Macro: Sandcastle economics
Invest wisely in Q3 2024: Discover SaxoStrats' insights on navigating a stable yet fragile global economy.
Key points:
The Saxo Quick Take is a short, distilled opinion on financial markets with references to key news and events.
In the news: Trump safe after another assassination attempt at his Florida golf course (Investing), S&P 500, Nasdaq Mark Best Weeks of 2024. Investors Hold Onto Half-Point Rate Cut Hopes. (Barron’s), BoE rate cut helps boost UK housing market but concerns remain, Rightmove says (Investing), Japan's PM hopeful Takaichi warns BOJ against raising rates (Reuters), Fed seen nearly as likely to cut rates by 50 bps as 25 bps (Reuters)
Macro:
Macro events (times in GMT): Euro-area Trade Balance (July) exp €15bn vs 17.5bn prior (0900). ECB speakers: Panetta (0700), Guindos (0810), Lane (1200)
Earnings events: A quiet week ahead on earnings with the two most important earnings releases being FedEx and Lennar on Thursday. FedEx is expected to post a weak quarter on the top line and focus will be on its strategic transformation programme which includes more cost cutting to shore up the operating margin. Lennar’s earnings release is more interesting to watch as the US homebuilder is a better macro indictor right now and will give info about how strong or weak the US housing market is on a forward-looking basis. Analysts expect revenue growth of 6% YoY for Lennar.
For all macro, earnings, and dividend events check Saxo’s calendar.
Equities: Futures are indicating a lower open in Europe and the US equity market as we start a new week with the FOMC rate decision on Wednesday being the key event. The market priced on Friday a slightly higher probability for the Fed to cut its policy rate by 50 bps, so that the market is now leaning in favour of 50 bps instead of 25 bps, but it is important to note that the 50 bps is not fully priced in. That means that if the Fed goes 50 bps it will be a hawkish move that could kickstart its own negative sentiment. The week is light on earnings releases with the two key releases being FedEx and Lennar on Thursday. Adobe was the most traded US stock on Friday down 8.5% as its earnings outlook disappointed investors. DSV was the most traded European stock on Friday up 1% as the freight forwarder managed to acquire Schenker ahead of private equity firm CVC.
Fixed income: U.S. Treasuries saw gains on Friday, particularly in shorter-dated notes, as traders speculated about the possibility of a 50 basis point rate cut by the Federal Reserve at this week’s meeting. The rally in Treasuries reflects growing sentiment that the Fed might prioritize economic concerns over inflation with traders pricing in a large chance of a 50bp cut. This led to a decline in yields, with the two-year note dropping by 5 basis points to 3.58% and the 10-year yield falling by 3 basis points to 3.65%. Currently bond futures are pricing 120bps rate cuts by the end of the year and 255bps thought the next 12 months. Across the Atlantic, the Bank of England will meet on Thursday to set monetary policy, but it might not be able to cut rates this month due to persistently high services inflation. Markets are currently pricing in two rate cuts by the BoE this year, with a total of 160 basis points of easing expected over the next 12 months.
Commodities: Gold prices reached new all-time high overnight in Asia, and trades just shy of USD 2600 following a week that saw prices once again accelerate to the upside as the dollar and yields softened and traders entertained the prospect for a 50-basis point cut. Silver and platinum were the big winners, both rising around 10%, amid additional support from a recovering industrial metal sector. Under-pressure crude oil is finding some support as falling Libyan exports, down around 0.7 million b/d, offset weak Chinese demand, leading to short covering from speculators who in the week to September 10 held a net short in Brent for the first time in data going back to 2011. Iron ore ended the week higher on speculation demand is stabilizing as some steel mills are gearing up in anticipation, this despite data showing steel production was down 10.4% y/y to 77.9mt in August
FX: The US continues to trade soft ahead of Wednesday’s rate decision from the FOMC after it closed last week down around 0.5% with mixed performances against the major currencies. Most of the pressure on the greenback came from gains in precious metals and Japanese yen, as markets tilted back towards expecting a bigger rate cut of 50bps from the Fed this week. Swiss franc also rose on Friday but ended as the underperformer for the week, with Kiwi dollar and the Canadian dollar also in losses. Bank of Canada governor raised the prospect for faster rate cuts in an interview with the Financial Times, saying that the labor market is hinting to some downside risks. While the focus will be on the Fed this week, Bank of Japan and Bank of England also announce policy decisions and could be able to add resilience to the Japanese yen and British pound respectively.
Volatility: Volatility (VIX) continues to ease, dropping 3% on Friday and now sitting at 16.56, reflecting lower market tension as we head into a major week. However, with the Fed’s interest rate decision on Wednesday, uncertainty remains, particularly with the debate over whether the rate cut will be 25 or 50 basis points. S&P 500 and Nasdaq 100 futures have barely moved overnight, VIX futures also remained relatively flat. This suggests that while volatility expectations are down, markets are in a cautious hold ahead of the Fed’s big decision. The expected moves, based on options pricing, show potential up-or-down movement for the S&P 500 of around 86 points (1.53%) and nearly 385 points (1.98%) for the Nasdaq 100. Despite the reduction in overall volatility, significant market swings are still possible depending on how events unfold this week. No major economic events today, but core retail sales and retail sales data coming tomorrow, followed by the Fed’s key announcements on Wednesday, will keep investors on their toes.
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