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.
In the news: China hobbles Asia shares; US data, Fed meet in view (Reuters), Oracle fiscal Q1 results beat estimates; inks cloud agreement with Amazon (Investing), Hewlett Packard shares fall on $1.35 billion convertible stock offering for Juniper buyout (Yahoo), Goldman Sachs to post $400 million hit to third-quarter results as it unwinds consumer business (CNBC), Here Are the Key Takeaways From Apple’s iPhone and Product Event (Bloomberg), Eli Lilly appoints insider Lucas Montarce as new finance chief (CNBC), World’s largest uranium miner warns Ukraine war makes it harder to supply west (FT)
Macro:
Macro events (times in GMT): Eurozone CPI (Aug Final) exp unchanged at 2% YoY (0600), US Small Business Optimism (Aug) exp 93.7 vs 93.7 prior (1000), OPEC’s Monthly Oil Market Report, EIA’s Short-term Energy Outlook (1600), API’s Weekly Crude and Fuel Stock report (2000), Trump/Harris Presidential Debate (2400). Fed speakers: Barr (1400) and Bowman (1615)
Earnings events: Oracle shares rose 8% in extended trading hours on fiscal Q1 revenue in line with estimates and operating margin beating estimates. The technology company said that its contract backlog will boost revenue growth throughout its fiscal year 2025 and its cloud business is expanding well.
For all macro, earnings, and dividend events check Saxo’s calendar.
Equities: Chinese equities are up 0.7% today while futures are pointing to a flat open in Europe and a slightly lower open in the US. Apple is in focus today after its product event last night where the company revealed its new iPhone 16, its Apple Watch Series 10 with new health features, two new pairs of AirPods with hearing aid features coming for the Pro version of its AirPods. Apple also talked about its upcoming Apple Intelligence launch with the new iOS 18 operating system which is launched later this month. While it is early days, it will be interesting to see how the market is going to price the hearing aid feature as a threat to the existing players such as GN Store Nord, Sonova, Demant, and Cochlear. Oracle is also in focus today after its strong results and growth outlook last night after the US market close. On a sector level it is worth noting that defensive sectors have outperformed cyclical sectors by around 10% since early July expressing that investors are rotating portfolios as the outlook for the US economy has been weakening lately.
Fixed income: U.S. Treasuries closed Monday with mixed performance, as long-term yields dipped slightly while short-term yields rose. The front end of the curve saw some rate cut expectations adjusted downward, while the long end benefited from concerns over weak growth. Shorter-term yields increased by about 3 basis points, leading the 2-year yield to settle at 3.67%, while longer maturities fell by around 1.5 basis points, causing a twist flattening in the yield curve. In Europe, sovereign bonds started the week softer, but the German yield curve experienced a bull steepening by the day's end. The 2-year yield dropped by 2 basis points to 2.21%, while the 10-year remained steady at 2.17%. Meanwhile, UK gilts outperformed, with the 2-year gilt yield dropping 6 basis points to 3.90%, ahead of key employment and earnings data, as markets expect this to guide the Bank of England's next interest-rate decision. Attention now shifts to the upcoming Trump-Harris debate, the U.S. CPI release on Wednesday, and the ECB meeting on Thursday, all of which are expected to influence market sentiment further.
Commodities: Crude prices rose on Monday with Brent finding buyers ahead of key support in the USD 70 area, supported by the risk of a potential disruption to production caused by Tropical storm Francine as it heads towards the Louisiana coast. Prices suffered steep declines last week amid concerns over US and especially Chinese growth, however, with specs having cut bullish bets to a 12-year low and prices signalling a recession, the risk of a bounce has risen. The risk of storm-related disruptions drove the US natural gas price lower and back towards USD 2/MMBtu. Copper finding some support from signs elevated stock levels have started to roll over, while resilient gold remains stuck around USD 2500 as the size of an incoming US rate cut is being debated.
FX: The US dollar gained to start the new week as markets were unconvinced that the Fed can deliver a jumbo rate cut at the next week’s meeting. Gains were also seen in the commodity complex, which helped the Canadian dollar and Australian dollar to outperform the G10 FX board. The British pound also rose with equities gaining some momentum, and labor data will be key today as Bank of England is not expected to cut rates next week. Safe-haven Japanese yen and Swiss franc lagged amid the slight risk-on sentiment and focus today turns to the US presidential election debate. To read more of our FX views, go to this Weekly FX Chartbook
Volatility: After Friday’s significant drop in the markets, the week kicked off on a positive note, with volatility easing across the board. The VIX, which measures market fear, dropped by 13.09% to 19.45, signaling reduced concerns. Short-term volatility indicators like the VIX1D (1-day) and VIX9D (9-day) also saw considerable declines, down 32.29% and 11.64%, respectively, showing some relief in immediate-term fears, though uncertainty remains. This easing of volatility had a positive effect on the broader markets, with the S&P 500 rising 1.16% and the Nasdaq gaining 1.30%. However, VIX futures have ticked up slightly this morning by 1.20%, while S&P and Nasdaq futures are both showing slight declines, suggesting some caution as we start the day. No major economic releases are scheduled today, and there are no significant earnings reports expected to impact volatility. Yesterday’s most active stock options were Nvidia, Tesla, Apple, Palantir Technologies, Alphabet, NIO, Amazon, AMD, Broadcom, and Discovery.
For a global look at markets – go to Inspiration.
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