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: Stocks tiptoe towards US manufacturing, jobs data (Reuters), Volkswagen considers historic German plant closures in cost drive (Reuters), Nvidia's Huang trying to make the chipmaker a one-stop shop for data centers- WSJ (Investing), Intel CEO to pitch board on plans to cut costs, sell chip unit – Reuters (Yahoo), Tesla's China-made EV sales in August up 3% yr/yr (Yahoo)
Macro: It has been a quiet start to the week, but things will change already today with ISM Manufacturing for August before everything is about the US labour market with JOLTS job openings, ADP employment change, and Nonfarm Payrolls the following three days.
Macro events (times in GMT): US Manufacturing PMI (Aug final) exp 48.1 vs 48 prior (1345), US ISM Manufacturing (Aug) exp 47.5 vs 46.8 prior (1400), US ISM Prices Paid (Aug) exp 52.3 vs 52.9 prior (1400).
Earnings events: Today’s key earnings release to watch is Zscaler, an US-based cyber security company, reporting after the US market close with analysts expecting revenue growth of 25% YoY and its second quarter of positive operating income. Cyber security companies have reported strong in Q2 and the outlook remains very positive driven by the current geopolitical trajectory.
For all macro, earnings, and dividend events check Saxo’s calendar.
Equities: Yesterday’s session was quiet due to national holiday in the US and the low volume session has continued in Asia overnight. Futures are pointing to a flat opening in Europe and a slightly lower open in the US. Looking back over the past week the worst performing stocks have been growth while the best performing segments have been quality and low volatility stocks reflecting investors preferences for “safe-haven” stocks. Sanofi was in focus yesterday with high volume and shares up 3.6% as a multiple sclerosis drug cleared key study objectives. Volkswagen was also in focus as the German carmaker unveiled a plan yesterday to close its first ever car factory in Germany in what could become a key battle with unions. The move underscores the increased competition in car manufacturing and the current weak demand.
Fixed income: European bonds tumbled on Monday as investors brace for new debt issuance and adjust rate cut expectations. German Bunds underperformed peers as investors made space for €2 billion in 10-year ESM debt and anticipated additional bond sales from Austria and Germany this week. This led to a slight reduction in market expectations for ECB rate cuts by year-end. Markets are now pricing 60bps rate cuts from the ECB by the end of the year, the least since July 31st. The 10-year Bund yield rose by 3.7 basis points to 2.33%, while Italian BTPs outperformed peers, ending the day unchanged. Meanwhile, UK Gilts declined ahead of today’s £6 billion syndication of 2040 Gilts. Ten-year Gilt yields rose by 3.8bps to 4.05%. The U.S. Treasury market was closed yesterday for Labor Day. The big event is the U.S. Nonfarm payrolls on Friday, but before that the focus will be on the US ISM Manufacturing index today.
Commodities: Crude oil edged higher after Libya declared force majeure at a key oil field, exacerbating shutdowns that have reduced production by nearly one million barrels a day. However, gains were capped by the potential for an OPEC+ production increase in October and weak economic data from China, which also pressured industrial metals, with copper trading at a two-week low around USD 4.16/lb. Iron ore futures fell back below USD100/t following further evidence of weak demand in China where the ongoing contraction in factory activity was joined by a deepening slump in the property sector. EU gas remains below EUR 40 amid rising stockpiles, while the volume of LNG idling on 55 ships at sea has surged to a two-month high of 4 million tons. Gold dipped back below USD 2500, yet the lack of profit-taking underscores its resilience. Nonetheless, seasonal weakness in September and a fully priced US rate cut could skew the short-term outlook to the downside, with support around USD 2475. How speculators are positioned across key commodities, you can read more about in our weekly COT update
FX: Thin trading session with US and Canada closed for Labour day on Monday saw US dollar trading sideways. The Japanese yen underperformed, slipping over 0.5% against the US dollar and 0.9% against the Australian dollar as focus remains on US labor data this week, starting with the ISM manufacturing print today that comes with an employment sub-index. After outperforming on Monday, the Australian dollar fell back overnight amid China-driven falls in iron ore futures and after a key component for Wednesday’s 2Q GDP fell short of forecasts. The euro was slightly higher and ECB’s Nagel will be on the wires today. His comments from last week highlighted that he is not in favour of ECB reducing rates too quickly as 2% inflation goal is not yet reached. Swiss CPI and GDP are also on the radar today, and the weakness in franc could remain short-lived given that it is a haven currency needed for diversification in portfolios amid the recent uncertainties. To read more about what’s key in the macro and FX space this week, read our Weekly FX Chartbook
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