Global Market Quick Take: Europe – 7 November 2023

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

Equities: The rally in US equities lost a bit of momentum yesterday as S&P 500 futures got closer to the 4,400 level and the US 10-year bond yield rose to 4.64% from the Friday close of 4.57%. Q3 earnings continue to be generally supportive for equities. UBS reports Q3 net income loss of $785mn due to integration costs and has begun reducing staff in the new combined investment bank with Credit Suisse which will generate $3.3bn in cost savings. Nintendo is also out reporting better than expected results lifting its fiscal year guidance. We remain cautious on equities in the short-term favouring defensive sectors.

FX: A choppy overnight trading session which saw the dollar move higher, erasing some of the post-FOMC and NFP losses. USDJPY moved back to 150 from lows of 149.21 seen on Friday as BOJ Governor Ueda reaffirmed dovish policy. The AUD meanwhile came under pressure, extending falls following a 25 bps dovish hike, underscoring RBA’s reluctant hiker image after raising both its inflation and employment forecasts. EURUSD still holding above 1.07 with services PMI unrevised. Chinese yuan stayed below 7.30 with PBOC’s strong fixings continuing to underpin.

Commodities: Supply concerns were back on the forefront as Saudi Arabia and Russia reaffirmed cuts until year-end. That helped crude oil prices start the week with some gains despite fading geopolitical risks and a sluggish demand outlook. The EIA will publish its monthly STEO outlook later today. Meanwhile, the surge higher in Treasury yields again triggered additional profit taking in gold brought gold lower, while copper remains supported by demand optimism and more stimulus measures in China. Sugar meanwhile reached a fresh 12-year high driven by Brazil port congestion and poor weather in India

Fixed income: yields soared on both sides of the Atlantic yesterday as investors reconsidered last week’s central banks' meetings and economic data. In the US, the Federal Reserve's October Senior Loan Officer Opinion Survey ("SLOOS") on Bank Lending Practices showed that the peak in tightening standards might be behind us, pushing yields higher. Today, the US Treasury is selling $48 billion 3-year notes, followed by $40 billion 10-year and $24 billion 30-year notes tomorrow and on Thursday. Everything suggests higher chances for a concession ahead of long duration auctions, which are coming to the market at the largest size since 2021. We maintain the view that the Federal Reserve has completed its rate hikes, and the yield curve tends to continue to steepen.

Volatility: The volatility index, VIX, closed yesterday at $14.89, mirroring its position at the end of last week. This marks a return to Q2 and Q3 levels for the market's fear gauge. The VIX's own volatility index, VVIX, remains subdued at 84.33, while the Cboe SKEW-index, its OTM counterpart, sits at 137.89, indicating an underlying market awareness of potential larger unexpected moves, a common side effect of lower volatility. VIX futures edged higher during the overnight session, reaching 15.80, while S&P 500 and Nasdaq futures retreated to 4372.75 and 15198.25, respectively. In the wake of a week filled with macro and earnings announcements, the markets seem to be in a wait-and-see mode, anticipating potential cues from Fed speakers who could inject a touch of volatility into the market later today.

Technical analysis highlights: S&P 500 strong resistance at 4,400. Nasdaq 100 testing falling trendline. DAX resistance at 15,280, likely to resume downtrend. EURUSD resistance at 1.0765. GBPUSD resistance at 1.2445. USDJPY correction strong support at 148.80, likely to be range bound 148.80-152.00. Gold correction likely down to 1,950-1,935. US 10-year T-yields key support at 4.50

Macro: RBA hiked rates by 25bps to 4.35% but further tightening has been made contingent on data, underscoring RBA’s reluctant hiker image. Fed’s Senior Loan Officer Opinion Survey (SLOOS) remained short of showing any immediate escalation in concerns on tightening of bank lending standards. Overall, the survey showed the expected tightening in lending conditions or weakening in demand for all loan types in Q3. Fed’s Cook (voter) said expectations of near-term policy rates do not appear to be driving the climb in long-term rates, while ahead of the SLOOS the Governor said banking sectors remain "sound and resilient overall" and acute stresses have abated.

In the news: Fed’s Kashkari Says Too Soon to Declare Victory on Inflation (Bloomberg), China's imports unexpectedly grow as demand makes cautious comeback (Reuters), Gaza Death Toll Reported Above 10,000 as Conflict Escalates (Bloomberg),  OpenAI set to launch store as ChatGPT reaches 100mn users (FT), Chipmaker NXP forecasts profit above estimates on resilient auto, industrial (Reuters), China, Australia embark on right path of improving ties: Xi (Xinhua), BOJ chief sees increasing chance of achieving 2% inflation goal (Nikkei). UBS posts quarterly loss on Credit Suisse integration (FT).

Macro events (all times are GMT):  EIA Short-term Energy Outlook (1700), US Trade balance (Sep) exp -$59.8bn vs -$58.3bn prior (1330), API’s Weekly Crude and Fuel Stock Report (2130)

Fed speakers (all time are GMT): Barr, voter (1415), Schmid (1450), Waller, voter (1500), Wiliams, voter (1700), Logan, voter (1825)

Earnings events: Key earnings today Enel, Nintendo, NTT, Gilead Sciences, Occidental Petroleum, Uber Technologies, UBS, Air Products and Chemicals, and Emerson Electric. Our US earnings focus is Uber reporting Q3 earnings before the US market open with analysts expecting revenue growth of 14% y/y and EBITDA $1bn up from $34mn a year ago.

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