Global Market Quick Take: Europe – 27 September 2024 Global Market Quick Take: Europe – 27 September 2024 Global Market Quick Take: Europe – 27 September 2024

Global Market Quick Take: Europe – 27 September 2024

Macro 3 minutes to read
Saxo Strategy Team

Key points:

  • Equities: Rally continues in Chinese equities
  • Currencies: Yen gains on LDP leader result
  • Commodities: Strong week partly offset by crude slump
  • Fixed Income: U.S. Treasury yield curve flattens as probabilities of aggressive rate cuts decrease.
  • Economic data: PCE inflation report

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

In the news: US economic growth, corporate profits revised higher in 2023 (Reuters), Super Micro Computer stock plunges on report of DOJ probe (Yahoo), Major global chip stocks rally on Micron’s surge; ASML up 4% (CNBC), China cuts banks' reserve requirement ratio by 50 bps, effective from Sept 27 (Reuters), China stimulus, mighty gold puts silver on a streak, but not without risk (Reuters), Commerzbank and UniCredit set to meet as takeover prospect looms (CNBC), Shigeru Ishiba to become Japan's next prime minister after ruling party vote (Reuters), 

Macro:

  • US initial jobless claims, for the week ending 21st September, fell to 218k from 222k (revised up from 219k), despite expectations for a rise to 218k - a sign of a robust labour market, while the 4wk average fell to 224.75k from 228.25k (revised up from 227.5k). The continued claims, for the week ending 14th September, which coincides with the usual NFP survey week, rose to 1.834mln from 1.821mln (revised down from 1.829mln), but was slightly below the expected 1.838mln.
  • The final estimate for US Q2 GDP was unrevised at 3.0%, in line with expectations, and accelerating from the 1.6% growth seen in Q1. Upward revisions to private inventory investment and federal government spending were offset by downward revisions to non-residential fixed investment, exports, consumer spending, and residential fixed investment.
  • The Swiss National Bank cut rates for a third time to 1% as expected and guided for more cuts to come to ensure price stability over the medium term. Containing the strength of the franc was also a key message, but with the central bank reaching its neutral rate, room for further easing may be limited which could force them to switch to FX interventions.
  • Japan’s Tokyo CPI for September came in as expected and softer than previous month. Headline Tokyo CPI was at 2.2% YoY from 2.6% previous while core measures eased to 2.0% from 2.4% YoY. Core-core measure remained steady at 1.6% YoY and focus now shifts to LDP election outcome later today. The new Prime Minister could re-set the agenda for the domestic economy and lean on the BOJ on rates. Focus also turns to US PCE release.
  • Industrial profits at large Chinese companies fell 17.8% year on year in August, after a 4.1% gain in July. This was the sharpest pace of decline since April last year, which further raised risks that the world’s second-largest economy would miss Beijing’s goal of expanding around 5%, and that’s why the government pivoted this week and unveiled a broad package of stimulus measures to revive growth.
  • The U.S. economy grew faster than initially thought in 2023 amid upgrades to business investment and consumer spending despite hefty interest rate increases from the Federal Reserve, revised government data showed on Thursday. The annual benchmark revision from the Commerce Department's Bureau of Economic Analysis (BEA), showed the US economy grew USD 292.2 billion more in the five years to 2023 than previously estimated. The report also showed that GDP increased 2.9% last year, revised up from the previously estimated 2.5%.

Macro events (times in GMT): German Unemployment (Sep) exp 13.5k vs 2k prior (0755), EZ Consumer Confidence Final (Sep), US PCE (Aug) exp 0.1% & 2.3% vs 0.2% & 2.5% prior (1230), Uni. of Michigan Final (Sep Final) exp 69.4 vs 69 prior (1400)

Earnings events: Costco shares declined 1% in extended trading hours despite the US retailer beat expectations indicating that the market expectations were clearly above analyst expectations. Accenture rose 5%after a strong earnings report and a 15% jump in dividends indicating a positive outlook from the consultancy firm. H&M is still struggling declining 5% yesterday as fiscal Q3 earnings missed expectations due to cold June weather.

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

Equities: The rally in Chinese equities continue with Hong Kong equities up 20% from the lows in September following a significant stimulus boost from the Chinese government. We expect a quiet session today in European and US equities (futures are slightly positive this morning) unless the US PCE inflation report later today surprises, but we think the probability of this is low.

Fixed Income: On Thursday, the U.S. Treasury yield curve flattened significantly, as long-term yields fell while short-term yields, particularly the 2-year, rose due to fading expectations for Federal Reserve rate cuts with Markets pricing 73bps cuts by the end of the year versus 77bps a day earlier. The market saw early weakness after jobless claims data showed a surprising drop to 218,000, the lowest since mid-May, signaling a strong labor market. This was followed by a solid 7-year note auction that helped to stabilize the long end of the curve. By mid-afternoon, the 2s10s spread flattened further, marking the most significant drop in over a month. Ten year yields ending the day flat around 3.78%, while two-year yields rose by roughly 6bps to 3.62%. European sovereign bonds saw little change overall, with German Bunds erasing earlier gains following a decline in U.S. jobless claims that impacted Treasuries. The German 10-year yield remained steady at 2.18%. Meanwhile, Spanish bonds closed below French yields for the first time since 2007, and Italian bonds outperformed, tightening the spread between Italian 10-year bonds and Bunds to 130 basis points, the narrowest in two months. UK Gilts saw the yield curve steepen slightly, with the 10-year yield rising to 4%.

Commodities: The commodities sector is heading for a weekly gain, mainly driven by strong gains among industrial metals where copper is heading for its biggest weekly gain since May supported by US rate cuts and Chinese stimulus and upbeat US data fueling demand optimism. Gold hit another record while silver reached a 12-year high before falling back below USD 32.50. Crude prices slumped again as Saudi and Libyan supply concerns weighed on the market, sending Brent lower towards the key support.

FX: The US dollar is heading for a small weekly loss after pairing much of its earlier gains as risk-on returned due to the optimism on China’s stimulus measures. Overall, a mixed week where activity currencies from AUD, NZD and KRW all did well amid the focus on Chinese demand optimism while the Chinese yuan was back below the 7-handle against the US dollar. Elsewhere the British pound also had a good week, rising to an April 2022 high against the euro. A roller-coaster week sees the Japanese yen suddenly strengthen, reversing earlier weakness after the ex-defense minister Ishiba received the votes to become Japan’s new leader.

Volatility: Volatility remains muted, with the VIX hovering at 15.37 (-0.26%). U.S. futures are showing a mixed picture this morning as markets anticipate the release of the Core PCE Price Index later today, a key inflation gauge that could influence the Fed’s next move. The VIX1D has spiked 16.15%, indicating short-term caution around the PCE data release. However, current levels suggest less fear compared to previous months' releases. The Hang Seng Index continues its impressive run, up nearly 11.3% this week alone, further boosting sentiment. S&P 500 and Nasdaq 100 futures are up 0.40% and 0.72%, respectively. Expected moves based on options pricing suggest the S&P 500 could see a shift of around 29 points (~0.50%) today, while the Nasdaq 100 might move approximately 151 points (~0.75%)—up or down. In the options market, Nvidia, Tesla, and Micron Technology lead activity, with notable mention to Alibaba and PDD, reflecting sustained interest in Chinese equities amidst their recent rally. Tesla’s IV Rank remains at a peak 99.92, signaling heightened expectations of price swings. As the week concludes, keep an eye on the PCE data and its potential to drive market action heading into next week.

For a global look at markets – go to Inspiration.

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