Global Market Quick Take: Europe – 20 August 2024

Key points:

• Equities: Muted volume as market awaits Jackson Hole. Palo Alto sees strong outlook
• Currencies: Dollar trades at 2024 low
• Commodities: Crude drops on potential Gaza ceasefire
• Fixed Income: Bonds steady as markets await Powell’s speech at Jackson Hole.
• Economic data: Sweden’s Riksbank rate announcement

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

In the news: Blinken Says Israel Accepts Cease-Fire, Hamas Must ‘Say Yes’ (Bloomberg), Palo Alto Networks reports positive after fiscal q4 results top estimates (Yahoo), AMD Buys ZT Systems for $4.9 Billion. It’s Taking On Nvidia. (Barron’s), ECB may need to cut rates again in Sept, Rehn says (Investing), Global commodities’ biggest winners and losers this year — and where they’re headed (CNBC)

Macro:

• Fed’s Kashkari (2026, Voter) noted a debate about potentially cutting rates in September is an appropriate one to have. Fed’s Waller did not comment on monetary policy.
• ECB’s Olli Rehn, governor of the Finnish central bank, said that there are no clear signs of a pick-up in the manufacturing sector and industrial production may not be as temporary as assumed. He said that the recent increase in negative growth risks in the Euro area has reinforced the case for a rate cut at the next ECB monetary policy meeting in September. The meeting is scheduled for September 12.

Macro events (times in GMT): US Democratic National Convention (Aug 19-22), Riksbank Announcement exp –0.25% to 3.5% (0730), EZ Final CPI (Jul) exp no change at 2.6% YoY (0900), Canada CPI (Jul) exp 2.5% vs 2.7% prior (1230), API’s weekly crude and fuel stock report (2000)

Earnings events: Coloplast, a European medical technology company, reports FY24 Q3 earnings figures in line with estimates this morning and reiterates its fiscal year guidance seeing 10-11% revenue growth. Palo Alto shares rose 2.8% in the primary session yesterday and another 2% in the extended session as the world’s largest cyber security company reported better-than-expected FY24 Q4 revenue and earnings figures. Palo Alto’s FY25 guidance on revenue was also above consensus estimates and it also guided a strong free cash flow margin of 37-38%.

• Tuesday: Medtronic, Alcon, Lowe’s, Coloplast, Antofagasta, Toll Brothers
• Wednesday: Analog Devices, TJX, Synopsys, Snowflake, Agilent Technologies, Target, ASR Nederland, Aegon, Zoom Video,
• Thursday: Toronto-Dominion Bank, Ross Stores, Intuit, Workday, Swiss Re
• Friday: Dollar Tree, Williams-Sonoma

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

Equities: Volatility remains high in Japan bouncing 2.5% higher today eliminating yesterday’s losses. Futures are pointing to a flat open in Europe and the US. Yesterday, was a quiet session with only Palo Alto seeing significant volume as investors were warming up to its earnings release after the US market close. In Europe, the focus yesterday was on defence stocks impacted negatively by news indicating that Germany is not willing to extend aid for Ukraine beyond what has already been put aside on the federal budget. The market will now focus on Jackson Hole Economic Symposium, PMI figures, and initial jobless claims all scheduled for later this week.

Fixed income: In European sovereign markets, bond yields were mostly stable as investors await the Eurozone’s final July CPI data release, which is coming out today. Pressure is expected on longer-term German bonds due to the Bundesbank's reopening of 2033 and 2050 Bunds today, followed by a reopening of 2024 bonds tomorrow. Meanwhile, the BTP-Bund spread tightened slightly, with Italian yields falling by 2 to 3 basis points across maturities, with the 10-year BTP closing the day at 3.61%. The market anticipates a 25 basis point ECB rate cut next month, totaling 64 basis points by year-end, while in the UK, only a 38 basis point rate cut is expected within the same timeframe. U.S. Treasuries had a mixed session yesterday with the yield curve flattening as longer-term bonds outperformed in the afternoon amid falling oil prices, influenced by geopolitical tensions in the Middle East. The 10-year yield ended the day slightly lower at around 3.865% while 2-year yields rose by 1bps to 4.06%.

Commodities: Gold remains in record-setting form ahead of Powell’s Jackson Hole speech on Friday, holding around USD 2,500 with profit-taking attempts so far being rejected ahead of the 2,475-80 support area. This is despite reports of a potential Gaza cease-fire and fading appetite for gold in China after record prices helped drive a 24% drop in imports last month to a two-year low. Crude extended the biggest drop in two weeks on China demand concerns, and after the US said Israel had accepted a cease-fire proposal, which now also needs to be approved by Hamas to de-escalate Mideast tensions. Weak fuel demand is also weighing with the NY and London diesel futures contracts both trading at a 14-month low. Copper is finding support from signs of a demand recovery in China after exports fell last month, while premiums paid for imports continue to rise and stockpiles monitored by the SHFE have eased from their June peak.

FX: The US dollar extended its decline from Friday, with the dollar index reaching its lowest levels year-to-date as markets positioned for the Fed’s Chair Powell to highlight the case for a September rate cut at the Jackson Hole conference this week. The weaker dollar fuelled gains in Scandinavian currencies from Sweden and Norway, and Sweden’s Riksbank is expected to announce a rate cut today. Kiwi dollar and Australian dollar also rose, but both still remain below their July highs. The euro has, however, found renewed momentum on US dollar weakness, and rose to its highest levels for this year, as British pound tested the psychological 1.30 barrier again. The Japanese yen remains key as well again this week given Bank of Japan governor Ueda will be giving his testimony in parliament to explain the July 31 rate hike decision. The underperformer amid cyclical US dollar weakness was the Canadian dollar, just as we discussed in our Weekly FX Chartbook yesterday.

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