Macro: Sandcastle economics
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Summary: Both the S&P 500 and the Nasdaq 100 reached new highs, closing at 4,928 and 17,596, respectively. Consumer discretionary stocks outperformed, with Tesla rising over 4%. Microsoft and Alphabet are set to release their quarterly earnings reports today. The 10-year yield dropped to 4.07%, following the Treasury Department's announcement of smaller-than-expected funding needs. The dollar started to weaken, edging higher on escalating geopolitical concerns, but gains were cut short by the drop in yields. Oil prices dropped slightly overnight as Iran denied having anything to do with the weekend attack on a U.S. base in Jordan. In Hong Kong, China Evergrande Group entered into the winding-up process.
The Saxo Quick Take is a short, distilled opinion on financial markets with references to key news and events.
US Equities: Both the S&P 500 and the Nasdaq 100 reached new highs, rising 0.8% and 1% to close at 4,928 and 17,596, respectively. Among the 11 S&P 500 sectors, consumer discretionary led the market benchmark's advance, with Tesla and Carnival rising over 4%. Microsoft and Alphabet are set to release their quarterly earnings reports today after the market closes.
Riding the wave of the technology investment boom, Microsoft is anticipated to reveal a quarterly revenue of $61.1 billion, reflecting a 16% Y/Y increase, with an EBITDA of $30.7 billion, up from $25.9 billion a year ago. Key focal points for Microsoft's results include monitoring the growth of Azure revenue (consensus is at 27% in constant currency), insights into the outlook, comments on the expansion of AI workloads, and additional details on the Activision Blizzard acquisition that concluded on October 13.
Alphabet is expected to sustain its robust revenue growth momentum. The combination of higher revenue growth and cost reduction is projected to elevate EBITDA to $33.8 billion, reflecting a 44.4% Y/Y growth. Positive dynamics surrounding Alphabet's YouTube business are anticipated, and investors will be keenly observing cloud and AI figures, with a prevailing sentiment that Google may be experiencing a slight deceleration in comparison to Microsoft.
Overall, we are positive on earnings growth. For a comprehensive preview of this week's significant earnings releases, please refer to Peter Garnry's article.
Fixed income: Yields across the Treasury yield curve declined, with the 2-year yield falling by 3bps to 4.3% and the 10-year yield dropping by 6bps to 4.07%, following the Treasury Department's announcement of smaller-than-expected funding needs for Q1 and Q2.
China/HK Equities:The Hang Seng Index rebounded 0.8% while the CSI300 Index slid 0.9%. China bans strategic investors and key shareholders under lock-up or restrictions from lending their stock, aiming at limiting shares available to short-sellers as well as stopping key investors from effectively unloading restricted shares. Meanwhile, a Hong Kong High Court granted an order to creditors to wind up China Evergrande Group. WuXi AppTec extended losses, tumbling 10.6% amid the overhang of US legislation against China biotech companies. Beer brewers gained in share prices, led by Budweiser which surged 6.6% after its CEO delivered an upbeat message about business in China in an interview with the state-owned Xinhua News.
After the market close on Monday, China’s State-owned Asset Supervision and Administration Commission (SASAC) announced the implementation of making market capitalisation management one of the performance indicators in the evaluation of the management of state-owned enterprises which are publicly listed. This is a confirmation of the implementation timeline for the initiative introduced in a State Council press conference last Wednesday. The news may lend support to the share prices of the central state-owned enterprises in the near term.
FX: The dollar started to week edging higher on escalating geopolitical concerns, but gains were cut short with the drop in yields following the Treasury refunding announcement. NZDUSD jumped higher but was capped by resistance at 0.6150, AUDUSD also broke above 0.66 touching the top of the recent range. Yen also had reasons to cheer with the drop in yields, and USDJPY dropped to 147.26 lows. GBPUSD was still stuck around 1.27 and EUR could not gain despite the weaker USD, with EURUSD testing 1.08 but reversing slightly to 1.0830-levels subsequently. 100DMA at 1.0779 coming in focus with GDP data on tap today, as well as US JOLTS job openings. For more details on FX momentum and positioning, as well as our weekly FX views, read this article.
Commodities: Having touched the top end of its recent range, oil prices dropped slightly overnight as Iran denied having anything to do with the weekend attack on a U.S. base in Jordan. Tensions are however likely to keep oil traders on edge with market chatter hinting that Biden could be expected to authorize US military strikes in mid-East in the US evening today. However, the Biden administration may remain cautious of an oil price spike ahead of the US elections this year, and could probably choose sanctions over a military response with plenty of space capacity available from GCC members. Read our weekly COT report here for more details. Metals rallied with Gold and Silver particularly liking the drop in yields.
Macro:
Macro events: German Flash GDP (Q4), EZ Flash GDP (Q4), EZ Consumer Confidence Final (Dec), US Home Prices (Nov), JOLTS (Dec)
Earnings: Microsoft, Alphabet (Google), AMD, Starbucks, Chubb, Danaher, Pfizer, UPS, Volvo, Stryker, Mondelez
In the news:
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