Global Market Quick Take: Europe – 7 November 2024

Global Market Quick Take: Europe – 7 November 2024

Macro 3 minutes to read
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Saxo Strategy Team

Key points:

  • Equities: US stocks rallied on Trump’s win, Europe fell, Asia cautious.
  • Volatility: Volatility eased sharply, short-term uncertainty remains due to the Fed decision.
  • Currencies: USD strength has reversed in places ahead of FOMC, GBP firm ahead of Bank of England meeting later today.
  • Commodities: Trump's win boosts dollar, causing copper, silver, gold to drop sharply
  • Fixed Income: US yields ease back ahead of FOMC today. UK gilt yields hit new local highs yesterday ahead of Bank of England today.
  • Macro events: Central bank rate decisions in Sweden, Norway, UK and the US
 The Saxo Quick Take is a short, distilled opinion on financial markets with references to key news and events.


Macro:

  • US Presidential Election - Donald Trump won the US Presidential election, securing at least 295 electoral votes, surpassing the 270 needed, with key victories in the five swing states for which the outcome has been declared (Pennsylvania, Michigan, Wisconsin, Georgia, and North Carolina) and leading in the remaining two of Arizona and Nevada, with the counting not yet finished there. The Republican party regained Senate control and are set for strong control there with up to a 55-45 majority.
  • The House of Representatives control post-election is not yet full clear, but with the last 40 seats yet to be declared is leaning slightly more in favour of narrow Republican control. Republican control of the House is critical for the full Trump agenda, including a pro-business stance through tax cuts, deregulation, and tariffs. The mix could potentially boost economic growth, corporate profits, and inflation.
  • China’s export surged in October to the fastest rate since July 2022, extending a months-long boost to the economy. Exports rose 12.7% from a year earlier to USD 309 billion, while imports fell 2.3% to USD 213 billion, leaving a trade surplus of USD 96 billion, the third-highest month on record
  • Germany’s Chancellor Scholz has called for a rare snap election after dismissing finance minister and FDP head Christian Lindner, who had refused to suspend rules limiting new government borrowing. There will be a mid-January confidence vote, with elections to follow in March (originally set to happen by September of next year).

Macro events (times in GMT):  Swedish Riksbank Rate Decision, exp. -0.5% to 2.75% (0830), Norges Bank Rate Decision, exp unchanged at 4.5% (0900), Euro-area Sept Retail Sales (1000), Bank of England Rate Decision, exp. -0.25% to 4.75% (1200), US Initial Jobless Claims (1330), EIA’s Natural Gas Storage Change (1530), US Federal Reserve FOMC meeting and rate decision, exp. -0.25% to 4.75% (1900).

Earnings events:

  • Today : Arista Networks, Airbnb, Motorola
  • Next week: Home Depot, Alibaba, Cisco, Disney, Applied Materials, Shopify, Spotify, Nu Holdings

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

Equities:

  • US: US markets hit record highs following Trump’s election victory, with the S&P 500 up 2.5%, the Nasdaq gaining 2.7%, and the Dow Jones rising 3.6%. The Russell 2000 small cap index soared 5.8% on hopes that Trump will enjoy Republican control of Congress and pass new corporate tax cuts, which affect smaller companies more than large multi-nationals. Investors are hopeful for pro-business policies, including potential tax cuts, deregulation, and tariffs, seen as stimulants for economic growth and corporate earnings. Financials, energy, and industrials led the rally, with JPMorgan and Wells Fargo jumping 11.5% and 13.5%, respectively. Nvidia climbed 4%, while Tesla soared 14.7%.
  • Europe: European markets showed caution in response to the US election, with the STOXX 50 down 1.5% and the STOXX 600 slipping 0.5%. Concerns over potential US tariffs impacted sentiment, especially in the auto sector, where BMW fell 7% amid a decline in profits. Investors are also watching for any policy shifts that could affect transatlantic trade under Trump’s administration.
  • Asia: Hong Kong’s HSI dropped 2.2% as investors weighed Trump’s victory and the potential for heightened US-China trade tensions. Chinese equities also faced pressure as traders await guidance from China’s National People’s Congress, hoping for more fiscal support measures. Despite gains in US markets, Asian trading was subdued with Chinese stocks cautious over potential impacts from US trade policies.

Volatility: Volatility levels plummeted post-election, with the VIX dropping substantially alongside the VIX1D, indicating reduced near-term uncertainty. However, VIX1D remains around 15 as markets anticipate today’s Federal Reserve decision. The widely expected 0.25% rate cut is priced in, but any deviation could trigger market reactions. Trump-related stocks saw high activity in options markets, signaling continued investor interest in hedging or speculating on policy impacts under his administration.

Fixed Income: US yields eased back lower overnight after jumping higher as the US election rolled in clearly showing a dominant win for Donald Trump. European short yields dipped sharply yesterday, perhaps on anticipation that Trump’s threatened tariffs would hit growth in the Eurozone. Watching German yields specifically today after we are set for a snap election next March after Chancellor Scholz fired the finance minister as bemoaned the need for more fiscal stimulus. Today sees a Bank of England meeting as UK 10-year Gilt yields rose within 15 basis points of the 2023 highs, with much of the recent rise in yields linked to the heavy new spending in the new Labour governments budget.  For a preview of the FOMC meeting later today click here.

Commodities: The post-election reaction in commodities focused on the negative impact of a surging dollar, with markets weighing the potential consequences of Trump’s return to the White House. Among other outcomes, this could lead to a US-China trade war and reduced focus on the energy transition, potentially lowering demand for key commodities. Copper suffered a 5% loss before bouncing overnight, followed by silver and gold—two metals that enjoyed a strong run-up ahead of the election. However, a simultaneous surge in the dollar and yields forced prices through key technical levels, overwhelming a market heavily positioned long. Crude prices held steady, with several opposing forces keeping prices range-bound for now, while natural gas experienced a modest Trump bounce. Overall, attention is now turning to today’s rate decisions, especially from the Federal Reserve.

Currencies: The US dollar stormed stronger on the election results yesterday, but it turned weaker in places late yesterday and overnight, with the Australian dollar even reversing almost all its decline versus the greenback since the election results became known. Sterling is testing its cycle highs versus the euro ahead of today’s Bank of England meeting. USD traders will watch the FOMC meeting tonight for hints on the Fed’s view of policy now that the US election result is known, given a possibly quite new policy environment next year.

For a global look at markets – go to Inspiration.

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