Global Market Quick Take: Europe – 19 August 2024

Key points:

• Equities: Muted start to the week. Focus on macro and Palo Alto earnings tonight
• Currencies: The yen jumps 1% as strength rally resumes
• Commodities: Gold hits record high; Copper holds gain despite end to strike in Chile
• Fixed Income: U.S. Treasuries dip after strong consumer sentiment
• Economic data: Jackson Hole Economic Symposium

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

In the news: Fed’s Powell Will Set the Stage for the First Rate Cut in Years at Jackson Hole (Barron’s), Wall St Week Ahead: S&P 500 rebounds as 'soft landing' hopes boost US stocks (Reuters), Asia markets mixed as investors await a slew of inflation data and central bank decisions this week (CNBC), Israel, Hamas Accuse Each Other of Imperilling a Cease-Fire Deal (Bloomberg)

Macro:

• University of Michigan Consumer Sentiment beat in the preliminary August reading, rising to 67.8 from 66.4, above the 66.9 forecast. The upside was led by an improvement in forward looking expectations, which rose to 72.1 from 68.8 but the current conditions index fell to 60.9 from 62.7.
• Chicago Fed President Goolsbee (2025 voter, dove) reiterated his cautious tone. He noted that some leading indicators of a recession are flashing warnings and when the labour market starts to turn it tends to worsen quickly. However, he concluded that GDP is still strong and there are pockets of strength in the economy.
• UK’s retail sales rebounded in July to 0.5% MoM from -0.9% in June as wage growth and looser fiscal policy helped households to deal with cost-of-living pressures. Data continued to point towards a healthy Q3 growth remaining likely for the UK economy, but September meeting may still be live if services inflation continues to slow, and Fed starts to cut rates in September.

Macro events (times in GMT): US Democratic National Convention (Aug 19-22), Speakers: Fed’s Waller (1315)

Earnings events: Another week with interesting earnings releases despite 95% of the companies in the S&P 500 Index have reported earnings. The three earnings reports we will be watching this week are Palo Alto Networks (today), Snowflake (Wed), and Target (Wed).    Read our earnings preview in the Friday equity note. Palo Alto Networks, the world’s largest cyber security company, reports FY24 Q4 earnings (ending 31 July) later today after the US market close. Analysts expect revenue growth of 11% YoY and EPS of $1.41 up 103% YoY as cyber security spending remains one of the few business investments that are still growing double-digit. The recent cyber security fallout from CrowdStrike could have boosted orders/bookings for Palo Alto Networks.

• Monday: Palo Alto Networks, Estee Lauder
• Tuesday: Medtronic, Alcon, Lowe’s, Coloplast, Antofagasta, Toll Brothers
• Wednesday: Analog Devices, TJX, Synopsys, Snowflake, Agilent Technologies, Target, ASR Nederland, Aegon, Zoom Video,
• Thursday: Toronto-Dominion Bank, Ross Stores, Intuit, Workday, Swiss Re
• Friday: Dollar Tree, Williams-Sonoma

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

Equities: After a strong rebound last week Japanese equities are down 2% underscoring the still high volatility in this market. Futures are pointing to a flat open in European equities and slightly lower open in US equities. This week the market will focus on preliminary August PMI figures for Europe and the US on Thursday, but also initial jobless claims for conformation that the labour market is not signalling a slowdown as expected just a few weeks ago. The week ahead will also have the Democratic National Convention and the Jackson Hole Economic Symposium. Kamala Harris has started announcing her economic plans which have got mixed reception in the financial industry and the Jackson Hole event this year is particularly interesting given the looming interest rate cut cycle.

Fixed income: U.S. Treasuries traded lower on Friday after an initial rise during the morning session. The decline followed the release of the University of Michigan's consumer sentiment report for August, which exceeded expectations and indicated a slight uptick in inflation expectations. By the close of trading, the 10-year Treasury yield settled at approximately 3.89%, remaining within the week's range of 3.80% to 3.96%. In Europe, German Bunds trimmed their largest weekly gains, while UK gilts declined after stronger-than-expected U.S. consumer sentiment data bolstered the economic outlook. Despite these movements, European markets remained relatively stable with minimal changes in yields. Bund yields ended the day down 1 basis point at 2.26%, while Italian and French 10-year yields saw little change. Looking ahead, bond market attention this week will focus on key events, including the final release of the final Eurozone CPI for July on Tuesday, the FOMC meeting minutes and a 20-year Treasury auction on Wednesday, and Federal Reserve Chair Jerome Powell's speech at the Jackson Hole symposium on Friday.

Commodities: Gold surged to a fresh record high on Friday, reaching Saxo’s 2024 target at USD 2500, as momentum buying kicked in once technical resistance got broken in the USD 2475-80 area which may now act as support. Very shallow corrections during gold’s rally in recent months highlights its underlying strength but some consolidation is now expected while market awaits Jackson Hole and the beginning of a US rate cutting cycle. Copper holds onto last week’s strong gains despite BHP signing a new three-year deal with workers in Chile, thereby averting strike action that could have tightened the supply outlook. Iron ore futures staged a small rebound after falling by more than 9% last week amid weak demand from China’s steel industry. Crude oil trades steady after last week’s decline with focus on Gaza peace talks, China demand softness and the upcoming Jackson Hole meeting.

FX: The Dollar index hit a fresh seven-month low overnight in Asia, primarily driven by renewed Yen strength with USDJPY trading near 145.50. Six weeks of yen buying saw speculative traders in IMM futures turn bullish for the first time since 2021, and the big positioning change during this short time shows just how aggressive the deleveraging activity has been. Markets remain positioned for more than 25bps of rate cut at the Fed’s September meeting which sent precious metals soaring. UK’s sterling and Australian dollar also gained as bets on their easing cycles continue to look less aggressive than the Fed’s. New Zealand’s central bank kicked off its easing cycle last week, but the kiwi dollar still ended the week higher as rate cuts remain well priced in. We see the FX markets facing a tug-of-war between inflation and recession concerns, and a scenario analysis can be found here.

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