Global Market Quick Take: Europe – 22 January 2024 Global Market Quick Take: Europe – 22 January 2024 Global Market Quick Take: Europe – 22 January 2024

Global Market Quick Take: Europe – 22 January 2024

Macro 3 minutes to read
Saxo Strategy Team

Summary:  US and EU equity futures trade higher, extending gains that saw the S&P 500 index reach a record high on Friday. Meanwhile stocks in Asia trade mixed with the Nikkei recording another strong gain ahead of Tuesday’s Bank of Japan meeting while Chinese and Hong Kong stocks continue lower on pessimism over the economic outlook. On Friday, the semiconductors led the from the front after an upbeat message from Taiwan’s TSMC fuelled the bullish sentiment with a softer dollar also supporting the risk on sentiment. Focus this week on central bank meetings in Europe and Canada, EU PMI’s as well as US earnings and Friday’s PCE inflation, the Fed’s favoured inflation indicator.

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

Equities: Another weak session in Chinese equities with Hang Seng futures down 1.4% while both US and European equity futures are up in early trading hours with STOXX 50 futures up 0.9% and S&P 500 futures up 0.3%. It is a big week ahead for equities with many important earnings releases with the three most important earnings releases being GE (Tue), Tesla (Wed), and ASML (Wed). In single stock names it is worth tracking French payment company Worldline as the French bank Credit Agricole is taking a

FX: The dollar pushed lower on Friday as risk sentiment rose after the University of Michigan survey showed a mix of high consumer confidence and lower inflation expectations. The DXY index will be watching support at 103 ahead of week that could bring focus back on soft landing with US GDP likely to remain strong while core PCE is expected to soften. The EURUSD moved above 1.09 after turning higher from 200DMA last week, but the upside looks fleeting even as ECB officials continue to push back on rate cut expectations. USDJPY still around 148 with eyes turning to BOJ meeting on Tuesday. CAD and NOK outperformed, with AUDUSD still attempting a break above 0.66.

Commodities: Crude oil trades softer with no Mideast escalation seen over the weekend and as Libya restart production from a major field. Overall, the range bound trading behavior looks set to continue for now as traders alternate their focus between the risk of a disruption and soft demand with an IEA forecast pointing to a well-supplied market in 2024. US natural gas prices continue their week-long slump as traders looked forward to the end of winter while storage remained abundant. Gold remains stuck with traders adjusting positions to reflect a potential delay in the timing of the first US rate cut. An ongoing slump in grains has driven the hedge funds short to a 2019 high and close to a record, potentially raising the risk of a short covering rally.

Fixed income: The Treasury yield curve twisted on Friday, with the 2-year yield rising 3bps while the 10-year yield declined 2bps from the previous day amid the strongest University of Michigan consumer sentiment reading since July 2021 partly due to falling short-term and long-term inflation expectations. Over the week, the 2-year yields went up by24bps while the 10-year yield rose by 18bps amid strong data and hawkish Fed speak, particularly Governor Waller who stressed that rate cuts would be gradual and executed “methodically and carefully” and played down the risk of potential stress in the repo markets. Fed officials are in blackout this week ahead of the January 30-31 FOMC meeting. On economic data, the focus will be on the GDP first estimate on Thursday and the PCE deflator on Friday.

Macro: US preliminary Uni of Michigan consumer sentiment survey for January saw the headline jump to a July 2021 high at 78.8, well above the expected 70.0, partly due to falling short-term and long-term inflation expectations. Both current conditions and forward-looking expectations rose to 83.3 (prev. 73.3) and 75.9 (prev. 67.4), respectively. On the inflation footing, 1yr ahead expectations fell to 2.9% from 3.1%, the lowest since December 2020, while the longer-term 5-10yr gauge dipped to 2.8% from 2.9%. Fed speakers continued to push forward rate cut expectations. Mary Daly (voter) said it is premature to think rate cuts are around the corner and it is far too early to declare victory. Goolsbee (non-voter) said he doesn't like "tying his hands" when asked about when to expect rate cuts, but he did clarify we still have "weeks" of data. Fed members now enter the quiet period ahead of the January 31 meeting.

Volatility: Volatility continued to soften as the VIX closed at $13.30 (-0.83 | -5.87%) on Friday, paralleled by a decline in the VVIX to 81.95 (-4.39 | -5.08%). The tech sector's strength pushed the markets to new highs, setting a robust tone. This week's expected moves for the S&P 500 and Nasdaq 100 are slightly elevated from last week, at +/-1.03% (+/-49.94) and +/-1.54% (+/-267.04), indicating a market bracing for a dynamic week with key economic data on GDP and PCE due for release, which could shape perceptions on inflation and a potential 'soft landing' for the economy. The earnings calendar is packed, with reports from Johnson & Johnson, Procter & Gamble, Netflix, Tesla and other major firms likely to stir market activity. Overnight, VIX futures fell to 14.400 (-0.205 | -1.40%), and both S&P 500 and Nasdaq 100 futures rose, +10.50 (+0.22%) and +104.00 (+0.59%) respectively, suggesting a continuation of the positive momentum into the new week.

In the news: China orders indebted local governments to halt some infrastructure projects - sources (Reuters), China defies sanctions to make Russia its biggest oil supplier in 2023 (Reuters), US FDA finds new manufacturing lapses at Eli Lilly plant (Reuters), Chinese yuan gives US dollar a run for its money as African trade embraces other currencies (SCMP), Zuckerberg's Meta Is Spending Billions to Buy 350,000 Nvidia H100 GPUs (PCMag), Ron DeSantis drops out of 2024 presidential race, endorses Donald Trump (CNBC), Israel’s Netanyahu Rejects Hamas’s Terms for Hostage Release (Bloomberg)

Macro events (all times are GMT): no important releases today

Earnings events: Busy week ahead with key earnings releases listed below:

  • Monday: Ericsson
  • Tuesday: GE, J&J, P&G, RTX, Lockheed Martin, 3M, Netflix, Intuitive Surgical
  • Wednesday: SAP, ASML, Freeport-McMoRan, Abbott Laboratories, Tesla, CSX
  • Thursday: SEB, Sandvik, Valero Energy, Atlas Copco, STMicroelectronics, NextEra Energy, Humana, Intel, LVMH, Visa
  • Friday: Volvo, Kone, Christian Dior, Colgate Palmolive.

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


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