Global Market Quick Take: Europe – 22 July 2024

Key points:

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

In the news: Biden ends faltering reelection campaign, backs Harris as nominee (Reuters), Leading Democratic donors swing behind Kamala Harris (FT), ECB in No Rush to Decide on Rate Cuts, Makhlouf Tells Examiner (Bloomberg), Xi Vows to Rewire China’s Finances, Help Indebted Region (Bloomberg).

Macro: It's set to be a busy week in markets with several key events to monitor. On Thursday, the advance U.S. 2Q GDP data will be released. Economists expect the US economy to have grown at an annualized pace of 1.9% in the second quarter, up from 1.4% in the first quarter. U.S. inflation data will be released on Friday, which could confirm expectations for a Federal Reserve rate cut in September. The earnings season intensifies with major companies like Tesla, Alphabet, IBM, Ford, and General Motors reporting their second-quarter results. European banks, including Deutsche Bank, Lloyds, BNP Paribas, Banco Santander, and UniCredit, will also release earnings, providing insights into their financial health amid potential rate cuts by the ECB and political uncertainties. Eurozone PMI data will be closely watched for indications of economic growth and inflation pressures, influencing future ECB monetary policies. Additionally, oil prices, influenced by geopolitical tensions in Gaza and U.S. economic data affecting the dollar, will be important to monitor. The week will also be busy as markets need to address the consequences of Biden's withdrawal from the election race and what does that mean for the Trump Trade.

Macro events (times in GMT): ECB Survey of Professional Forecasters (8:00), Bundesbank monthly report, Chicago Fed National Activity Index (12:30), ECB's Lagarde and Nagel speak.

Earnings events: Ryanair Q1 after tax profit fell 46% to EUR360 mio. from last years’ 663 mio. Analysts expected 513.3 mio. Traffic grew 10% to 55.5 mio. Customers. Ryanair expects

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

Equities: Cyber security CrowdStrike ended down 11% after an erroneous software update caused airports, airliners, emergency services, banks and other business’ IT systems around the world to crash causing 1000’s of cancelled/delayed flights and inaccessible systems for clients and business.  8,5 mio Windows units were affected.  China has approved Eli Lilly’s weight loss drug Mounjaro. German battery maker Varta said it is in talks with luxury carmaker Porsche AG and other potential investors as it seeks a financial-restructuring plan to avoid a possible insolvency. German battery maker Varta said it is in talks with luxury carmaker Porsche AG and other potential investors as it seeks a financial-restructuring plan to avoid a possible insolvency. (Dow Jones News)

Fixed income: Treasuries ended last week with yields near their highest levels, influenced by a global IT outage and significant declines in European bonds, particularly UK gilts, as traders pushed back on their expectations for a BOE interest rate cut. The US 10-year yield rose to around 4.24%, up 3.5 basis points for the day. This week, bond markets will need to digest the potential news of Biden dropping out of the election. Initially, bond yields could fall due to political uncertainty and a flight to safety. If a strong Democratic candidate emerges, yields might remain lower. Conversely, if Trump strengthens his position, bond yields are likely to rise due to expectations of pro-business policies, economic growth, and higher inflation. With the U.S. election still five months away, investors are likely to revert their focus to economic data. If Friday’s PCE data indicates that the Fed is nearing its 2% inflation target, the bond market could react positively, with 10-year yields potentially breaking below 4.18%. Conversely, if the data does not support this, yields may reject this level and continue to rise.

Commodities: Commodities will be closely watching political uncertainties and the US PCE data this week to gauge future direction. If inflation is expected to hit 2% soon, the impact on gold prices could be mixed. While on the one hand, gold prices might fall due to reduced demand, as lower inflation and high interest rates offer investors attractive, risk-free returns like Treasuries, other factors such as economic and geopolitical conditions, and market volatility might keep gold prices strong. The precious metal hit a record high level of $2,480.23 on Tuesday last week, and has fallen since then to $2,400. At the same time, decreasing inflation could signal lower oil prices ahead, either due to an economic slowdown or investors shifting away from commodities like oil towards other assets that benefit from lower inflation and interest rates, such as stocks or bonds.

FX: The US dollar started the week on a weaker footing after President Biden stepped away from the US presidential race, erasing some of the gains from the last week that came on the back of Trump’s re-election odds gaining traction. Mexican peso was higher against the US dollar in the Asian session, while the Korean won also gained. Chinese yuan, another currency that has been attentive to US political developments, erased some of the early gains as China’s central bank announced a surprise rate cut to its short-term interest rate in order to add economic stimulus. Risk-on currencies such as Australian dollar, kiwi dollar and sterling underperformed the safe-havens such as Swiss franc and Japanese yen as markets priced in election uncertainty. To read more on our FX views, go to this Weekly FX Chartbook. 

Volatility: The VIX rose to $16.52 (+0.59 | +3.70%). The VIX1D decreased to $13.92 (-1.58 | -10.19%) while the VIX9D slightly increased to $15.04 (+0.14 | +0.94%). VVIX climbed to 97.93 (+3.22 | +3.40%), and the SKEW index fell to 146.99 (-4.13 | -2.73%). VIX futures remained stable at $15.90 (-0.015 | -0.11%) this morning. Expected moves for the week, derived from options pricing, show the S&P 500 with an expected move of plus or minus 79.43 points (+/- 1.41%) and the Nasdaq 100 plus or minus 438.99 points (+/- 2.24%). S&P 500 and Nasdaq 100 futures displayed modest gains overnight, with S&P 500 futures at 5,566.50 (+12.75 | +0.23%) and Nasdaq 100 futures at 19,795.00 (+82.00 | +0.42%). We may see heightened uncertainty and volatility this week due to President Biden's announcement yesterday evening that he is withdrawing from the presidential race. The key economic events for the week include the S&P Global US Manufacturing PMI and S&P Global Services PMI on Wednesday, Durable Goods Orders, GDP, and Initial Jobless Claims on Thursday, and the Core PCE Price Index on Friday. Earnings reports this week are significant, with Alphabet (GOOG, GOOGL), Tesla (TSLA), Visa (V), and Coca-Cola (KO) reporting on Tuesday, July 23rd. Friday's top 10 most traded stock options were Nvidia, Tesla, Apple, Advanced Micro Devices, Crowdstrike Holdings, Amazon, Palantir Technologies, Meta Platforms, Marathon Digital Holdings, and Intel.

For a global look at markets – go to Inspiration.