Morning Brew July 2 2024

Good morning,

US 10-year yields rose – apparently fueled on worries about a fiscal deficit under Trump after the debate last Thursday and the Supreme Court decision that presidents are largely immune.

At the same time equities traded mostly friendly with Tesla the main event at +6%. The Dow gained 0.13%, the S&P +0.27%, and the Nasdaq closed 0.8% higher. Apple gained 2.9%, Amazon 2.05% and Microsoft 2.2%. The Nikkei rose on the weak yen and broke above the 40k again.

The US Manufacturing PMI showed production fell for a third straight month, while prices paid fell to a six-month low. The USD Index rose to 105.87, EURUSD fell to 1.0730, GBPUSD 1.2637 and USDJPY to another high at 161.67.

Gold and Silver traded friendly yesterday to now trade at 2330 and 29.40, Bitcoin held on to its earlier gains at 63k.

This morning BYD posted a 21% rise in Q2 EV sales, the data from Tesla is expected today and it seems traders are looking for a positive surprise from the low analyst expectation of 438k vehicles. The stock gained 6% yesterday and rose above the 200 Day Moving Average

Today, focus will be on the EU Inflation as an ECB member hinted the interest rate cut was still a relatively easy decision, but subsequent moves should only come once inflation is clearly heading towards the 2% target. Watch EURUSD, EURCHF and the GER40.

Jerome Powell will be speaking at 15:30 at a policy panel

The Tesla production numbers will be closely watched and will either confirm or counter yesterday’s move.

With Thursday a US Holiday, expect liquidity to thin out and markets either calm or jumpy – this is especially true for Friday and the Nonfarm Payroll release.

The Q3 Outlook is ready:

https://www.home.saxo/insights/news-and-research/thought-leadership/quarterly-outlook

• Resilient economic growth: The US economy shows robust growth driven by investments in AI, defence, semiconductors, and obesity drug manufacturing, despite aggressive monetary policy rate increases and cooling labour markets in the US and Europe.
• Persistent inflation: Inflation in the US and Europe remains higher than initially expected but is easing, and robust wage growth is contributing to an income-driven economic growth scenario, which is seen as a "goldilocks scenario" entering the third quarter.
• Two-lane economy: Different sectors of the economy are experiencing varying impacts from high-interest rates, with sectors like real estate and car manufacturing struggling, while defence, semiconductors, AI, and obesity drug manufacturing are booming, complicating monetary policy decisions.
• Investment outlook: The short-term investment outlook is positive, favouring risky assets due to calm financial markets and a low financial turbulence indicator. Recommended asset allocations include being overweight in equities and commodities, European equities, and sectors like energy, healthcare, financials, and information technology. We also like short-term government bonds and high quality corporate bonds.
• Commodity and FX views: The energy and grains sectors are expected to perform well, with robust demand for crude oil and grains recovering from adverse weather conditions. In the FX market, risk-on currencies like AUD and NZD are expected to outperform in a bearish dollar environment, while low-yielding currencies like JPY and CHF are likely to underperform.

Tuesday

• EU Inflation, Unemployment, Powell speaks

Wednesday

• DE Industrial Orders, US Initial Jobless Claims, Fed Minutes, John Williams Speaks

Thursday

• US Holiday, UK Election, DE Industrial Orders

Friday

• DE Industrial Production, UK House Prices, Swiss FX Reserves, US Nonfarm & Unemployment, Canada Labor Market Data