Global Market Quick Take: Europe – September 5, 2023

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

Equities: A bit of weakness in Asia with hawkish rate pause from RBA suggesting further tightening may be necessary. China’s real estate developer Country Garden avoids default in last minute buts fails to underpin momentum in Chinese equities. We remain defensive on equities given our stagflation light outlook, US fiscal cycle turning, and elevated equity valuations.

FX: Quiet markets after Labor Day holiday in US and Canada on Monday, but China’s PMI miss stirred up the Asian session. USDCNH rose to 7.29 while AUDUSD slipped below 0.6430. RBA’s pause was a non-event. USDJPY breaking back above 146.50 in early Asian hours from lows of 144.45 on Friday post-NFP but intervention threat looms. GBPUSD made its way above 1.26 as BOE rate hike remains priced in, with EURUSD still struggling at 1.087 as Lagarde didn’t give any clear signals on the next ECB meeting.

Commodities: Brent crude oil continues to challenge $89, the January high as OPEC+ look set to maintain current production curbs while Chinese demand hits a new 2023 high (GS). Continued strike risks at Australia LNG plant from Sep 14 having a limited impact on EU prices amid high stocks and weak demand. Wheat trades near 3-½ low with lower output in Australia being offset by hopes the Ukraine grain deal can be restored.

Fixed-income: US bond futures trade lower as cash trading resumes following the US Labor Day holiday. At 4.21%, the US 10-year yield has now reversed half the recent slump as investors take a raincheck on the peak rate assumption, and after Goldman lowered the chance of a US recession to just 15% from 20% amid a resilient labour market.

Volatility: The VIX Index remains below 14 with the VIX futures forward curve still signalling calm expectations and supporting the current short-term momentum in equities.

Macro: China’s Caixin services PMI dropped to year-to-date lows of 51.8 in Aug from 54.1 in July. ECB President Lagarde was on the wires yesterday and said that critical for central banks to keep inflation expectations firmly anchored while these relative price changes play out. She stayed away from giving any signals on policy action at the Sept ECB meeting. Current market pricing is for a one in four chance of a rate hike

In the news: China has not pulled out the “bazooka” to backstop the slide in economic growth as the country wants to lessen the dependence on its property market – full story in Bloomberg. Apple and Microsoft are fighting EU regulators over designation as “gatekeepers” under the new EU legislation Digital Markets Act which would require significantly compliance requirements – full story in the FT.

Technical analysis: S&P 500 is rejected at resistance at 4,527, expect set back, support at 4,340.
Gold rejected at the 1,947 resistance level. Crude oil above key resistance confirming daily and weekly bullish trend. US 10-year yields rebound resuming uptrend

Macro events: Eurozone Services PMI (Aug) est. 48.3 vs 48.3 prior (0800 GMT), UK Services PMI (Aug) est. 48.7 vs 48.7 prior (0830 GMT), US Factory Orders (Jul) est. -2.5% vs 2.3% prior

Earnings events: Zscaler (aft-mkt) FY23 Q3 (ending 31 July) est. EPS 0.49 vs -0.69 a year ago. Revenue growth expected at 35% y/y.

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