Global Market Quick Take: Europe – 12 December 2024

Key points

• Equities: US and Asia rally, Europe mixed, driven by inflation data and ECB expectations
• Volatility: VIX stable around 13 after inline CPI numbers
• Currencies: EURGBP on verge of post-Brexit low ahead of ECB. CAD jumps after big BoC cut, AUD jumps on strong Australian jobs report.
• Commodities: Gold supported by squeeze in the futures market; Crude rally conitnues
• Fixed Income: US Treasuries weaken ahead of 30-year auction
• Macro events: SNB rate decision, ECB rate decision, US PPI and Jobless Claims

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

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Macro data and headlines

• US President Elect Donald Trump has invited Chinese President-elect Xi Jinping to attend his inauguration on January 20.
• US Nov. CPI came in as expected, cementing calls for a quarter-point rate cut at next week’s FOMC meeting. Headline CPI rose 0.3% M/M and 2.7% Y/Y (prev. 2.6%). Ex Food and Energy CPI rose 0.3% M/M and 3.3% Y/Y (prev. 3.3%). Housing metrics also started to show some softening. Some concerns of inflation stickiness remain as this is the fourth straight 0.3% MoM print on the core which makes the 2% goal look difficult to achieve, but that will be more a 2025 concern.
• The Bank of Canada cut rates by 50bps as was expected, taking the target rate to 3.25% from a peak of 5% and now matching the top end of the BoC's neutral rate estimate. The BoC also removed language from the statement about it being reasonable to expect further rate cuts if the economy evolves in line with forecast. Instead, the BoC said it will evaluate the need for further rate cuts one decision at a time, with decisions guided by incoming information and their assessment of the implications for the inflation outlook. This suggests a more gradual approach as the central bank has removed restrictiveness from the policy. Looking ahead through end-2025, money markets imply 61bps of easing, vs the 72bps of easing beforehand as the BoC signals a slower path ahead. BoC Governor Macklem said Trump’s threatened 25% tariff policy represents a “major new uncertainty” for the Canadian economy.
• ECB preview: The European Central Bank meets today and is expected to cut rates by 25 basis points to 3.15% from 3.4%. The growth outlook has worsened since the last ECB meeting and disinflation progress has continued, suggesting Lagarde’s press conference tone could also be dovish. Political uncertainties in France and Germany are making forecasting difficult for the ECB.

Macro events (times in GMT)

Switzerland SNB Policy Rate (0830), IEA’s Monthly Oil Market Report (0900), Norway Regional Network Survey (0900), ECB Rates decision (1315), USD Nov PPI and Jobless Claims (1330), ECB’s Press Conference (1345), US Treasury to auction 30-year T-bonds (1800), Japan Q4 Tankan Survey (2350)

Earnings events

• Today: Broadcom, Costco
• Next week: Micron Technology, Carnival, Fedex, Cintas, Nike, Accenture

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

Equities

• US: The S&P 500 rose 0.9% while the Nasdaq 100 soared 1.7%, hitting a record high as mega-cap stocks drove gains.
  • Adobe dropped 9% after close on weak outlook: Adobe reported earnings after the close yesterday, reporting a strong beat on earnings, but a weaker than expected forecast for 2025. Concerns are mounting that AI startups could erode the company’s growth prospects linked to AI.
  • Tesla rose over 5% to post an all-time high and made Elon Musk the first person to achieve a net worth of over USD 400 billion.
  • Google-parent Alphabet also rose over 5% and posted an all-time high, with the sharp gains of the past two days as the company this week announced quantum computing achievements and yesterday unveiled the second generation of the company’s AI model, Gemini 2.0, which the company’s CEO touts as sparking the “agentic”era.
• Europe: European equities rose modestly, with the STOXX 50 up 0.2% and the STOXX 600 gaining 0.3%, buoyed by expectations of a 25bps ECB rate cut and the Fed's dovish signals. Inditex dropped 6.5% on disappointing Q3 sales, while SAP fell 2.1%. However, Adidas added 0.8%, and Zalando surged 1.6% after its acquisition of About You boosted sentiment.
• Asia: Asian markets advanced as U.S. inflation data solidified Fed rate-cut bets. China’s Shanghai Composite rose 0.6%, and Hong Kong’s Hang Seng surged 1.7% ahead of the CEWC, where new stimulus measures are anticipated. Tech shares led gains, with Alibaba rising and consumer stocks like Mengniu Dairy up over 7%.

Volatility

Volatility steadied, with the VIX near 13.6 and futures holding above 16. Options activity surged in Tesla, Alphabet, and Nvidia, with daily SPX and NDX expected moves based on options pricing at 18 and 115 points, respectively.

Fixed Income

 In Europe, Bund yields twist steepened as traders increased bets on ECB rate cuts following steady U.S. inflation data, while Italian and French yields diverged slightly. Gilts followed a similar pattern as expectations for a steady Bank of England rate held firm. In the U.S., Treasuries weakened despite strong demand for the 10-year note auction, with yields rising across the curve. This followed the November CPI data, which reinforced expectations of a Fed rate cut next week. Crude oil’s rally further pressured Treasuries, as market momentum leaned bearish ahead of a key 30-year bond auction.

Commodities

• WTI crude oil trades higher for a fourth day, supported by EU sanctions on Russian oil, but with gains being limited by high US fuel inventories and OPEC's reduced demand forecasts. Optimism persists for Chinese demand recovery with Beijing's planned monetary easing in 2025. Focus on IEA’s monthly oil market report.
• Gold reached a $2,726 high overnight, as the rally continued after US inflation data reinforced expectations of a Fed rate cut, while also being supported a squeeze in the futures market as traders covered short amid worries about tariffs on imported gold to cover short (hedge) positions.
• Copper futures fell to $4.26 per pound on Wednesday, only to rise again overnight with focus on the impact of the Chinese yuan's decline and more news from Beijing.

Currencies

• The euro trades near the key 1.0500 area ahead of today’s ECB meeting, which most see likely to only deliver a 25-basis point cut. Guidance will be watched closely. Elsewhere, EURGBP posted new lows for the cycle, and if it can push below 0.8200, would be trading at the lowest level since the month of the Brexit referendum in June of 2016.
• Switzerland’s central bank, the SNB, meets today with the market leaning fora 25-basis point cut, but a significant minority looking for a 50-basis point that would take the policy rate to 0.50%
• The US dollar remained firm after US CPI data for November was in line with expectations. US treasury yields rebounded after an initial drop, helping keep USDJPY near local highs after the JPY weakened earlier in the day yesterday on a Bloomberg article citing unnamed sources suggesting Bank of Japan officials are leaning toward no change to the BoJ policy rate next week. This hardly impacted 2-year JGB rates, which were only down a single basis point overnight.
• Bank of Canada: CAD rallied after the BoC delivered the expected 50 basis point rate cut on the clear guidance for a deceleration of the anticipated pace of further easing. The 1.4200 level is now a clear chart point for USDCAD on the upside, with 1.4100 the first downside level of note.
• AUD jumped overnight in another bout of choppy price action after the prior day’s drop on the back of the RBA meeting as the November jobs data came in far stronger than expected. The unemployment rate plunged to 3.9% versus 4.2% expected and 4.1% in October. AUDNZD jumped to 1.1050 and AUDUSD rallied back above the important 0.6400 level.