Global Market Quick Take: Europe – 25 September 2024

Key points:

• Equities: Chinese rise further on big stimulus package. Novo Nordisk in focus.
• Currencies: USDCNH dips below 7 for the first time in 16 months
• Commodities: Industrial metals jump on China stimulus, silver up 4%
• Fixed Income: Growing expectations of rate cuts in both Europe and the U.S. are driving yields lower.
• Economic data: Riksbank Policy decision, US new home sales

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

In the news:  Australia's Fortescue signs $2.8 bln green equipment partnership with Liebherr (Reuters), Nvidia shares pop as CEO may be done selling shares after hitting preset plan limit (CNBC), OPEC is highly bullish on long-term oil demand growth. Not everyone agrees (CNBC), Visa stock plunges 5% as feds sue over alleged debit card monopoly (Yahoo Finance), US consumer confidence sours on labor market jitters (Reuters), China needs more than rate cuts to boost economic growth (CNBC)

Macro:

• US consumer confidence sent some worries especially about the labour market which is the key Fed focus now. The headline saw its largest drop since August 2021 as it fell to 98.7 from 105.6 (revised up from 103.3) in September, below the anticipated 104. The surprising downturn primarily stemmed from the 10.3 drop in the Present Situation Index to 124.3, although the fall in the Expectations Index weighed on Confidence (fell by 4.6 points to 81.7). 30.9% of consumers said jobs were “plentiful,” (prev. 32.7%) whereas 18.3% of consumers said jobs were “hard to get,” up from 16.8% seen in August. The labour market differential between consumers saying jobs is plentiful versus hard to get fell to 12.6 (prev. 15.9).
• Fed Governor Bowman (hawk, dissented to the FOMC's 50bp rate cut) echoed a lot of the arguments she made in her speech explaining her dissent on Friday, where she said she did not want a 50bps cut to send a message the Fed has declared victory on inflation. She repeated core inflation is still uncomfortably above the 2% target with upside risks, taking an opposite view to Governor Waller who voted for a 50bps rate cut noting inflation has fallen faster than anticipated and on a four-month annualized basis, Core PCE is tracking beneath the Fed's target at 1.8%.
• Australia’s August CPI eased, as expected, to the 2.7%, the lowest in three years, while the trimmed mean core measure, which smooths out volatile items and is the focus of the RBA’s attention, eased to 3.4% from 3.8% a month earlier, potentially setting up a dovish pivot at its November meeting, one month earlier than currently expected.

Macro events (times in GMT):  France Consumer Confidence (Sep) exp 92 vs 92 prior (0645), Riksbank Policy decision exp 0.25% cut to 3.25% (0730), US New Home Sales (Aug) exp 700k vs 739k prior (1400), EIA’s Weekly Crude and Fuel Stock Report (1430)

Earnings events: Micron Technology earnings report 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.

• 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: Chinese equities continue higher again today following yesterday’s surprise stimulus package from the government and the central bank to mitigate the headwinds from the property crisis that is dragging down the Chinese economy. Novo Nordisk shares are in focus today after the CEO’s US senate hearing with Bernie Sanders about the company’s insulin prices. Judging from the price reaction in the US listed shares the market voted that the CEO did a good job explaining that Novo is not the sole company to blame for high prices as the PBMs (CVS, Cigna, and UnitedHealth) are playing a crucial role in drug price setting in the US. Spotify shares rose 3% yesterday on heavy volume on the announcement that TikTok is exiting the music streaming business after launching what was previously called a “Spotify killer” offering. Saab shares plunged 9% yesterday as the stock was downgraded by sell-side firms on slowing momentum. Saab has been one of the best performing shares in our defence theme basket since Russia’s invasion of Ukraine in 2022.

Fixed Income: U.S. Treasuries dropped yesterday with the yield curve bull steepening on the back of weaker-than-expected consumer confidence data. Markets shifted toward a more dovish outlook on the Federal Reserve’s November meeting, now pricing 55% odds of a 50bps rate cut. A solid 2-year note auction further bolstered the front-end outperformance, while longer-term yields saw more moderate declines. Overall, the yield curve steepened, with expectations rising for upcoming Treasury sales later in the week. In Europe, traders increased expectations of a potential quarter-point rate cut by the European Central Bank (ECB) as soon as October with a 60% chance. The German yield curve steepened, with the two-year yield dropping to 2.09% its lowest level since 2022. The OAT-Bund and BTP-Bund yield spreads tightened amid strong risk appetite. However, UK gilt yields rose slightly, as Andrew Bailey remained cautious about future rate cuts in a speech. In European sovereign markets, Germany’s two-to-10-year yield curve turned positive, to learn about risks and opportunities within this macroeconomic environment, click here.

Commodities: The Bloomberg Commodity Total Return Index trades up 4.7% on the month, having recovered strongly from an early September energy-led slump, supported by US rate cuts, China stimulus and extreme weather in Brazil lifting key food items from sugar and coffee to soybeans. Industrial metals benefited the most after China unleashed a fresh set of measures to shore up its ailing economy; however, following the initial sugar rush, some consolidation may emerge as China may need to do more. Silver jumped only to struggle once again above USD 32, supported by industrial metals and gold reaching a fresh record at USD 2670, making silver a relatively cheap alternative. Crude has so failed to gain a foothold above key levels, in WTI around USD 72 and USD 75 in Brent, despite Middle East tensions, API reporting a drop in US crude stockpiles to a two-year low, and China stimulus as it is not clear whether the measures will translate into higher energy demand.

FX: The risk-on environment got another leg of support after Fed’s 50bps rate cut last week as China authorities announced a slew of stimulus measures to support the ailing economy and markets. The US dollar, as a result, traded lower across the board and Chinese yuan led the gains. The offshore yuan briefly broke past the 7 per dollar level for the first time in 16 months. The Australian dollar was choppy following a hawkish statement from the Reserve Bank of Australia but a less hawkish speech from the Governor, but eventually the Chinese bazooka stimulus helped pushed the commodity currency above 0.69 overnight before retreating as inflation eased to the lowest in three years. The Japanese yen was the underperformer in the risk-on environment, also as BOJ’s Ueda continued to sound caution on the pace of further rate hikes.

Volatility: Volatility is easing, with the VIX down to 15.39 (-3.15%) as markets continue to settle after recent fluctuations. Yesterday’s announcement of bold stimulus measures from China drove significant trading activity in Chinese stocks such as Alibaba, Nio, and Pinduoduo, evident in the spike in trading volume for these names. U.S. equity futures are relatively flat this morning, with S&P 500 futures down 0.16% and Nasdaq 100 futures off by 0.21%, reflecting a cautious start. Based on options pricing, expected moves for today indicate the S&P 500 could shift around 21 points (~0.36%), while the Nasdaq 100 might move approximately 121 points (~0.61%). Tesla continues to be a focal point in the options market, showing the highest IV Rank among the top traded options at 92.57, suggesting that current implied volatility is at the upper end of its historical range. Nvidia and Alibaba also feature prominently, with elevated trading volumes as investors react to broader market developments. With no major economic reports or earnings scheduled today, attention may remain on global news and how markets react to ongoing geopolitical events. Keep an eye on Chinese-related stocks, as they could remain volatile in response to further policy announcements.

For a global look at markets – go to Inspiration.