Global Market Quick Take: Europe – 11 September 2024

Key points:

• Equities: US futures dip as betting odds shifts in favor of Harris
• Currencies: Dollar softens amid continued yen strength
• Commodities: Crude slumps as speculative selling picks up pace
• Fixed Income: Falling oil prices and eased bank regulations boost government bonds.
• Economic data: US CPI (August)

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

In the news: Harris Has Trump On Defense in Sharp-Elbowed Presidential Debate (Bloomberg), European Central Bank set to cut interest rates just days before the Fed’s big decision (CNBC), Fed's upcoming projections to signal deeper cuts than previously expected: Citi (Investing), JPMorgan stock slumps as interest income warning rattles market (Investing), GameStop reports fall in revenue, files for 20 million share offering (Investing)

Macro:

• UK labor data came in mixed with average weekly wages cooling to 4.0% YoY for the 3 months to July, softer than 4.1% expected and 4.6% prior (revised higher from 4.5%). However, the unemployment rate dipped to 4.1% in July from 4.2% prior as expected while the job growth at 265k was stronger than 97k prior and 123k expected. The data is not weak enough to prompt a cut from Bank of England next week and hasten the pace of rate cuts.
• US CPI preview: As the Federal Reserve shifts focus from inflation to the labour market and prepares for an interest rate cut next week, US inflation remains above the Fed’s target, with headline inflation at 2.9% YoY and core inflation at 3.2%YoY as of July. While headline inflation is expected to drop to 2.5% in August, core inflation is expected to stay steady, suggesting persistent inflationary pressures. To read a full preview of US inflation due today, go to this article.
• The US Presidential debate provided an edge to Harris, which following a debate that included tariffs, race, abortion rights and foreign policy saw her odds of winning increasing on PredictIt to 56%, up from 53% before the debate. The debate also spurred a surge in donations to the Democrats, further energized by Taylor Swift’s endorsement, which could boost support from women and younger voters. Harris’ rising prominence could have notable effects across various sectors. Crypto and energy stocks might face headwinds as market sentiment adjusts to the shifting political dynamics. Many of the other 'Trump Trades' such as a weaker Chinese yuan or traction in defense stocks could take a backseat as Harris gains momentum. While a 'Harris Trade' is still challenging to price in, given the complexities of the Senate limiting the prospects of a Democratic clean sweep, a split Congress could mean restrained fiscal spending, keeping the risk of a recession alive for 2025. To compare the differences between the proposed Harris and Trump policies and learn how to navigate the volatility surrounding the U.S. election, click here.

Macro events (times in GMT): US CPI (Aug) exp 0.2% & 2.5% vs 0.2% & 2.9% prior, with ex F&E exp to stay unchanged at 3.2% YoY (1230), EIA’s Weekly Crude and Fuel Stock Report (1430)

Earnings events:

• Today: Inditex
• Thursday: Kroger, Baloise, Adobe, RH
• Friday: Darktrace

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

Equities: US equity futures trade lower as betting odds are shifting in favor of Kamela Harris, which could translate into the chance of higher corporate taxes, but overall today’s CPI print and next week’s FOMC meeting remains the key focus. Yesteday’s session ended with a small gain for the S&P while the Dow Jones slipped due to significant declines in banking stocks. JPMorgan dropped 5.2% after lowering its 2025 net interest income forecast, and Goldman Sachs fell 4.4% following weak trading revenue projections. Tech stocks offered some support, with Nvidia (+1.5%), Microsoft (+2.1%), and Amazon (+2.4%) driving a 0.9% increase in the Nasdaq 100. Oracle shares jumped 11.5% after beating earnings estimates and securing a deal with Amazon Web Services. However, Apple dipped 0.3% after losing a court case over its $14 billion tax dispute in Ireland.

Fixed income: On Tuesday, U.S. Treasury prices surged, particularly in the morning, as oil prices plummeted and regulators announced less stringent bank capital requirements. This led to lower yields across different maturities, with the 10-year yield settling at around 3.64%, the lowest since June 2023, and two-year yields dropped to 3.6%, the lowest since September 2022. The drop in oil prices, which fell by 4-5%, reduced inflation concerns, while the new bank regulations provided further support for Treasuries. Additionally, a strong auction for 3-year notes boosted investor sentiment ahead of longer-term Treasury auctions later in the week. Yields continue to decline this morning, following the Trump-Harris debate, with a drop of approximately 3 basis points across maturities. Oil oversupply concerns drove yields lower also in the Eurozone, with Bunds and gilts rising for the sixth consecutive day. Italy's long-term debt slightly underperformed, despite record demand for a 30-year bond offering, as investors rushed to lock in yields ahead of anticipated rate cuts by the European Central Bank. Market expectations remained steady, pricing in a 25-basis point rate cut from the ECB this week and 63bps rate cut by year-end.

Commodities: Crude oil’s slump continued Tuesday as speculative selling magnified the current weak demand outlook. Brent trades below USD 70 for the first time in more than two years, while WTI dropped to a December 2021 low. Earlier in the week, Gunvor and Trafigura warned about an oversupplied market potentially taking prices into the USD 60s, with demand being questioned at a time of robust and expanding supplies. OPEC’s inability to predict demand was on clear display after the group held onto a 2024 demand growth forecast of more than 2 million barrels per day, more than double what the EIA forecast in its outlook. Gold trades higher ahead of today’s US inflation print, and in this article, we focus on the US election and whether gold could win in all scenarios. Copper trades steady, with another production cut in Chile, the second this year, partly offsetting a weak demand outlook in China after trade data showed the country’s overall total copper imports falling 16% y/y.

FX: The US dollar remained in a tight range in Tuesday’s session before turning lower overnight as the US presidential debate unfolded and the yen hit a December high after a BOJ board member said the bank would continue to adjust policy going forward. Later today, the US CPI will provide the FOMC with another piece to the rate cutting puzzle. Meanwhile, the Canadian dollar was the underperformer, weighed by steep selling in the crude complex. Bank of Canada governor Macklem’s dovish comments further added to the pressure on CAD, especially as markets are questioning the odds of a 50bps cut from the Fed next week. Other activity currencies were more mixed, with Kiwi dollar and British pound closing higher but Australian dollar weighed down by China deflation concerns and the fallout in commodity prices.

Volatility: Today’s market sentiment is influenced by the Harris-Trump presidential debate, with investors assessing potential policy impacts. The VIX dropped 13.09% to 19.45, signaling less immediate fear, though caution remains. Meanwhile, the VIX1D, which tracks 1-day volatility, jumped 38.58% (+5.34) to 19.18, indicating heightened short-term uncertainty. While the VIX declined, VIX futures rose overnight, showing continued caution. At the same time, S&P and Nasdaq futures have both edged lower, reflecting a potentially cautious open. Expected moves based on options pricing are up or down 50 points (~0.92%) for the S&P 500 and up or down 238 points (~1.26%) for the Nasdaq 100. Key data to watch today includes the release of CPI numbers at 14:30 GMT, which could influence market volatility. No significant earnings are expected today. Yesterday’s most active stock options were Nvidia, Tesla, Apple, Palantir, Amazon, AMD, JP Morgan, Broadcom, and GameStop.

For a global look at markets – go to Inspiration.