Peter Garnry

    Chief Investment Strategist

    After a period of historically high equity index concentration driven by the 'Magnificent Seven' sto...
  • FX Outlook: USD in limbo amid political and policy jitters

    Quarterly Outlook

    FX Outlook: USD in limbo amid political and policy jitters

    Charu Chanana

    Chief Investment Strategist

    As we enter the final quarter of 2024, currency markets are set for heightened turbulence due to US ...
  • Macro Outlook: The US rate cut cycle has begun

    Quarterly Outlook

    Macro Outlook: The US rate cut cycle has begun

    Peter Garnry

    Chief Investment Strategist

    The Fed started the US rate cut cycle in Q3 and in this macro outlook we will explore how the rate c...
  • Commodity Outlook: Gold and silver continue to shine bright

    Quarterly Outlook

    Commodity Outlook: Gold and silver continue to shine bright

    Ole Hansen

    Head of Commodity Strategy

  • FX: Risk-on currencies to surge against havens

    Quarterly Outlook

    FX: Risk-on currencies to surge against havens

    Charu Chanana

    Chief Investment Strategist

    Explore the outlook for USD, AUD, NZD, and EM carry trades as risk-on currencies are set to outperfo...
  • Equities: Are we blowing bubbles again

    Quarterly Outlook

    Equities: Are we blowing bubbles again

    Peter Garnry

    Chief Investment Strategist

    Explore key trends and opportunities in European equities and electrification theme as market dynami...
  • Macro: Sandcastle economics

    Quarterly Outlook

    Macro: Sandcastle economics

    Peter Garnry

    Chief Investment Strategist

    Explore the "two-lane economy," European equities, energy commodities, and the impact of US fiscal p...
  • Bonds: What to do until inflation stabilises

    Quarterly Outlook

    Bonds: What to do until inflation stabilises

    Althea Spinozzi

    Head of Fixed Income Strategy

    Discover strategies for managing bonds as US and European yields remain rangebound due to uncertain ...
  • Commodities: Energy and grains in focus as metals pause

    Quarterly Outlook

    Commodities: Energy and grains in focus as metals pause

    Ole Hansen

    Head of Commodity Strategy

    Energy and grains to shine as metals pause. Discover key trends and market drivers for commodities i...

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. This content is not intended to and does not change or expand on the execution-only service. 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)


Business Hills Park – Building 4,
4th Floor, office 401, Dubai Hills Estate, 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.