Global Market Quick Take: Europe – 12 August 2024

Key points:

• Equities: Positive start to the week. Focus on earnings and US CPI this week.
• Currencies: US dollar started the week higher with geopolitical risk on the radar.
• Commodities: Oil and natural gas prices surge; gold remains steady.
• Fixed Income: Recession fears ease; markets await key economic data from major economies.
• Economic data: Denmark, Romania, Czech Republic and Poland CPI data.

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

In the news: Forty per cent of Biden’s major IRA manufacturing projects delayed or paused (FT), South Korea holds emergency meeting as EV fires stir consumer fear (Reuters), Asian stocks rise with inflation readings on tap; China lags (Investing), Bonds Are Back as a Hedge After Failing Investors for Years (Bloomberg)

Macro:

• Markets were relieved after US weekly jobless claims declined by the most in nearly a year. The weekly figure fell by 17,000 to 233,000 versus 240,000 expected, signalling an economy that at this point at worst is slowing, not contracting. Next important US economic data point is the US July CPI on Wednesday.
• Fed speakers still hinted that the beginning of easing the policy rate could soon start but the language remains cautious. Collins and Schmid, both 2025 voters, said that it will be appropriate soon to begin adjusting policy and easing how restrictive the policy is, but cautioned against emphasizing the importance of one or two data releases. Bowman, however, cautioned against upside risks to inflation in a weekend speech.
• Canada’s unemployment data came in mixed. The unemployment rate was unchanged from last month. The employment change was negative by 2.8K vs expectations of a gain of 22.5K, but making it not so bad, is there was a gain of 61.6K in full-time jobs. The part-time jobs fell -64.4K.
• China’s consumer prices rose more than expected in July driven by seasonal factors like weather, leaving intact concern over sluggish domestic demand and boosting the case for more policy support. The CPI climbed 0.5% YoY, exceeding the 0.3% estimate. Excluding volatile food and energy costs, core CPI rose 0.4%, the least since January, indicating lingering weakness in overall demand.

Macro events (times in GMT): Denmark (06:00), Romania (06:00), Czech Republic (07:00) and Poland (12:00) CPI data. Japan July PPI (23:50)

Earnings events: In our Friday equity note we looked ahead for this week’s earnings releases highlighting Home Depot (Tue), Pandora (Tue), and Tencent (Wed) as those to watch. Home Depot is an important indicator for consumer spending in big ticket items and analysts expect positive revenue growth YoY for the first time in more than five quarters. Pandora continues to take market share from other jewelers and the recent push into lab-grown diamonds has sparked more interest from investors. Analysts expect 13% YoY revenue growth and earnings growth of 13% YoY. Tencent is important to watch because Chinese equities continue to be underperforming, and technology companies do not have the same positive vibe as in the past.

• Monday: Barrick Gold, Monday.com
• Tuesday: Foxconn, CSL, Flutter Entertainment, Home Depot, Sea Ltd, Franco-Nevada, Pandora
• Wednesday: Tencent, Meituan, Hapag-Lloyd, UBS, Cisco, E.ON, Commonwealth Bank of Australia, Vestas, Carlsberg, RWE,
• Thursday: NU Holdings, Walmart, Applied Materials, Alibaba, Deere, Orsted, Fortum; NN Group, Geberit, Straumann, JD.com
• Friday: Adyen

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

Equities: Positive start to the week with futures in Japan and Australia pushing higher despite a closed cash session in Japan due to national holiday. Futures are pointing to a 0.4% higher open in Europe and flat open in US equities. The key market moving events are the ZEW August figures out tomorrow for the European and German economy expected to show expectations were softer in August reflecting the market turmoil this month. On Wednesday, the US July CPI data will dominant this week’s market performance and given the weakest in July figures the market might get a surprise with inflation surprising to the downside.

Fixed income: Last week, U.S. Treasuries saw a significant change of sentiment, initially rallying amid recession fears before slumping as concerns about a U.S. economic downturn diminished. Traders reduced their bets on aggressive Federal Reserve interest rate cuts, now expecting about 100 basis points of easing for the year. Economic data heavily influenced these movements, with the July jobs report triggering a rally and weekly jobless claims leading to a selloff. Thursday’s inflation data will be crucial in determining the likelihood of rate cuts. Auctions showed strong demand for shorter-term bonds, while longer-term bonds saw weaker bidding metrics. The Fed’s September meeting is anticipated for a 40 basis point potential rate cut, with traders now pricing in a smaller reduction compared to earlier in the week. Richmond Fed President Thomas Barkin expressed optimism about inflation retreating, but Michelle Bowman sees upside risk to inflation. This week, markets will focus on a major release of economic data from China, Japan, and the US, including US CPI, China's retail sales and industrial production, Japan's second-quarter GDP, and key UK statistics on unemployment, inflation, GDP, and retail sales, all likely to influence global markets.

Commodities: WTI crude oil futures rose 0.85% to $76.84 per barrel last week, and Brent crude futures increased 0.63% to $79.66 per barrel, marking their first weekly gain in five weeks due to tightening supplies and Middle East tensions. Oil prices rebounded from a seven-month low thanks to improved risk appetite, positive U.S. jobs data, and a sixth consecutive weekly decline in U.S. crude inventories. Natural gas prices surged nearly 9% last  week to $2.143 per million BTUs. Gold climbed 0.16% to $2,431.32 an ounce, remain supported by geopolitical risks and anticipated Federal Reserve rate cuts amid heightened tensions involving Iran, Israel, and Ukraine.

FX: The US dollar had a choppy amid a volatile last week, slumping earlier but recovering later to end the week nearly unchanged as US recession concerns eased. Focus ahead will remain on US economic data, such as inflation and retail sales to continue to assess the recession probability. Eventually, activity currencies such as Australian dollar, Kiwi dollar and Norwegian krone rose for the week after being thrashed lower at the start of the week. The Canadian dollar also rose as oil prices jumped higher and Canadian jobs data was less bad than feared. Japanese yen also ended the day barely changed as it lost its early gains amid Thursday’s jobless claims lowering the chance of a US recession and risking a rapid unwinding of carry trades. Monday’s early Asian hours saw US dollar rising higher and geopolitical risk is on the radar.

Volatility: The VIX, which measures market volatility or "fear," ended Friday sharply lower, dropping 14.38% to 20.37. This significant decline suggests that fear in the market is receding as traders feel more at ease. VIX futures continue to decline in the first session of the week, down 1.01% to 19.30, indicating that expectations for future volatility are calming down. However, while the VIX is dropping significantly, it remains at elevated levels, suggesting that the market is still pricing in a decent amount of volatility. This means that despite the recent decline, the situation should be monitored closely as the market continues to express a cautious sentiment. As we begin the week, S&P 500 futures are up by 0.05%, and Nasdaq 100 futures are showing a modest gain of 0.14%. For today, the market expects the S&P 500 to move up or down 45 points (~0.85%) and the Nasdaq 100 to move up or down about 232 points (~1.25%). This is slightly lower than last Friday, when the expected moves were around 1.08% for the S&P 500 and 1.45% for the Nasdaq 100, indicating that immediate-term volatility is expected to be a bit lower today. Looking ahead, key economic events that could cause volatility this week include the Producer Price Index (PPI) on Tuesday, the Consumer Price Index (CPI) on Wednesday, and Retail Sales on Thursday. Additionally, earnings season continues with major companies like Home Depot, Walmart, and Deere & Company set to report.

For a global look at markets – go to Inspiration.