Global Market Quick Take: Europe – 13 November 2024

Key points:

• Equities: Can’t make further headway higher at the moment, perhaps on fresh bond yield surge
• Volatility: Volatility edges up with hedging activity increasing ahead of CPI data.
• Currencies: USD strength dominates again as US yields rise. Sterling suffers setback
• Commodities: Gold stabilizes, crude oil hovers around key lows amid demand concerns
• Fixed Income: Treasury yields rise amid busy corporate bond issuance, US CPI in focus
• Macro events: US Oct. CPI

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

Macro data and headlines:

• President-elect Donald Trump announced that Elon Musk and Vivek Ramaswamy will head a new Department of Government Efficiency that will be given the task to “dismantle Government Bureaucracy, slash excess regulations, cut wasteful expenditures, and restructure Federal Agencies.”
• Germany will have an election on February 23 after the government presumably fails a confidence vote next month.

Macro events (times in GMT): Sweden Riksbank Minutes (0830), UK Bank of England’s Mann to Speak (0945), US Fed’s Kashkari, non-voter, to speak (1330), US Oct. CPI (1330)

Earnings events:

• Today: Allianz, Nu Holdings, Cisco Systems
• Thursday: Siemens, Deutsche Telekom, Disney, Applied Materials,
• Friday: Alibaba

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

Equities:

• U.S. – The rally in U.S. equities took a pause, with the S&P 500 slipping 0.29%, marking its first decline since the election-driven surge. Tesla's momentum cooled, retreating by 6% after its extended rally, while Shopify jumped 21% on better-than-expected earnings, with net income doubling to $344 million on revenue of $2.16 billion. SEA Limited also saw a 10.4% gain after reporting a second consecutive profitable quarter, surpassing estimates with $153 million in net income.
• Asia – Asian markets mostly edged down on Wednesday, as investors reassessed risk ahead of U.S. inflation data. Hong Kong’s Hang Seng Index (HSI) dropped 2.8%, hitting a six-week low after disappointing October credit data from China, which fell to a 15-year low. Concerns are mounting over Trump's potential hawkish appointments, raising fears of increased tariffs. China's market showed some resilience with the Shanghai Composite flat and the CSI 300 index slightly positive, buoyed by reports that Beijing may consider reducing home-buying taxes.
• Europe – European stocks experienced a pullback yesterday as concerns grew around Trump’s cabinet picks and potential impacts on Sino-European trade relations. The DAX fell over 2% as Germany grapples with political uncertainty, further exacerbated by the ZEW Economic Sentiment Indicator’s unexpected drop, with the Present Situation portion of that indicator sitting at a fresh post-pandemic low. In France, the CAC 40 shed 2.7%, reaching a three-month low, largely led by losses in luxury stocks due to renewed doubts about China's economic stimulus. Key European stocks, including luxury and tech sectors, posted broad declines amid this cautious sentiment.

Volatility: Volatility remains a focal point as markets brace for the U.S. CPI release. While the VIX continues to trend lower overall, indicating an easing of election-related anxiety, short-term volatility measures, such as the VIX1D, are showing slight increases. VIX futures also reflect a rise, underscoring market caution ahead of today’s CPI numbers. Additionally, both the Put/Call Ratio for equities and indices have ticked higher, with the equity PCC at 0.841 and index PCCI at 1.103, suggesting an increase in hedging activity as investors seek protection against potential inflation surprises that could disrupt recent gains.

Fixed Income: U.S. Treasuries declined yesterday, with yields rising by 8 to 14 basis points in a bear steepening move, led by intermediate maturities. This sell-off was driven by a growing slate of new corporate bond issuances totalling $30 billion and followed renewed pressure from investors digesting the impact of Donald Trump’s election. The 10-year yield reached around 4.435%. European sovereign bonds also saw a bear flattening, with UK gilts underperforming Bunds but outperforming U.S. Treasuries as real rates rose on bets tied to Trump trade strategies. UK 10-year real yields rose 7 basis points, and traders scaled back BOE rate cut expectations. Today, the focus shifts to U.S. CPI data, with headline inflation expected to rebound to 2.6% from 2.4%, while core year-over-year inflation is anticipated to remain steady at 3.3%.

Commodities: Gold found support below the key 2,600 level but has not shown much bounce yet after tumbling from its 2,790 top. The next important technical area to the downside is near 2,475. Elsewhere, silver rallied before hitting  the important USD 30 per ounce level. Crude oil prices remain heavy near post-election lows as the market mulls declining OPEC demand forecasts for this year and next and whether US president-elect Trump’s policies will bring fresh US supply online. The 70-dollar area in Brent and 65-dollar area in WTI crude are significant price lows.

Currencies: The USD posted new local highs against most major currencies yesterday, likely as US treasury yields marched back higher on the anticipated impact of president-elect Donald Trump’s policies. EURUSD traded briefly below the significant 1.0600 level and thus the lowest level of the year, while USDJPY rose above 155.00 for the first time since late July, just before the Bank of Japan’s surprisingly large rate hike. Today is a significant test for this USD surge on the US October CPI release. Elsewhere, sterling stumbled badly, likely as UK gilt yields followed US treasury yields higher, aggravating concerns on whether the Labour government’s new heavy spending ambitions are going to far and will spark volatility in the gilt market.

 For a global look at markets – go to Inspiration.