Global Market Quick Take: Europe – June 27, 2023 Global Market Quick Take: Europe – June 27, 2023 Global Market Quick Take: Europe – June 27, 2023

Global Market Quick Take: Europe – June 27, 2023

Macro 9 minutes to read
Saxo Strategy Team

Summary:  US equities suffered another weak session, with major megacap and AI-linked names suffering their worst session in weeks. The People’s Bank of China set its currency sharply higher overnight with a pointed message in setting the daily reference stronger. The ECB hosts a two-day forum in Sintra, Portugal starting today with many prominent speakers from major central banks. In commodities, worrying crop conditions in the US are in focus.

What is our trading focus?

US equities (US500.I and USNAS100.I): A calm retreat

US equities extended their decline yesterday led by carmakers, software, and media stocks as the technology rally is faded. Among the best performing industry groups were real estate, energy and transportation stocks. While S&P 500 futures are down 2.5% the market is still overwhelmingly quiet waiting for more data points on inflation and still anticipating more stimulus in China. The key support level to watch on the downside in S&P 500 futures is 4,368 which is yesterday’s low.

Hong Kong & Chinese equities (HK50.I & 02846:xhkg): rally on stimulus anticipation and growth optimism

Hong Kong and mainland Chinese stocks rallied, with the Hang Seng Index rising 1.6% and the CSI300 Index gaining 0.7%. Chatters about stimulus measures from the politburo meeting in July continued to lend support to the market and China’s Premier Li Qiang told the audience at the annual meeting of the World Economic Forum in Tianjin that China’s Q2 GDP growth would be above the 4.5% in Q1. China property stocks led the advance in Hong Kong while the telecommunication names outperformed in the mainland A-share market. On the other hand, BYD (01211:xhkg) slid 1.3% after filings revealed that Buffett’s Berkshire Hathaway sold HKD676 million worth of the electric car and battery maker in mid-June, reducing stake to 8.98% from 9.21%.

FX: PBOC boosts CNH overnight, USD edges lower

The PBOC set is daily reference rate, or fixing at a far stronger level than expected for the second time in two days, with the move overnight pushing USDCNH sharply back lower after an extension to new cycle highs above 7.24 yesterday. The move suggests that the PBOC would like to halt the slide in the renminbi. The US dollar was broadly weaker overnight, as AUDUSD rebounded above 0.6700 and EURUSD continues to trade above 1.0900 and GBPUSD above 1.2700. A number of major central bank members will speak at the ECB’s annual forum in Sintra Portugal today and tomorrow.

Crude oil focus returns to China and US yield curve

Oil prices trade near their two-month averages having bounced after once again managing to find support, in Brent around $72, and WTI around $67. The market found support on Monday following weekend events in Russia but with both prompt spreads in Brent and WTI still in contango, the market is sending a signal of ample supplies. While developments in Russia will be watched, the market continues to focus on developments in China after senior officials said growth has picked up this quarter and more stimulus was in store. The movements in the US yield curve, which are currently strongly inverted as the market anticipates a recession, continue to serve as another source of inspiration, not least for macro-focused funds are utilizing the oil market to hedge these risks.

US treasuries and bund gain amid weak Ifo business expectations, however Wednesday’s ECB forum on Central Banking might upset the rally (2YYM3, 10YM3, 30YM3)

Yesterday, yields in the US and Germany dropped amid Ifo expectations miss. Despite the rally, the US Treasury sold 2-year notes at the highest yield since February, the second highest since 2007. We expect sovereign yields in the US and Germany to rise this week amid the Sintra forum, where central bankers will likely reinforce their resolution to fight inflation. Our expectation is for the front part of the yield curves to resume its rise towards 5% in the US and 4% in Germany while long-term yields remain underpinned by weak growth data.

What is going on?

Goldman downgrades Tesla

Tesla shares fell 6.1% yesterday on a day that delivered considerable blows to recent high-flying mega-cap and AI-linked names, with NVidia also suffering its weakest session since late May. Goldman yesterday downgraded Tesla shares to “Neutral” from “Buy”, citing the large advance in Tesla shares of late as well as price cuts for its new cars.

Russia’s Putin weighs in against Wagner group

In a short, angry speech late yesterday, Russian leader Putin condemned those involved in the brief mutiny at the weekend, saying their actions were a betrayal of their country. He demanded that Wagner operatives must either sign contracts with Russia’s Ministry of Defense to join its regular forces, go home or leave for Belarus. The speech would seem to suggest that Wagner leader Prigozhin is also in the firing line. In a recorded message yesterday before Putin’s speech, Prigozhin said his intent was never to overthrow the “current regime” but to protest against the unwinding of his organization, which he wanted to demonstrate has superior organization and morale relative to the regular army.

Carnival shares down as high expectations not cleared

Carnival shares tumbled 7.6% yesterday despite Q2 revenue and adjusted EBITDA beat estimates and the cruise line operator lifted its FY EBITDA guidance. The market expectations were clearly set above analyst estimates and the market is on edge over the high net debt leverage making the company vulnerable to adverse developments in the economy.

US crop conditions continue to deteriorate

The Bloomberg Grains Index has experienced a notable 16% increase this month, with wheat leading the way with a 22% surge, followed by soybeans at 17% and corn at 13%. The rally is being driven by the prevailing hot and dry weather conditions in crucial agricultural regions, which have raised concerns regarding this year's crop production levels. These developments have spurred a significant amount of speculative buying, although the pace seems to have moderated recently due to weekend rains in the Midwest and forecasts of more precipitation in the coming days, which have provided some relief for crops. Nonetheless, drought conditions persist, and their impact can be tracked through the weekly crop condition report released by the USDA on Mondays. In the latest report, both corn and soybeans received their lowest ratings since 1988, with 50% of corn and soybeans being rated as good/excellent, while wheat also stood at 50%. These statistics underscore the urgent need for rainfall to alleviate further upward pressure on prices.

What are we watching next?

US June Consumer Confidence survey up today

The June US Conference Board Consumer Confidence survey is up today and has shown a significant spread between still quite elevated Present Situation readings and a generally deteriorating Expectations component – with the trend lower in Expectations of the last two years correlating tightly with the inversion of the yield curve (these two data series show a remarkable long-term positive correlation) and possibly presaging an eventual recession. Historically, the early months of a US recession are associated with a steep drop-off in Present Situation component, which has remained above 145 for the last seven months running.

Technical update

  • S&P500. Likely correction to 4,300
  • Nasdaq 100 likely correction to 14,500-14,300
  • DAX likely to test support at 15,625
  • CAC40 support at 7.083 is key
  • Gold in downtrend. No support until 1,870
  • Henry Hub Gas in an uptrend
  • EURUSD rejected at 1.10. Likely rangebound short-term between 1.08 and 1.10, but uptrend intact. Resistance at 1.11
  • GBPUSD bouncing just above support at 1.2667. Likely to resume uptrend
  • USDJPY above key resistance at 142.25. Uptrend to 146.60
  • EURJPY reached strong resistance at 157.00. Likely correction

Earnings to watch

Our next earnings focus is Walgreens Boots Alliance reporting at 11:00 GMT with analysts expecting FY23 Q3 (ending 31 May) revenue of $34.2bn up 5% y/y and EBITDA of $1.5bn down from $1.8bn a year ago as the retail drugstore chain is still under pressure from headline inflation and rising input costs through wage inflation. 

  • Tuesday: Walgreens Boots Alliance, Alimentation Couche-Tard
  • Wednesday: Micron Technology, General Mills
  • Thursday: H&M, Nike, Paychex, McCormick
  • Friday: Constellation Brands

Economic calendar highlights for today (times GMT)

  • 0800 – ECB President Lagarde to speak
  • 0815 – Bank of England’s Dhingra to speak
  • 0830 – Bank of England’s Tenreyro to speak
  • 0930 – Bank of Canada Deputy Governor Kozicki to speak
  • 1100 – Norway Norges Bank Governor Ida Wolden Bache to speak
  • 1230 – Canada May CPI
  • 1230 – US May Durable Goods Orders
  • 1300 – US Apr. S&P CoreLogic Home Price Index
  • 1400 – US May New Home Sales
  • 1400 – US Jun. Consumer Confidence
  • 1400 – US Jun. Richmond Fed Manufacturing Index
  • 1700 – US Treasury auctions 5-year notes
  • 2030 – API's Weekly Crude and Fuel Stock Report
  • 0130 – Australia May CPI

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