Key points
- Equities: Broadcom-led tech gains, ECB rate cut impact, China data disappoints
- Volatility: VIX eases, expected moves slightly higher, Fed decision in focus
- Currencies: Sterling weakened sharply Friday – a key reversal? Key event risk this week is Wednesday’s FOMC meeting.
- Commodities: Gold and silver slumps amid dollar and yield surge
- Fixed Income: Inflationary pressures trigger biggest weekly jump in US 10-year yields in 14 months
- Macro events: UK, EZ and US December PMIs
The Saxo Quick Take is a short, distilled opinion on financial markets with references to key news and events.
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Macro data and headlines
- China’s November credit data was underwhelming, signaling little impact from stimulus measures and an urgency to boost private demand. New aggregate financing amounted to 29.4 trillion yuan in Jan-Nov period, below consensus expectation of 29.8 trillion yuan. M2 money supply was at 7.1%, lower than 7.5% in October and expected.
- China's November retail sales unexpectedly weakened to 3%, below the 5% forecast, and undershooting even the most bearish forecasts. Highlighting a sluggish recovery in domestic demand and the urgency in Beijing to support consumers. Industrial production meanwhile increased 5.4%, as forecast, keeping momentum as the manufacturing side of the economy continues to outperform consumer spending.
- There were several ECB speakers on the wires, and most tilted dovish after ECB’s dovish rate cut last week. Villeroy said that more rate cuts are to come, while Kazaks said the direction of rates is clearly down, and the neutral rate is closer to 2% than 3%, noting a significant reduction in rates is still necessary. Escriva said it is logical to have further cuts in coming meetings, while Holzmann said Thursday's decision was good. Vasle stressed a meeting by meeting, data dependent approach, and Centeno said that gradualism is the most important word.
- German Chancellor Olaf Scholz faces a confidence vote on Monday that he intends to lose to trigger a snap election on 23 February, as the economy faces a declining and a narrowing growth potential.
Macro events (times in GMT): France Dec. Flash PMI (0715), Germany Dec. Flash PMI (0730), Eurozone Dec Flash PMI (0900), UK Dec PMI (0930), US Dec PMI (1445), ECB Speakers: Lagarde (0815 & 0830), Simkus (0810), Guindos (0845), Wunsch (1200), Escriva (1230), Schnabel (1630)
Central bank meetings: FOMC (Wednesday), Bank of Japan and Bank of England (Thursday)
Earnings events
- Wednesday: Micron Technology, Lennar
- Thursday: Fedex, Cintas, Nike, Accenture, Darden Restaurants
- Friday: Carnival
For all macro, earnings, and dividend events check Saxo’s calendar.
Equities
- US: US equities ended Friday mixed as the Dow fell 0.2%, marking its seventh straight loss (-86 points), while the Nasdaq 100 rose 0.76%, buoyed by a 24% surge in Broadcom shares after strong earnings momentum. The S&P 500 was flat at 6,051.09, with tech leading gains while communication services lagged. Palantir, MicroStrategy, and Axon Enterprise will join the Nasdaq 100 on December 23, replacing Moderna, Super Micro Computer, and Illumina, adding focus on these names ahead of reshuffling. Investors remain cautious ahead of this week’s Federal Reserve decision, where a 25bps rate cut is largely priced in.
- Europe: European stocks extended losses on Friday, with the Stoxx 600 slipping 0.6% to 516.46 and the Stoxx 50 flat at 4,967.94. Sentiment remained fragile as markets digested the ECB’s recent rate cut and downward revisions to growth forecasts. French assets faced pressure amid political uncertainties, while President Macron nominated Francois Bayrou as the new prime minister. Sector-wise, insurers rebounded with Allianz and Munich Re posting gains, while consumer staples and industrials, including LVMH and Siemens, fell over 1%. Traders remain focused on potential easing cues and this week’s economic updates.
- Asia: Asian markets started the week lower as weak Chinese retail sales data dampened sentiment. The Hang Seng Index fell 0.8% to 19,856.91, weighed down by property and consumer sectors, while the Shanghai Composite erased early gains to end marginally lower (-0.1%). Retail sales growth slowed to 3.3% in November, missing forecasts and reinforcing concerns about China’s uneven recovery. Japan’s Nikkei edged down 0.18% as markets awaited guidance from this week’s Bank of Japan meeting. Despite cautious sentiment, Chinese industrial production met expectations, suggesting some resilience amid lingering economic uncertainty.
Volatility
Volatility eased slightly, with the VIX slipping 0.79% to 13.81, reflecting a quieter market tone ahead of central bank meetings. Expected weekly moves for the S&P 500 stand at 59.31 points (~0.98%) and for the Nasdaq 100 at 295.52 points (~1.36%), both slightly higher than last week, indicating modestly elevated uncertainty. Options activity remains focused on AI-driven names, with Nvidia, Tesla, and Palantir leading volumes, supported by strong momentum and upcoming index reshuffling.
Fixed Income
US Treasury yields traded a tad softer in early Monday trading following their worst week in more than a year, one that saw 10-year yields spike 24 basis points to 4.4% and the rates sensitive 2-year rising 14 basis points to 4.24%, leading to a 10 basis points bear steepening of the yield curve. Breakeven inflation rates for TIPS rose, supported by a sign of sticky and rebounding inflation. This week, the Treasury will issue a $13 billion 20-year reopening on Tuesday.
Commodities
- Gold and silver fell sharply on Friday, giving back earlier gains amid pressure from end-of-year profit-taking triggered by a six-day rally in both the USD and US Treasury yields, the latter seeing long-end yields rising by the most in 14 months.
- Crude oil futures steadied in Asia on a weak China outlook after rising around 5% last week on fresh momentum and short-covering buying as the US signalled tighter sanctions on Russian and Iranian crude, and China pledged economic support.
- EU natural gas futures slumped 11% last week after the emergence of milder weather helped soften demand for heating fuels, thereby easing concerns over supply risks. Selling from speculators, who have been seen as recent strong buyers, also added to the negative price development.
Currencies
- The US dollar traded mixed even as US treasury yields rushed higher. USDJPY rose on the rise in yields, while GBPUSD fell, but EURUSD closed last week slightly firmer as 1.0500 has proven a sticking point.
- Sterling weakened sharply early Friday, kicking off a move that lasted all day and took EURGBP all the way back above 0.8300 after the pair had been close to eyeing the post-Brexit lows closer to 0.8200. This could mean we have a key reversal in place in the pair unless the Bank of England can deliver a supportive surprise on Thursday. The UK sees important data released all week, starting with Flash December PMIs later this morning and following with Earnings, employment and claims data tomorrow and CPI on Wednesday.
- Focus this week on the five G10 central banks meeting, all within 24 hours of each other and kicking off with the FOMC on Wednesday, which is seen likely to produce a 25 basis point cut, but uncertainty on the degree to which the Fed will adjust its forward guidance as much as the market has shifted since the September Fed projections on policy
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