Global Market Quick Take: Europe – September 19 2023
Saxo Strategy Team
Résumé: Choppy trading session ahead of the key central bank decisions due in the week ahead with traders worrying they will stay hawkish as inflation remains a threat, not least from the continued rise in energy prices with Brent trading above $95/brl. ECB officials were a touch hawkish, and EURUSD made its way back closer to 1.07 while the US yield curve flattened as 2-yr reached further above 5%.
The Saxo Quick Take is a short, distilled opinion on financial markets with references to key news and events.
Equities: An undecided equity session yesterday with the market clearly in a wait-and-see mode ahead of central bank decisions from the Fed (Wednesday), BoE (Thursday), and BoJ (Friday). Equity futures are slightly flat today with only Nikkei 225 making a big move down 1% rejecting the key resistance levels for this cycle. The US 10-year yield is still worth tracking for potential downside catalyst in equities should it break higher again. We also note the initial weakness in Nvidia shares yesterday before they recovered.
FX: EUR saw a recovery towards 1.07 amid some hawkish rhetoric from ECB speakers pushing the higher-for-longer narrative. NZDUSD pushed higher from Monday’s lows of 0.5895 and CAD remains strong supported by rising oil prices with USDCAD below 1.35 and 200DMA at 1.3464 is coming into view. USDCNH trades above 7.30 and back above its 21-DMA as bullish yuan momentum fades again
Commodities: Brent trades above $95 as the bullish momentum continues to be supported by a tightening supply outlook, especially for diesel amid lack of diesel-rich Middle East and Russian crudes. The crude market is heavily overbought and in need of consolidation but with prompt spreads in WTI and Brent both pushing towards $1.5 the tightness looks increasingly extreme. Gold holds above $1930 ahead of Wednesday FOMC meeting while grain prices continue to tumble amid strong dollar and harvest pressure, especially for soybeans.
Fixed income: With some concerns arising about the rise in crude oil prices, trading in the Treasury market remained calm in anticipation of the FOMC decisions on Wednesday. The yield curve flattened with the 2-year yield rising 2bp to 5.05%, while the 10-year yield dropped by 3bps, settling at 4.30%.
Volatility: The VIX Index remains around the low 14 level while the US options market yesterday expressed a negative skew on Arm shares with put-to-call volume at 2-to-1. On the bullish side Mattel attracted significant buying of call options yesterday.
Macro: ECB Vice President Luis de Guindos said that underlying inflation should continue to moderate, while Governing Council member Peter Kazimir implied that September’s interest-rate increase may be the final one of the cycle. ECB Villeroy said the ECB will keep interest rates at 4% for as long as needed to tame inflation, suggesting no further rate hikes but staying consistent with the higher-for-longer message.
In the news: Instacart shares are priced at the high end of the IPO price range at $30 per share with first day of trading in today’s session – full story in the FT. Brent crude hits $95/brl as OPEC vows to stabilise market – full story on Bloomberg.
Technical analysis: S&P 500 at key resistance at 4,540. Nasdaq 100 at key resistance at 15,561. Both equity indices look bearish. European Equity Indices bearish across the board. EURUSD likely to bounce from strong support at 1.0635. USDJPY range bound 146-148. AUDJPY uptrend after broken resist at 95.00. WTI resistance at 93.48. US 10-year yields eyeing 4.48. Gold range bound 1,900-1,950
Macro events: Eurozone Aug CPI exp. 5.3% YoY vs 5.3% prior (0900 GMT), US Aug Housing Starts exp. -0.9% vs 3.9% prior (1230 GMT), US Aug Building Permits exp 1440k vs 1442k prior (1230 GMT), Canada Aug CPI exp 3.8% YoY vs 3.3% prior (1230 GMT),
Earnings events: AutoZone reports FY23 Q4 (ending 31 August) before the US market open with analysts expecting revenue of $5.6bn up 5% y/y and EPS at $45 up 11% y/y.
For all macro, earnings, and dividend events check Saxo’s calendar.