Macro: Sandcastle economics
Invest wisely in Q3 2024: Discover SaxoStrats' insights on navigating a stable yet fragile global economy.
Key points:
The Saxo Quick Take is a short, distilled opinion on financial markets with references to key news and events.
In the news: History suggests Japanese stocks likely to rebound after Ishiba-led slump: Citi (Investing), Japan Aug jobless rate falls to 2.5%, job availability tightens (Investing), China stocks soar on stimulus as US indices end Q3 at records (Yahoo), Powell Says Fed Not in a Hurry, Will Lower Rates ‘Over Time’ (Bloomberg), China’s Housing Glut Collides With Its Shrinking Population (WSJ)
Macro
Macro events (times in GMT): Italy, France, Germany and UK Manufacturing PMI (Sep Final), Eurozone CPI (Sep) exp 0% & 1.8% vs 0.1% & 2.2% prior (0900), US Manufacturing PMI (Sep Final), US JOLTS Opening (Aug) exp 7660k vs 7673k prior (1400), Fed’s Bostic speaks (1500), API’s Weekly Crude and Fuel Stock report (2000), Mainland China and Hong Kong Golden Week holiday.
Earnings events: Carnival, the world’s largest cruise ship operator, announced yesterday results beating estimates and raised its guidance for the fiscal year. Despite this, shares were slightly lower in yesterday’s trading session. The cruise ships industry is one of those that should benefit a great deal from lower interest rates next year. Nike earnings tonight after the US market close is a must watch and analysts are very negative expecting revenue to decline 10% YoY as Adidas’ success with the ‘Samba’ series and uncertainty over China are impacting sales.
For all macro, earnings, and dividend events check Saxo’s calendar.
Equities: The Chinese cash equity market is closed today but Hang Seng futures are down 2.4% after a week of massive gains on the back of the government’s big action on stimulus to revive growth and investor sentiment. Futures are indicating a 0.3% higher open in Europe and flat open in the US. Israel decided to start land invasion in the southern parts of Lebanon yesterday increasing the geopolitical risks in the region, but so far markets remain calm as Iran has shown restraint. CVS was one of the most traded US stocks yesterday as the company is considering its strategic options which includes a breakup of the business. In Europe, Novo Nordisk continues to be under pressure trading below DKK 800 per share for the second straight session at levels not seens since February.
Fixed Income: U.S. Treasuries dropped yesterday following comments from Federal Reserve Chair Jerome Powell, who reiterated that rate cuts would occur gradually over time while maintaining that the U.S. economy is strong. This prompted the market to price 70bp rate cuts by the end of the year versus 76bps by the end of last week. By the end of the day, 10-year U.S Treasury yields rose by 3bps to 3.795% and 2-year yields rose by 8.4bps to 3.64%. In Europe, ECB President Christine Lagarde voiced confidence in curbing inflation, which helped reverse an earlier decline in European sovereign bonds. In Germany, inflation fell below 2% for the first time since 2021, raising expectations for a possible interest rate cut in October. The spread between Italian BTPs and French OATs remains stable, though recent political and economic uncertainty in France suggests the spread could tighten further. For more details, click here.
Commodities: Gold traded lower on Monday after Powell reduced hopes for another bumper 50 bps rate cut in November, after saying the Fed is not in a rush to cut rates quickly and that if the economy evolves as expected, that will mean two more (25 bps) cuts this year. Silver slumped below USD 31 before finding a bid, while an unsustainable rally in copper came to a halt ahead of the Chinese holiday, with the HG contract suffering an intraday top-to-bottom decline of more than 6%, with the focus now turning to consolidation while awaiting signs from the physical market. Crude remains rangebound near recent lows as the geopolitical risk bid remains absent, with traders instead focusing on the prospect of additional and currently unwanted supply. The grains sector trades at a four-month high, supported on Monday by higher corn prices after the USDA lowered quarterly stockpiles by 4.8%.
FX: The US dollar traded higher as Fed’s Chair Powell offered a pushback on aggressive market expectations of rate cuts. However, greenback ended September with a loss of over 3% and focus now turns to JOLTs job openings today or the ISM manufacturing print to get a sense of labor market and economic activity that will be the key drivers of the pace of rate cuts from here. The Japanese yen led the losses against the US dollar, particularly as markets erased the knee-jerk reaction to PM Ishiba’s nomination from Friday and BOJ’s summary of opinions this morning also highlighted a patient approach from the BOJ on raising rates further. The euro remains in focus as ECB’s easing expectations continue to be re-assessed after disinflation and growth weakness are expected to bring another rate cut in October. Activity currencies Aussie dollar and kiwi dollar outperformed but seen losing momentum as China goes on Golden Week holiday. For more on our FX views, read the Weekly FX Chartbook.
Volatility: As we kick off a new month and quarter, volatility remains relatively subdued with the VIX at 16.73, up slightly by 1.36%. September saw moderate swings in the VIX, ranging from a low of 14.90 to a high of 23.76, reflecting a calmer but still active market compared to August. With the U.S. elections on the horizon, October could bring renewed volatility, adding potential market jitters in the coming weeks. Today, we’ll get a batch of economic data, with the JOLTs Job Openings report being the first in a series of employment-related releases throughout the week. U.S. equity futures are relatively flat, with S&P 500 futures down 0.05% and Nasdaq 100 futures nearly unchanged. Based on options pricing, expected moves for today indicate that the S&P 500 could shift around 29 points (~0.51%) and the Nasdaq 100 by about 148 points (~0.74%)—up or down. In the options market, Nvidia, Tesla, and Nio remain at the top of the list, with Nio and Alibaba showing particularly elevated implied volatility ranks, both at 100%, signaling high expectations for price swings. With economic reports set to roll in throughout the day, and the start of a new quarter, keep an eye on potential market reactions that could add to today’s volatility.
For a global look at markets – go to Inspiration.