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: US employment falls by 818,000 in latest government revision (Yahoo), Fed minutes point to ‘likely’ rate cut coming in September (CNBC), Zoom lifts revenue forecast on growing demand for AI tools used in hybrid work (Yahoo), Ford Is Pulling Back on EV Spending. The Stock Is Rising. (Barron’s)
Macro:
Macro events (times in GMT): US Democratic National Convention (Aug 19-22), Fed's Jackson Hole Economic Policy Symposium (Aug 22- 24), Eurozone PMI (Aug) exp 50.1 vs 50.2 prior, UK PMI (Aug) exp 53 vs 52.8 prior (0830), ECB Minutes from July meeting (1130), US Weekly jobless claims exp. 232k vs 227k (1230), US PMI (Aug) exp 53.2 vs 54.3 prior (1345), EIA’s Weekly Natural gas storage change exp. +23bcf vs –6 bcf prior (1430)
Earnings events: Target shares rose 10% in the primary session yesterday as the US retailer significantly lifted its profit outlook, bolstering the case that the US consumer is not dead yet and it all depends on the items and prices. Snowflake shares fell 8% in extended trading following quarterly results beating on both revenue and earnings. Snowflake’s outlook for the current fiscal year was revised a bit higher, but the market had clearly expected a better outlook given the momentum in AI. For investors in Snowflake the question is whether the adoption of AI is ultimately positive for the company or if the winners on the application side are other companies. Agilent Technologies' shares rose 2% in extended trading after the company slightly hiked its revenue outlook.
For all macro, earnings, and dividend events check Saxo’s calendar.
Equities: Equities are calm about the US BLS survey revision with Asian equities gaining today and futures pointing to a flat open in Europe and the US. Key events coming up are August preliminary PMI figures for the Eurozone, UK, and the US, initial jobless claims in the US, and the begin of the Jackson Hole Economic Symposium. Bavarian Nordic will once again be in focus in the European session as the company just reported its fiscal Q2 results beating estimates with revenue at DKK 1.43bn vs est. DKK 1.18bn, but surprisingly the company, which sits with the only approved Mpox vaccine in the developed world, did not lift its fiscal year revenue outlook providing little information for investors. The hearing aid manufacturer Demant was one of the most traded European stocks yesterday as Morgan Stanley significantly upgraded its view on the stock due to valuation.
Fixed income: U.S. Treasuries rallied after news that U.S. payroll growth was revised down by 818,000 jobs for the year through March, bolstering expectations that the Federal Reserve might begin easing rates as early as September. This shift in sentiment led swap traders to price in approximately 100 basis points of rate cuts for 2024, resulting in a bull steepening of the yield curve, with short-term yields falling more sharply. The 10-year U.S. Treasury yields continue to test support at 3.8%, while 2-year yields closed the day at 3.93%. The market also saw strong demand in a solid 20-year U.S. Treasury auction, which tailed by 0.1bp When Issued but featured a notable increase in direct bidder participation, giving signs of duration extension. The FOMC minutes further reinforced the dovish outlook, revealing that several Fed officials saw a plausible case for rate cuts during their July meeting, with a "vast majority" considering a September move likely due to concerns about a potential deterioration in the labor market. In Europe, the German yield curve also bull steepened, driven by concerns over U.S. economic growth following the significant payroll revision. This led money markets to increase expectations for ECB rate cuts in 2025, pricing in 162 basis points of easing by year-end. In the UK, gilt gains were focused in the mid part of the curve, with 5-year bonds outperforming as traders raised bets on BOE rate cuts, expecting roughly 150 basis points of reductions by the end of 2025. The 10-year Bund closed at 2.18%, around 2bps lower on the day, while Italian, Spanish, French, and Portuguese sovereign bonds outperformed Bunds.
Commodities: Gold trades near USD 2,500 as the risk of consolidation or even a correction looms, with the price action showing signs of exhaustion following the latest rally to fresh records, not least given yesterday’s muted response to weaker US job growth and FOMC minutes almost confirming a September rate cut. Supported by copper and aluminium strength, silver has managed to outperform gold this week but has yet to challenge USD 30. Crude trades near key support as weaker US job growth and China’s slowdown continue to weigh on prices, thereby offsetting a weekly drop in US crude and fuel stocks, and more importantly, the impact of supply cutbacks from OPEC+, which are now likely to abandon plans to increase production from October. US natural gas futures trade lower ahead of a weekly storage report as the end of hot weather demand draws near and stockpiles remain high.
FX: US dollar weakness remains a key theme in the forex markets, as the dollar index continues to trade near a low for the year, after the FOMC minutes made the case for a September rate cut stronger and markets are positioning for Chair Powell to highlight the same at the Jackson Hole conference when he speaks on Friday. We discussed whether this recent US dollar weakness has more to come or is running out of steam in this article. As a result of USD weakness, fresh over one-year highs were seen in the British pound as well as the euro. The drop in Treasury yields also helped the haven currencies strengthen, although Swiss franc outperformed the Japanese yen.
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