Global Market Quick Take: Asia – July 5, 2024

Key points:

• Equities: FTSE 100 and DAX tracking US higher
• FX: USD continues to weaken
• Commodities: Oil and gold continue to rise
• Fixed income: Gilts down from 4.28% to 4.20%
• Economic data: Canada Unemployment, Canada Ivey PMI

------------------------------------------------------------------

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

Disclaimer: Past performance does not indicate future performance.

Saxo’s Quarterly Outlook is out and can be accessed here.

The title is Sandcastle economics reflecting that the economy and financial markets look pretty with resilient growth and equities at an all-time high. We expect favourable market conditions to continue in Q3, but sandcastles are naturally fragile and thus our clients should be aware of the potential risks lurking around the corners ranging from geopolitics, US election in Q4, unsustainable fiscal trends, and demographics longer term.

In this Q3 Outlook, you can get our take on why European equities and short-duration quality bonds look interesting. You can also read why energy commodities may come in focus and where to look within forex.

In the news:

• UK's Labour on course for huge election majority, exit poll shows (Investing)
• Brent crude trades above $87, sets highest levels since April (Investing)
• Japan’s Topix Hits All-Time High, Closing Above 1989 Record (Bloomberg)
• SoftBank in talks to get its hands on large volumes of Nvidia’s GPUs: Report (Investing)
• London stocks, pound climb as Britons vote (Yahoo)
•  EU slaps Chinese electric cars with tariffs of up to 38% (Yahoo)

Macro:

• Germany continues to show signs of weakness as the largest European economy, with an unexpected decline in factory orders and a persistently contracting construction sector.
• Minutes from the ECB's June meeting revealed doubts about the Euro Area recovery, as it hinges on private consumption, which lacks supporting data. Policymakers are also uncertain about reaching the 2% inflation target by 2025. In June, the ECB cut key interest rates by 25 basis points, ending nine months of stable rates, and emphasized a data-dependent, meeting-by-meeting approach without pre-committing to a specific rate path. They remain committed to ensuring inflation returns to the 2% target and will keep policy rates restrictive as needed.

Macro events: US NFP, US Unemployment

Earnings: N/A

Equities: FTSE 100 rose by 0.9% amid ongoing parliamentary polls in the UK and positive economic data from the US, suggesting potential Federal Reserve rate cuts. The UK general election is in progress, with early exit polls expected after 10 p.m., and the Labour Party is anticipated to end the Conservative Party's 14-year rule. DAX increased by 0.4% to 18,450, continuing gains from the previous session. Investors are evaluating recent data and central bank reports for policy outlooks from the ECB and the Fed. Despite recognizing the ongoing battle against inflation, central banks are cautious about overtightening. Germany's economy shows signs of weakness, with factory orders shrinking and the construction sector contracting. CAC 40 in Paris climbed 0.8% to 7,696, driven by speculation of upcoming Federal Reserve rate cuts following weak US economic indicators.

Fixed income: UK 10-year Gilt is trading about 4.20%, down from 4.28% on Monday, as voters participated in parliamentary elections across England, Scotland, Wales, and Northern Ireland. The center-left Labour Party is leading in the polls and is expected to unseat Prime Minister Rishi Sunak's Conservative Party, potentially securing their first general election victory since 2005. Analysts suggest this political shift could boost the pound, stock market, and investments in the UK, enhancing its reputation as a "safe haven" amid global political uncertainties. Labour has pledged not to raise taxes or implement austerity measures, instead focusing on a "pro-business and pro-worker" agenda with a new industrial strategy.

Commodities: WTI crude futures surged to nearly $84 per barrel, the highest in over two months, driven by a significant drop in US inventories and an optimistic fuel demand forecast. The US Energy Information Administration (EIA) reported a 12.2 million barrel decrease in crude stockpiles, far exceeding the expected 680,000 barrel decline. Gold prices rose to around $2,360 per ounce on Thursday, nearing four-week highs, as new US economic data reinforced expectations for Federal Reserve interest rate cuts. Safe-haven demand for gold also increased amid escalating tensions in the Middle East after Israel killed a senior Hezbollah commander, prompting retaliation near the border.

FX: EURUSD rose to $1.08, its highest in three weeks, after ECB meeting minutes revealed concerns about inflation trends and hinted at potential future rate cuts. In the US, weak economic data has increased expectations for a Fed rate cut in September.

GBPUSD climbed above $1.276, also a three-week high, amid UK parliamentary elections where the Labour Party is leading in the polls. Analysts believe a Labour victory could boost the pound and UK investments. Investors are also anticipating a rate cut in August following the Bank of England's steady interest rate decision in June.

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

For a global look at markets – go to Inspiration