Global Market Quick Take: Europe – 13 December 2024

• Equities: Hot inflation data, ECB rate cut, weak Chinese policy signals, global equity declines
• Volatility: VIX rises slightly, inflation concerns, active options in AI and tech
• Currencies: EUR rallies in crosses post-ECB, but can’t top strong US dollar, which rose across the board on new surge in US treasury yields
• Commodities: Energy sector leads strong week for commodities
• Fixed Income: European yields rebound post-ECB, US yields rise to local highs
• Macro events: Eurozone Oct Industrial Production

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

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Macro data and headlines

• US PPI was hotter-than-expected with headline up 0.4% MoM while the yearly figure rose 3.0% (exp. 2.6%, prev. 2.4%, rev. 2.6%). For core, M/M increased by 0.2%, in line with expectations whereas the Y/Y was 3.4% (exp. 3.2%). However, the components that feed into the Fed’s preferred PCE index were universally weak and, together with the CPI data released yesterday, point to a muted 0.03% m/m increase in the core PCE index. Initial jobless claims hit a 2-month high, with continuing claims rising. Money markets continue to highly favour a 25bps rate cut in the Fed's December meeting, with a ~ 97% chance.
• The ECB delivered a 25bps cut to the deposit rate to 3.0%. Lagarde was dovish, she noted that a 50bps cut was discussed but it failed to gain traction. Following the meeting and Lagarde's press conference, Reuters sources noted that a handful of policymakers were initially in favour of a 50bps cut and some argued that the ECB is overestimating growth, which could be below 1% next year under Trump tariffs. While not declaring victory on inflation, the President noted that direction of travel is clear, signalling further rate cuts. Market expected 120bps of rate cuts from the ECB next year, compared to only 50bps of cuts from the Fed.
• The SNB unexpectedly cut rates by 50bps to 0.50%, sparking immediate downside in the Franc, which enlarged as the session progressed. SNB's Chair Schlegel maintained the rhetoric of willingness to intervene as necessary, adding, that the SNB still has room for further interest rate moves, albeit, said they don't like negative rates, but will use them again if required.

Macro events (times in GMT)

EZ Oct Industrial Production (1000), ECB speakers: Villeroy (0800), Holzman (0900) & Centeno (1100)

Earnings events

• Next week: Micron Technology, Carnival, Fedex, Cintas, Nike, Accenture

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

• US: US Equities retreated Thursday following a higher-than-expected PPI reading for November, up 0.4% versus the forecasted 0.2%, which raised concerns about inflationary pressures. The S&P 500 and Nasdaq declined by 0.54% and 0.66%, respectively, while the Dow dropped 234 points (-0.53%). Investors now look ahead to next week's Federal Reserve meeting, with expectations of a 25bps rate cut largely intact.
  • UnitedHealth Group looses 3.3% following management disruptions
  • Adobe fell 13.7%, the worst performer among S&P 500 stocks after disappointing on its outlook for the coming year as uncertainty grows on its generative AI potential.
  • The largest gainer among S&P 500 stocks was Warner Brothers Discovery, which rose more than 15% as it announced a restructuring into two units, one focused on streaming and the other on cable TV networks.
  • Broadcom surged 15% in after-hours trading after reporting a 220% YoY increase in AI-related revenue.
• Europe: European stocks traded mixed on Thursday, with the Stoxx 50 inching up 0.2% and the Stoxx 600 slipping 0.2%, as markets digested the ECB's 25bps rate cut and cautious GDP growth forecasts. Luxury and tech sectors outperformed, with SAP and ASML gaining over 1% amid upbeat demand expectations. Consumer-facing names like LVMH and Hermes also rose following optimism around trade relations with China. Conversely, Inditex slumped 6.2% after a rare sales miss, while Siemens Energy faced pressure amid sector challenges. Market participants remain focused on ECB cues for 2025 rate policy and further easing expectations.
• Asia: Asian markets saw broad declines on Friday, led by Chinese stocks as the lack of substantive policy announcements from the Central Economic Work Conference disappointed investors. The Shanghai Composite fell 1.8%, and the Hang Seng Index dropped 1.9%, pressured by profit-taking and skepticism over stimulus plans. Hong Kong stocks were dragged down by property and consumer sectors, with Longfor Group and Geely Auto down over 5%. Elsewhere, Japan's Nikkei lost 0.3%, while Australia's ASX 200 dropped 0.28%, hurt by stronger-than-expected jobs data reducing rate cut probabilities. However, regional markets remain on track for weekly gains as broader sentiment remains positive

Volatility

Volatility edged higher, with the VIX rising 2.5% to 13.92, reflecting market caution amid inflation concern. VIX futures dipped slightly to 16.18 (-0.73%). Daily expected moves for the S&P 500 are at 22.72 points (~0.38%), while the Nasdaq 100 shows a broader range of 142.45 points (~0.66%). Notable options activity includes Tesla, Broadcom, and Nvidia, driven by strong earnings and AI-related momentum. Markets remain focused on next week's Federal Reserve and ECB meetings as potential volatility triggers.

Fixed Income

The ECB meeting initially saw European yields spill lower, but bonds sold off during President Lagarde’s press conference, taking the German 2-year Schatz back above 2.00% by the close, some 10 basis points off the lows. 10-year German Bund yield rose eight basis points, while US yields also rose yesterday to post local highs after a rather weak US 30-year T-bond auction.

Commodities

• Gold, and especially silver, fell on Thursday, with profit-taking emerging following a four-day rally, after key resistance levels were rejected in both as the USD strengthened following mixed US data. We have reached the time of year when convictions are low, and positions are being held on a short leash, meaning any price reversal—in both directions—will quickly be met with position-squaring.
• The Bloomberg Commodity Total Return Index is heading for its highest weekly close in seven weeks, with all sectors except softs trading higher, led by energy where natural gas rose as US stockpiles fell amid strong demand, and crude rose as potential US sanctions on Iran and Russia helped offset surplus concerns. Other sectors performing well were precious metals, primarily due to gold strength, while on an individual level, cocoa topped the table with a 10% gain.
• European natural gas prices extended declines in the run-up to year end, with the TTF benchmark futures falling to a one-month low at EUR 42.8/MWh, amid forecasts for milder weather outweighing persistent supply concerns.

Currencies

• The Euro fell to a new local low and EURUSD traded below 1.0460 overnight despite a rebound in European yields in the wake of the ECB meeting yesterday. That masked euro resilience elsewhere, as EURGBP rebounded sharply from a test toward the post-Brexit lows and pressured higher still in early Europe on a weak UK Manufacturing Production print for October.
• The SNB cut 50 basis points to take the rate to 0.50%, which only a minority expected. This drove a steep CHF sell-off as EURCHF rallied to a three week high, while USDCHF eyes six-month highs near 0.8960.
• The direction in US yields seems the key indicator for USD direction as a fresh rise across the US yield curve took the US dollar higher across the board against the major currencies, with USDJPY abe 153.00 at one point overnight in the wake of a largely upbeat Q4 Tankan survey, with only the small-non manufacturing outlook not beating expectations. The anticipation of BoJ hiking has faded more as the market prices no move for December now and slightly less policy tightening for the coming year. 2-year JGB’s closed yesterday near 57 basis points, the lowest close in weeks.
• USDCAD traded above 1.4200 for the first time since the heart of the pandemic emergency and worth noting that the pair only has two weekly closes above current levels in the last 21 years.