Global Market Quick Take: Europe – 20 March 2024

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

Equities: The S&P 500 closed at a record high yesterday with the “Magnificent Seven” staging a rebound with Nvidia up 1% amid the launch of the Blackwell AI chip and expanding stack of its AI customer, but overall, there has been little exuberance from the GTC event. Super Micro Computer, meanwhile, fell 9% after the company announced that it would be selling another two million shares to finance inventory, expand its manufacturing capacity expansion and boost R&D investments. Energy stocks also gained, with oil prices rising beyond the recent range. Focus now turns to the Fed announcement and dot plot, where a hawkish surprise could potentially make stocks especially in the technology space to pare recent gains.

FX: The dollar index trades higher for fifth day on broad gains, with losses among its peers being led by the yen which trades back above the double-top around 150.90 BOJ’s move to remove negative interest rates and YCC, thereby raising the risk of intervention or jawboning from the authorities. EURJPY also reached a fresh YTD high at 164.70. Activity currencies also tumbled on dollar strength and dovish data and central bank signals. AUDUSD tested the 0.65 support as RBA dropped its tightening bias while USDCAD also rose to YTD high of 1.3614 as inflation undershot, before higher oil prices supported a bounce into today’s session. UK CPI will be in focus today as GBP rebounded from a dip to sub-1.27 amid sustained equity momentum but dovish notes can hit today or at the BOE meeting tomorrow.

Commodities: Stronger USD triggered some selling in commodities although crude oil still held up. Brent is now over $87/barrel after breaking out of range and is up over 13% YTD amid concerns of tight supplies while demand conditions are still holding up. FOMC decision ahead could bring some jitters if easing expectations are delayed. Copper corrected lower but green transition and AI demand could mean upward trajectory could remain in place. Our commodity strategist, Ole Hansen, discusses how to invest in copper in this article. Gold edged lower but has so far managed to hold above key support, thereby preventing long liquidation from hedge funds who in a two-week period to March 12 bought 9.1 million ounces (285 tons)

Fixed income: The $13 billion 20-year US Treasury auction received solid demand yesterday on the back of lower-than-expected February Canada CPI numbers. Indirect and direct bidders took 73.5% and 17.2%, respectively, leaving primary dealers with 9.4% of the issuance. The auction stopped through WI by 2bps, leading the long part of the yield curve down after the auction. However, concerns that the Federal Reserve might not be ready to cut interest rates are weighing on the short part of the yield curve. The $46 52-week T-bill auction tailed WI by 1bps, recording the first tail since October 2022. That shows how important today’s FOMC meeting is for bond markets, particularly the dot plot, as it could suggest a delay in rate cuts as the economy remains resilient. For a preview of today’s FOMC meeting, click here. For a preview of Thursday's upcoming BOE monetary policy meeting, click here.

Macro: The Bank of Japan has entered a new era as it scrapped negative interest rates and yield curve control, while also ending its ETF purchases. The central bank has set the short-term interest rate at between 0-0.1% in its first rate hike since 2007, although comments suggested that they expect accommodative conditions to persist for some time which is a signal that concurrent rate rises are unlikely. Overall, the BOJ’s message remained dovish with no signals on further tightening plans. The Reserve Bank of Australia kept its policy settings unchanged but toned down its hawkish bias even though there was no mention of rate cuts in the statement. Markets have slightly increased the odds of rate cuts this year, now standing at over 45bps from 40bps pre-RBA. Canada’s inflation came in cooler-than-expected for February at 2.8% YoY vs. 3.1% expected and 2.9% prior and the headline was further beneath the top end of the BoC's 1-3% range, although the core measure (average of median, trim and common) still sits above, but that also eased in February to 3.13% from 3.33%. That has reinforced near-term rate cut expectations from the BOC with 73bps of rate cuts expected now for the year vs. Just over 60bps earlier. The FOMC is set to keep rates unchanged at 5.25-5.50% on Wednesday. The market's focus will be on the accompanying Dot Plot with risks the 2024 median forecast may nudge higher to two cuts from December's three cuts to reflect the recent upside surprises in inflation and growth data. There is also a risk the neutral rate forecast moves higher. Given a dovish bent in data and central bank communications this week, the hawkish bar for the Fed may be lower and a pushback on rate cuts may be enough. Saxo’s FOMC preview provides insights into how markets can potentially react to a dovish or hawkish surprise by the FOMC, including equities, bonds, currencies and commodities.

Technical analysis highlights: S&P 500 & Nasdaq 100 top and reversal pattern. Key support for S&P 500 5,057, close above 5,190 reversal cancelled. Nasdaq 100 key support at 17,478. EURUSD correction support at 1.0838 and 1.0800. USDJPY likely to test 2022 peak at 151.95. EURJPY potential to 165 possibly 166. GBPUSD bouncing from support at 1.2660, likely resuming uptrend. GBPJPY uptrend could push to 193.40. AUDJPY broken bullish out of range testing 99, likely bullish move to 99.88. USDCHF testing key resist at 0.89, a break likely move to 0.90. Gold correction unfolding likely to test support at 2,134, possibly 2,115. WTI upside potential to 87.22.  US 10-year T-yields rejected at 4.35. Sliding back to 4.20?

Volatility: Yesterday, the VIX fell to $13.82 (-0.51 | -3.56%), signaling reduced anxiety before today's FOMC statement, expected to be today's main volatility catalyst. The VIX1D's jump to 15.00 (+2.59 | +20.87%) reflects market expectations for post-announcement fluctuations. Despite a general drop in volatility indicators, with the VVIX at 83.90 (-2.88 | -3.32%), the slight increase in the SKEW to 141.61 (+1.64 | +1.17%) suggests lingering concerns about outlier moves. VIX futures edged up to 15.050 (+0.130 | +0.86%), while S&P 500 and Nasdaq 100 futures remained steady, hinting at a cautious wait-and-see approach at 5237.00 (-4.75 | -0.10%) and 18254.25 (-15.75 | -0.09%). Tuesday's most traded stock options were NVDA, TSLA, AMD, AAPL, GOOGL, PLTR, MARA, MSFT, AMZN, and META, with a focus on tech, AI, and sectors affected by Bitcoin's recent corrections.

In the news: BOJ’s Small Rate Hike May Have Big Ripple Effect Around the World (Bloomberg), Hong Kong Passes New Security Bill, Triggering Warnings Overseas (Bloomberg), Bitcoin slides 6%, while altcoins sparkle (Reuters), MicroStrategy shares fall 13% after convertible deal for bitcoin purchases (Reuters), Apple CEO Tim Cook visits Shanghai amid a slowdown in China iPhone sales (CNBC)

Macro events (all times are GMT):  UK CPI (Feb) exp 0.7% & 3.5% vs –0.6% & 4% prior (0600), US Retail Sales (Feb) exp 0.7% & 4.4% vs –0.3% & 4.9% prior (0600), EIA’s Weekly Crude and Fuel Stock Report (1330), FOMC Rate Decision (1700)

Earnings events: Tencent, Prudential, Micron Technology, Alimentation Couche-Tard, Kuaishou Technology, PDD, General Mills, BioNTech

• Thursday: China Mobile, CNOOC, Ping An Insurance Group, Enel, China CITIC Bank, BMW, Nike, FedEx, Lululemon Atheletica, Accenture, Next, Darden Restaurants, FactSet
• Friday: China Shenhua Energy, Meituan, Zijin Mining Group, Yihai Kerry Arawana, CMOC Group, China Petroleum & Chemical

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