Global Market Quick Take: Europe – 14 August 2024

Key points:

• Equities: Positive session in European equities. Focus on Starbuck, Carlsberg, and Vestas
• Currencies: US dollar slumps on cooler PPI, kiwi dollar drops on the back of RBNZ rate cut
• Commodities: Rally in oil prices end; precious metals decline
• Fixed Income: Bonds surge on lower U.S. PPI.
• Economic data: U.K CPI and PPI data, Eurozone Q2 GPD, U.S. CPI.

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

In the news: Asian stocks rise amid US inflation cheer; China lags ahead of key earnings (Investing), UBS Profit Beats Estimates as Wealth Inflows Hit $27 Billion (Bloomberg), Eurozone rate cut questioned as German wages soar (FT), Japan PM Kishida to step down as scandals prove too much (Reuters)

Macro:

• US July PPI was softer than expected and supported market expectations for the Fed to start cutting rates in September. Headline PPI rose 0.1% MoM, beneath the 0.2% expected and prior.
• Fed's Bostic (2024 voter) said that the balance of risks in the economy is getting back to normal and noted on inflation that the recent data gives him more confidence that inflation can get back to 2% but wants to see 'a little more' data. July CPI is out today, and you can read the SaxoStrats preview at the link below and August CPI will be out on September 11, ahead of the Fed’s September 18 meeting.
• UK’s labour data gave mixed signals about the economy. While private sector pay growth cooled in June to 5.2% from 5.6% in May, it was still marginally above BOE’s 5.1% projection. There was a downside surprise in unemployment rate, which fell to 4.2% from 4.4% and against expectations of 4.5%. Employment surged by 97k, much stronger than the 3k expected although monthly jobless claims rose to the highest since 2009. UK’s inflation data will be on the radar today, and signs of sticky services inflation may keep another BOE rate cut off the table for now. Read here for more.

Macro events (times in GMT): Eurozone Q2 GDP YoY (preliminary) est. 0.6% vs 0.6% in Q1 (09:00), US July CPI YoY est. 3.0% vs 3.0% prior (12:30) - read SaxoStrats preview here, Japan Q2 GDP QoQ (preliminary) est. 0.6% vs –0.5% in Q1 (23:50)

Earnings events: UBS Q2 results are beating estimates this morning driven by significant wealth inflows at $27bn. Yesterday, Pandora beat expectations and raised their outlook with shares rising 3.7%. Home Depot lowered their outlook yesterday as big-ticket items remain under pressure, but investors were not shocked by the outlook which could quickly change if the Fed cuts the policy rate over the next year by more than 100 basis points.

• Wednesday: Tencent, Meituan, Hapag-Lloyd, UBS, Cisco, E.ON, Commonwealth Bank of Australia, 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: Mixed session out of Asia with Japanese equities 0.4% higher and Chinese equities lower by 0.4%. European equities are up 0.6% this morning catching up to the positive US session yesterday as softer than expected US July PPI supported the notion that the US rate cut cycle will soon start. Starbucks was the most traded stock yesterday relative to recent average volume gaining 24.5% as the company announced a new CEO (formerly the CEO of Chipotle Mexican Grill). The most traded stocks this morning in Europe are Carlsberg and Vestas that are both out with earnings releases. Carlsberg is seeing higher profits driven by cost cutting with the demand backdrop still weak. Vestas’ outlook remains fragile on rising costs in their business.

Fixed income: Treasury futures hit session highs after July's PPI data came in lower than expected, although gains were limited by previous month's data revisions. The market remained strong throughout the afternoon due to tensions in the Middle East and fears of an Iranian attack on Israel. However, traders were cautious ahead of Wednesday's key CPI report. Two-year US Treasury dropped by nearly 8bp to 3.94%, while 10-year yields closed the day at 3.85%, 5bp lower on the day. European sovereigns also rallied as lower-than-expected U.S. July PPI numbers boosted hopes for rate cuts. German Bunds reached a one-week high, with yields dropping 4 basis points to 2.18% as traders priced in 25 basis points of ECB cuts next month and 71 basis points by year-end. UK Gilts also advanced, though less so than Bunds, ahead of UK inflation data. U.S. and U.K. CPI are in focus with U.K. CPI figures coming out weaker than expected this morning with headline inflation rising by 2.2% (exp. 2.3%), core CPI 3.3% (exp. 3.4%) and services inflation 5.2% (exp. 5.5%). Gilts are likely to soar today as markets price the likelihood of a interest rate cut by the BOE in September.

Commodities: WTI crude oil fell below $79 and Brent crude oil below $81, ending a five-day rally. Traders weighed a potential surplus and Middle East tensions. The IEA reported easing inventory declines, while OPEC cut demand forecasts due to weak Chinese demand. Gold declined 0.3% to settle at $2,465.16, while silver fell 0.45% to $27.85 per ounce, retreating from one-week highs. Investors are cautiously awaiting crucial US inflation figures this week, which will provide insights into the Federal Reserve’s monetary policy path. Arabica coffee futures fell over 3% to around $2.30 per pound as Brazil's coffee regions appeared to avoid significant damage from a recent cold snap. Corn futures dropped below $3.80 per bushel in August, hitting a four-year low due to weak demand and strong supply.

FX: The US dollar slumped after a cooler PPI report raised expectations of the Federal Reserve cutting rates in September. The RBNZ surprised markets with its first rate cut since 2020, citing a faster-than-expected economic slowdown. This decision led traders to anticipate rapid and significant rate cuts in New Zealand, causing the kiwi dollar to drop and bond yields to plummet.

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