Global Market Quick Take: Europe – 27 August 2024

Key points:

• Equities: Futures indicate flat open in Europe and the US. PDD shares fell 29% on outlook
• Currencies: Canadian dollar outperforms, riding on gains in crude oil
• Commodities: Crude jumps on Libya supply risks, Brazil fires lift sugar
• Fixed Income: U.S. Treasuries softer ahead of supply surge
• Economic data: US consumer confidence

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

In the news: Canada to impose 100% tariff on Chinese EVs, including Tesla (Investing), BHP annual profit rises 2%, says open to higher debt for acquisitions (Investing), China’s export curbs on semiconductor materials stoke chip output fears (FT), Massive Fires to Hurt Sugar Output in Top Supplier Brazil (Bloomberg), Libyan Rival Government to Stop Oil Output Over Bank Row (Yahoo), Is it the end for Russian gas supplies to Europe via Ukraine? (Reuters)

Macro:

• Fed’s San Francisco president Mary Daly largely reiterated Fed Chair Powell's Jackson hole message, noting the time to adjust policy is upon us, but it is too early to know how big rate cuts will be and that it is too early to talk about tactics on rates for the year. She did admit it would be hard to imagine anything that could derail a September cut, but noted if the economy weakness more than they expected, the Fed would need to become more aggressive, although she also said that she does not see signs of an abrupt weakening in the labour market, and she is not hearing signs that firms are poised for layoffs. Richmond Fed president Thomas Barkin still sees upside risks for inflation but supports a dialling down of rates in the face of a cooling labour market.
• Germany’s Ifo survey indicated the economic gloom with the current assessment at 86.5 at the lowest levels since July 2020 and expectations gauge dropping to 86.8 from 87 and the lowest since February.
• Profits at China’s industrial companies rose at the fastest pace in five months in July, expanding 4.1% on the year after a 3.6% gain the previous month, though weak domestic demand is calling into question whether their resilience can last. The earnings haul is a key gauge of the financial health of factories, mines and utilities across China that can affect their investment decisions in the months to come.

Macro events (times in GMT): German GfK Consumer Sentiment (Sep) exp –18.2 vs –18.4 prior (0600), US Consumer Confidence (Aug) exp 100.9 vs 100.3 prior (1400), US to sell USD 69 bln 2-year Treasury notes (1700), API’s weekly crude and fuel stock report (2000), ECB’s Knot and Nagel speaking

Earnings events: PDD (parent company of Chinese e-commerce giant Temu) saw its shares decline 28.5% yesterday as the company reported lower than expected Q2 revenue and provided a muted outlook saying, “revenue growth will inevitably face pressure”. PDD also talked about the extreme competition in China and the pressure on margins. BHP reports better-than-expected FY underlying profit of $13.7bn vs est. $13.5bn. BHP is saying that it sees steel demand has plateaued and that long-term copper demand looks positive.

• Tuesday: BHP Group, Bank of Montreal, Bank of Nova Scotia, ANTA Sports
• Wednesday: BYD, Royal Bank of Canada, Nvidia, Salesforce, CrowdStrike, Fortescue, Novonesis, HP, Li Auto, Pure Storage
• Thursday: Dell Technologies, Marvell Technology, Pernod Ricard, Lululemon, Autodesk
• Friday:

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

Equities: Japanese equities are up 0.6% today pushing into gains overall for the week. Futures are indicating a flat open in Europe and the US. European equities were flat yesterday despite the German August IFO survey showed a better-than-expected reading and especially in the forward-looking index on expectations for the economy. It was a quiet session yesterday in US equities outside the big drop in PDD shares (explained in the previous section under earnings events).

Fixed income: On Monday, U.S. Treasuries saw slight losses as the market braced for upcoming supply. Yields edged up by about 1 basis point, remaining near their year-to-date lows. Economic data, particularly weaker-than-expected core durable goods orders, had little impact on the market. The week is expected to see minimal corporate bond issuance, typical for the period before Labor Day, but a busy issuance week is anticipated afterward. The 2-, 5- and 7-year U.S. Treasury auctions start today and will test investors appetite with some of the lowest yields in over a year. European sovereign bonds saw modest declines, particularly in the mid-term maturities, ahead of Germany's 5-year debt auction on Tuesday. Rising oil prices pressured breakevens, while ECB rate cut expectations remained stable. Bund yields rose slightly by 1 basis point, with similar small increases in Italian and French 10-year yields. UK markets were closed for a holiday.

Commodities: Oil prices surged higher on Monday before steadying overnight, with Brent crude trading above USD 81 in response to heightened supply risks due to Middle East tensions, and not least after Libya's eastern-based government announced the closure of all oil fields, halting production and exports, as it struggles with its Tripoli-based rival for control of the OPEC member’s central bank and oil riches. Before the Libya news broke, Goldman Sachs and Morgan Stanley lowered their price forecasts in anticipation of rising global supplies from OPEC+ and non-OPEC. Gold failed to reach a fresh high before once again being struck by profit-taking, supporting our short-term consolidation view. Silver is facing resistance around USD 30.19, while copper rallied to a one-month high, despite Chile supply risks easing. New York raw sugar futures traded up 8% in the last three sessions as massive fires in Brazil added to drought and heat damages in the world’s top exporter. Wheat prices remain under pressure near a four-year low in Chicago and Paris on Black Sea harvest pressures. Check out the weekly COT report to see how large speculators position themselves in commodities and forex.

FX: The US dollar was slightly higher after heavy selling in the last week with little new data for markets to digest. Fed speakers continue to leave the door open for a larger rate cut in September, and if economic momentum weakens, markets could price in a 50 basis points rate cut from the Fed at the next meeting. This could mean more downside pressure on the US dollar, and we discussed in this article what that could mean for global portfolios and how to mitigate risks. The Canadian dollar outperformed among the major currencies, riding on the back on gains in crude oil coming from concerns around Libyan supply. Geopolitical risks also drove the safe-haven Swiss franc higher. Meanwhile, activity currencies like kiwi dollar and Australian dollar were in losses on Monday, even as British pound still outperformed the activity currency complex. The Japanese yen weakened slightly, but the move has been restrained so far after sharp gains in the currency last week. For more FX analysis, read our Weekly FX Chartbook.

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