Global Market Quick Take: Europe – 23 September 2024

Key points:

• Equities: European stocks are down on negative surprise in France PMI figures
• Currencies: Yen losses accelerate as BOJ surprises dovish
• Commodities: Gold hits fresh record highs, Crude returns to key level
• Fixed Income: U.S. PCE and policymakers' speeches will shape the outlook for bond markets this week
• Economic data: US, UK and Eurozone flash PMIs

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

In the news: Apollo eyes $5 billion investment in Intel, Bloomberg News reports (Investing), Qualcomm approached Intel about takeover bid in recent days (FT), China stimulus calls are growing louder — inside and outside the country (CNBC), Regional victory brings Germany's Scholz brief respite from growing pressure within party (Reuters)

Macro:

• Fed Governor Waller acknowledged that core inflation is running beneath the Fed's target and added that the August inflation numbers suggest core PCE rose 0.14%, and if you annualize the last four months, that leaves inflation running at less than 1.8% - beneath the Fed's 2% target. This is what prompted him to vote for a 50bps rate cut last week. He however echoed Powell to say that the Fed remains data-dependent for the path forward. Waller can imagine going 25bps at the next meeting or two if the data comes in fine, but if the labour market worsens and inflation data softens even quicker, the Fed could do more. However, he also said the Fed could pause, depending on the data, stressing the Fed is completely data dependent at this point.
• At least nine Fed policy makers are speaking this week, including prepared remarks from Chair Jerome Powell, two governors and New York Fed President John Williams
• The Bank of Japan kept its interest rates unchanged at 0.25%, as expected. Governor Ueda's dovish remarks indicate caution on further rate hikes, with inflation risks easing given the stronger yen. Wage growth continues to be closely monitored, and the BOJ is also waiting for more data on services prices and wage trends before making any decisions. But there appeared to be lack of any urgency for further rate hikes. Read this article for Saxo’s analysis of the BOJ meeting and the view on Japanese yen.
• China stimulus hopes rise after the PBoC lowered the 14-day reverse repurchase rate by 0.1% to 1.85%, a move that was seen as technical after already delivered cut to 7-day report rates. However, this was followed up by an announcement that central bank governor Pan Gongsheng will hold a press conference on Tuesday on financial support for economic developments.

Macro events (times in GMT): EZ Manufacturing and Services Flash PMI (Sep) exp 45.7 & 52.3 vs 45.8 & 52.9 prior (0800), UK Manufacturing and Services Flash PMI (Sep) exp 52.2 & 53.5 vs 52.5 & 53.7 prior (0830), US Manufacturing and Services Flash PMI (Sep) exp 48.6 & 55.2 vs 47.9 & 55.7 prior (1345), US Chicago Fed National Activity Index (Aug) exp –0.2 vs –0.34 prior (1230)

Earnings events: A light earnings week ahead but with three important earnings releases from Micron Technology (Wed), Costco Wholesale (Thu), and Accenture (Thu). Micron Technology is key to watch as a beacon for consumer electronics and global demand as memory chips are used in a wide range of products. Analysts expect Micron Technology to report revenue of $7.7bn up 91% YoY.

• Tuesday: Exor, AutoZone
• Wednesday: Vantage Towers, Oracle Japan, Micron Technology, Jefferies Financial, Cintas
• Thursday: Costco Wholesale, Accenture, H&M, Jabil, CarMax, TD Synnex

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

Equities: Futures indicated a positive open in Europe with the People’s Bank of China cutting its policy rate adding to the positive sentiment. However, stocks have turned around in the European session with France’s big negative surprise in its preliminary September figures with services PMI out at 47.4 vs est. 53.1. Later today we will get PMI figures from Germany, the Eurozone and the US which could to the negative sentiment if they also surprise to the downside. Genmab is one of the most active stocks this morning in Europe down 3% and other active stocks are LVMH and Kering as the luxury industry is getting downgraded by sell-side reports.

Fixed Income: This week brings key economic data and geopolitical events that will shape U.S. Treasuries and European sovereign bonds. For U.S. Treasuries, the focus is on Friday’s Personal Consumption Expenditures (PCE) price index, expected to show core PCE steady at 0.2%, pushing the annual measure to 2.7%. Several Federal Reserve officials, including Chair Jerome Powell, will speak throughout the week, providing insights into future policy moves, with markets currently pricing 200bps rate cuts by 2025, one more than projected by the Fed’s dot plot. U.S. consumer confidence data on Tuesday and the University of Michigan’s sentiment index on Friday will also be critical, as strong results could signal economic resilience and influence inflation expectations. For Europe, the key data includes Eurozone, German, and French Purchasing Managers' Index (PMI) releases on Monday, followed by Germany’s IFO Business Climate Index on Tuesday. ECB President Christine Lagarde and other officials will speak throughout the week, with markets closely watching for policy hints. We remain optimistic on short-term sovereign bonds but cautious on duration, as aggressive rate cuts without a recession could push long-term yields higher.

Commodities: Gold rises to a fresh record above USD 2630 on a continuation of the ‘fear of missing out’ momentum that followed last week’s bumper US rate cut. On watch this week will be several Fed speakers, as well as Friday’s US PCE print, the FOMC’s favourite inflation gauge. The market looks increasingly in need of consolidation, but at this point, a deep one is needed to rattle hedge funds holding the largest bet on higher prices since 2020. Crude extends gains on Middle East tensions and China stimulus hopes, with Brent trading near USD 75, a key level that, once broken earlier this month, helped trigger a slump below USD 70 and the first-ever net short position held by funds, a development which is now adding support as loss making short positions are being closed. Chicago wheat futures are being supported by dry weather curbing production prospects in Europe, UK and Black Sea region. Copper reached a two-month high last week, supported by signs of an improved demand outlook in China leading to rising premiums on imported copper while inventories on the SHFE have stated to fall.

FX: The US dollar faced its third consecutive decline last week as the Federal Reserve cut rates by 50bps. However, the Japanese yen underperformed with over 2% decline against the US dollar as the Bank of Japan went back on its hawkish rhetoric by sounding cautious on further hikes. Markets were also in a risk-on mode after the Fed’s jump rate cut last week came with an upbeat view on the economy, signaling short-term goldilocks as discussed here. Swiss franc also ended the week lower as a result, while activity currencies such as Norwegian krone, Australian dollar and British pound led the gains. Today’s key watch will be the flash PMIs, especially the variance between the Eurozone and UK, with the euro now trading below the key 0.84 levels again the sterling, a level that has held up since 2022.

Volatility: Volatility remains subdued, with the VIX slightly down to 16.15 (-1.10%). Equity futures indicate a mildly positive open: S&P 500 up 0.27%, Nasdaq 100 climbing 0.50%, and Russell 2000 rising 0.56%. Expected moves, based on options pricing, suggest the S&P 500 could shift around 65 points (~1.13%) this week, while the Nasdaq 100 might see a broader swing of approximately 341 points (~1.72%). With several key economic events on the calendar, including PMI reports today, Consumer Confidence on Tuesday, and GDP figures on Thursday, we can expect some action later in the week. Additionally, Fed Chair Powell is set to speak on Thursday, which could add to market volatility. In the options market, Nvidia, Apple, Tesla, and Intel were the most traded on Friday, with Nvidia leading in volume and implied volatility at 45.38%. With the absence of significant earnings reports early this week, focus will remain on macroeconomic indicators and Fed commentary. Expect a relatively calm start today, but prepare for potential volatility spikes as the week progresses and markets respond to the incoming data.

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