Global Market Quick Take: Europe – 29 November 2023

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

Equities: Hang Seng futures continued today to slide lower down 1.9% underscoring that sentiment remains weak and the Chinese government must do more to stop the negative feedback loop related to its weak real estate sector. Equity futures in Europe and the US are flat this morning. Financials and real estate stocks could be in focus in today’s European session as Spain kicks off today the first of many inflation readings this week. CrowdStrike (the world’s fifth largest cyber security company) reported earnings after the US market close with Q3 results beating estimates and Q4 EPS guidance above estimates.

FX: Dovish Waller put further pressure on the dollar, offsetting any buying seen due to the month-end demand, and RBNZ’s hawkish hold this morning in Asia further aggravated dollar’s downside. So far, this week is turning out to be the worst week for the dollar since the start of the year, and a similar dovish shift from Powell on Friday could make it worse. EURUSD broke above the key 1.0960 level to test 1.10, NZD rallied sharply to 0.62 handle from 0.6150 as the central bank raised its OCR path and signalled no rate cuts until mid-2025. JPY also caught up to gains with Treasury yields slumping with USDJPY slid to test 147. AUDUSD hit fresh 3-month highs of 0.6676 but reversed later as Aussie CPI came in below expectations.

Commodities: Gold extended its Santa rally on dovish Waller comments, much as we have highlighted in articles, podcasts and a webinar over the last week. XAUUSD has come up on top as one of our highest traded FX products this week, but worth noting that high cost of carry and still high real yields could make the rally prone to corrections. Crude oil also surged higher amid a weaker dollar, breaches in Israel/Hamas truce and reports on lack of OPEC progress as the decision nears. Copper hits 10-week high as mine closure in Panama and strike action in Peru points to supply risks. EU gas prices continue lower despite the current cold spell amid ample supply, weak demand and high input from renewables.

Fixed income: the US yield curve bull-steepened following Waller’s remarks that if inflation continues to fall over several months, the Federal Reserve can gradually cut interest rates. However, that was not enough to strengthen demand during the 7-year auction, which tailed by 2.1bps. It received the lowest bid-to-cover since March, and primary dealers were awarded 20.3% of the auction, the most in a year. However, spillover in the secondary market was limited to the longer part of the yield curve, resulting in a steeper curve by the end of the day with the spread between two and ten-year US Treasury yields higher by 10bps. Ten-year yields broke below strong support at 4.36% and will find support next at 4%. Investors’ focus shifts to tomorrow’s PCE data, which, if it comes lower than expected could drive yields further down and the yield curve could bull-steepen further.

Volatility: The VIX ended yesterday’s session exactly at the previous day’s ending, at $12.69 (0.00 | 0.00%). However the trading day did see some volatility right before and during when FED speaker Barr held his speech, causing a spike to 14.13 intraday. VIX futures stayed mostly flat during the overnight session, at $13.770 (-0.015 | -0.10%), S&P 500 and Nasdaq 100 futures are at 4568.75 (+5.75 | +0.13%) and 16067.75 (+19.75 | +0.12%) respectively.

Technical analysis highlights: S&P 500 likely to push to 4,607, expect correction. Nasdaq 100 short term correction likely, support at 15,744. DAX resist at 16,060. EURUSD above resistance at 1.0965, potential to 1.11. USDJPY if closing below support at 147.32 downside potential to 145. GBPUSD close to resistance at 1.2745. Gold uptrend potential to 2,070.  Silver rejection at 25.25. WTI Crude oil range bound 72.65-79.77, Brent 77.24-83.97. Copper above at strong resistance at 382. 10-year T-yields below support at 4.36, next 4.07

Macro: Fed Governor Waller, a hawk and voter, opened to the idea of rate cuts saying that if inflation continues to cool for several more months… then we can start lowering the policy rate”. This aided a dovish repricing of the Fed curve with the May rate now prices with over 90% probability. He said that he is "increasingly confident" policy is well positioned to slow the economy and get inflation back to 2%. Fed’s Goolsbee also said that he has some concerns about keeping rates too high for too long. US economic confidence rose in November following three consecutive months of decline. Headline rose to 102.0 from the revised lower 99.1 for October. Present Situation Index was slightly lower at 138.2 from 138.6, but Expectations lifted to 77.8 from 72.7.

In the news: Bill Ackman Bets Fed Will Cut Interest Rates as Soon as First Quarter (Bloomberg), US Thanksgiving weekend sales hit record on big discounts, online boost (Reuters), Panama to shut major copper mine after court ruling (FT), Charlie Munger, investing genius and Warren Buffett’s right-hand man, dies at age 99 (CNBC), CrowdStrike posts better-than-expected earnings, but its stock slips (DJ).

Macro events (all times are GMT): German CPI (Nov) exp –0.1% & 3.5% vs 0% & 3.8% prior (1200), US 3Q GDP exp 5% vs 4.9% prior (1230), US 3Q Core PCE exp 2.4% vs 2.4% prior (1230), EIA’s weekly Crude and Fuel Stock Report (1430), Fed Beige Book (1800), BoE's Bailey speaks (1405), Fed’s Mester speaks (1745)

Earnings events: Today’s key earnings releases are Dollar Tree, Snowflake, Synopsys, Salesforce, Pure Storage, and Okta. For the markets the key event is Salesforce reporting FY24 Q3 (ending 31 October) tonight after the US market close with analysts expecting revenue growth of 11% y/y and EBITDA of $3.6bn up from $1.6bn a year ago as the application software maker continues to focus on profitability.

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