Global Market Quick Take: Europe – October 2 2023

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

Equities: S&P 500 futures are bouncing back after two weeks of downward pressure with the index futures trading around the 4,344 level in early trading. Nike earnings results after the US market call lifted sentiment (shares were up 7% in aft-mkt) as the outlook on gross margin and revenue growth were better than feared by analysts.

FX: Dollar was muted on Friday but closed nearly unchanged with CAD leading declines but NZD in strong gains. USDCAD rose from lows of 1.3417 to 1.3585 as oil prices cooled into the quarter-end. NZDUSD rose to 0.6049 amid improved risk sentiment and weaker yields, before easing to sub-0.60 handle. AUDUSD also touched the 0.65 handle but reversed lower towards 0.64 in Asia today with China PMI’s over the weekend remaining subdued. Both RBA and RBNZ announce rate decisions this week and are expected to stay on hold. EURUSD back below 1.06 while USDJPY sees little respite, and continues to trade around 149.50, despite the lower Treasury yields.

Commodities: Crude oil prices resumed their ascent at the start of the week after slumping lower on Friday but having recorded the biggest quarterly advance since early 2022, and focus turns to Adipec summit in Abu Dhabi this week. Gold slumped by close to 4% last week, having broken below $1850 amid the relentless rise in long-end yields. Wheat plunged 6.4% on Friday to a three-year low at $5.415 after the USDA said domestic production was 4.5% higher than expected. 

Fixed income: US Treasuries might be supported by a lack of coupon supply this week. However, a missed government shutdown, job data, and a lack of demand from quarterly-end portfolio rebalancing leave the door open for another selloff. Last week, US Treasuries continued to tumble despite a benign PCE print, seeing core inflation falling below 4% for the first time in two years. We therefore believe that rising yields show that markets are discounting a higher permanent terminal rate. Despite a correction that might be due following last week’s rise in yields, we still expect 10-year yields to rise to 5% as selling pressure mounts. In focus these weeks are Powell and Lagarde speeches being delivered today and on Wednesday respectively.

Volatility: The CBOE Volatility Index fell for a second day as the underlying SPX index gained 0.6% to close around 4300.  The index closed at 17.34% down from a four-month high of 19.7% earlier in the week.

Macro:

• US headline PCE met expectations as it rose to 3.5% YoY from July’s upwardly revised 3.4%, while the MoM print was higher at 0.4% (vs. 0.2% prior and 0.5% expected). Core PCE however cooled to 3.9% YoY as expected from 4.3% prior and 0.1% MoM from 0.2% prior and expected. Core services PCE ex-housing, Fed’s key measure, also cooled. Income and spending remained robust and there were also significant revisions to historical numbers, suggesting Q3 GDP growth in the US could remain strong and higher-for-longer could have more room to run.
• Euro-area inflation dropped to 4.3% YoY from 5.2% in August, coming in below expectations of 4.5%. Core inflation fell to 4.5% from 5.3%, also below consensus expectations of 4.8%. While base effects and energy contributions were at play, downside surprise also came in core categories, suggesting ECB could stay on hold.
• The US Congress passed a last-minute stop gap bill to keep the government running for 45 days. The deal, which doesn't include new Ukraine funding, keeps the lights on until November 17, buying time to negotiate a longer-term spending package but risks to speaker McCarthy’s job have increased.
• China’s PMIs were in expansion territory for September signalling preliminary signs of a bottoming out in the economy. Manufacturing PMI came in at 50.2 vs. 49.7 in August, while non-manufacturing was at 51.7 vs 51.0 in August. However, expansion in Caixin PMIs moderated with manufacturing at 50.6 from 51 in August and services at 50.2 from 51.8 suggesting that private businesses and exporters still remain under heavy pressure. 

In the news: Accelerated slump in global container shipping rates (X), Wheat Set for Worst Quarterly Run in 14 Years on Ample Supply (Bloomberg), US, China talks gather momentum, paving way for Xi-Biden Summit- WSJ via Reuters. Nike jumps as inventory glut eases, profit beats estimates (Bloomberg).

Technical analysis: US and EU stocks Bearish trend: S&P500 rejected at 4,328 resistance. Nasdaq 100 below 100 Moving Average. DAX bearish rejected at 15,483. EURUSD bouncing from support at 1.05, could move to 1.0665. GBPUSD rebound possibly to 1.2353. USDJPY uptrend intact, eyeing 152. Crude oil correction? Brent key support at 91.80. 

Earnings events: No important earnings releases today.

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