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.
Saxo’s Q4 Outlook
In the news: Nike Q1 revenue falls short of estimates; postpones investor day (Investing), Asia stocks slide, oil extends gains on Middle East risks (Reuters), Tesla Q3 deliveries could drive 'further strength' in the stock (Yahoo), Dollar firm as war widens in Middle East (Yahoo), Iran says attack on Israel is over as fears grow of wider conflict (Reuters), The massive U.S. port strike has begun: 'We are prepared to fight as long as necessary' (Quartz)
Macro
Macro events (times in GMT): EC Unemployment Rate (Aug) exp unchanged at 6.4% (0900), ADP Employment Change (Sep) exp 125k vs 99k prior (1215), EIAs Weekly Crude and Fuel Stock Report (1430). Multiple ECB speakers throughout the day.
Earnings events: Nike shares declined 5% in US extended trading hours as the sports manufacturer and retailer under the new CEO delivered poor results withdrawing its full-year guidance and saw inventories rise again in a sign that demand is weak. Nike sees revenue down by 8-10% YoY in the current quarter signalling that the turnaround will take years to complete.
For all macro, earnings, and dividend events check Saxo’s calendar.
Equities: Hong Kong stocks reopened for trading after a holiday surging another 4.9% as investors are piling into Chinese equities after the government’s big stimulus move last week. Iran’s massive missile attack on Israel yesterday shook markets with oil higher and volatility (VIX Index) jumping briefly above 20. The situation in the Middle East is clearly a key risk factor driving defence stocks with Lockheed Martin shares up 3.6% yesterday on heavy volume. In the US, a big port strike has begun which has the seeds of causing major disruptions not only in the US but also global trade as it will impact shipping capacity.
Fixed Income: French debt outperformed its euro-area peers yesterday, supported by Prime Minister Michel Barnier’s plans to cut spending and raise taxes. Meanwhile, German bonds rose from haven demand as tensions rise over reports that Iran is preparing a ballistic missile attack against Israel. Following the Eurozone CPI print which showed a negative monthly figure for the month of September, markets maintained bets on a potential ECB rate cut this month and increased their wagers for a cut in December. The German 2-year yield dropped below 2% for the first time since December 2022. French and Italian 10-year yields dropped by 9bp and 8bps to 2.83% and 3.38% respectively by the end of the day. US Treasuries rallied early in the session, driven by lower European inflation and safe-haven demand due to escalating tensions in the Middle East. The rally extended further after reports of a potential Iranian missile attack on Israel. However, gains were pared back in the afternoon after Israel reported that many of the missiles had been intercepted without causing injuries. Treasury yields ended the day lower, with the 10-year yield closing at around 3.74%, up 4 basis points.
Commodities: Gold rose, and crude oil prices jumped after Iran’s missile attack on Israel once again raised concerns about a wider conflict in the Middle East. While multiple geopolitical price spikes this past year deflated almost as soon as they emerged, the recent escalation poses a threat to supply, primarily arising from the risk of an Israeli counterattack on Iran’s nuclear and energy infrastructure, and for now, this threat to supply will counter a resumption of Libyan production and general sluggish demand. Gold rose more than 1% but without challenging last week’s record high, potentially highlighting a market where short-term focused traders have started to book some profit following gold’s strong September rally. Copper rose for a second day amid continued optimism over China’s demand prospects and the recent US rate cut, while iron ore holds onto most of last week's +20% rally. Wheat prices trade a three-month high after a major Russian farming area declared a drought emergency, underscoring parched conditions that are hampering winter sowing
FX: The US dollar began October with steady gains that extended overnight on the back of Fed Chair Powell’s pushback to market expectations of the rate cuts, and a safe-haven bid as Mideast tensions rose. Only the Canadian dollar rose against the US dollar amid a jump higher in oil prices, while safe havens like Japanese yen and Swiss franc remained resilient but did not gain considerably. Activity currencies were at the bottom of the performance table, with kiwi dollar down over 1% as expectations of a large rate cuts from the Reserve Bank of New Zealand increased amid falling GDP and a cooling jobs market. The euro trades back below 1.11 against the US dollar, and sterling back below 1.33, amid flaring geopolitical tensions. The former was also pressured by softening Euro-area inflation which cemented expectations of an ECB rate cut in October.
Volatility: Volatility surged, with the VIX rising to 19.26 (+15.12%) as geopolitical tensions escalate. Yesterday, Iran launched a missile attack on Israel, sending markets into a risk-off mode. U.S. futures are slightly down this morning, with S&P 500 futures slipping 0.29% and Nasdaq 100 futures off by 0.38%. Short-term volatility (VIX1D) is up over 22%, signaling increased market anxiety. Today’s economic focus is the ADP Nonfarm Employment Change, forecasted at 124K, following yesterday’s stronger-than-expected JOLTs Job Openings at 8.04M. This adds to the week’s labor market data, and investors are watching closely for clues on the Fed’s next move. Expected moves, based on options pricing, suggest the S&P 500 could shift around 40 points (~0.71%) and the Nasdaq 100 by roughly 188 points (~0.95%)—either up or down. In corporate news, Nike released its Q1 FY25 earnings yesterday, beating EPS expectations with $0.70 (vs. $0.52 est) but missing on revenue at $11.59B (vs. $11.65B est). Shares initially surged but later dropped 6% in after-hours, following the company’s withdrawal of full-year guidance and the postponement of its November investor day. Weaker demand during the "back-to-school" period weighed on Q1 sales, raising concerns about future growth. With both geopolitical risks and key economic data on tap, markets could experience further volatility as the day progresses.
For a global look at markets – go to Inspiration.
Disclaimer
The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website. This content is not intended to and does not change or expand on the execution-only service. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.
Please read our disclaimers:
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
- Full disclaimer (https://www.home.saxo/en-gb/legal/disclaimer/saxo-disclaimer)