Global Market Quick Take: Europe – 19 December 2024

Global Market Quick Take: Europe – 19 December 2024

Key points

• Equities: Fed hawkish, Dow -10th day, Nasdaq -3.56%, Tesla -8.3%, Micron plunges, small caps hit
• Volatility: VIX surges 74%, S&P 500 moves 1.22%, Nasdaq 1.54%, tech options active, Fed drives uncertainty
• Currencies: The US dollar exploded higher on the “hawkish cut” from the Fed, as US yields surged higher
• Commodities: Precious metals sucker-punched by the surge in US yields, Cocoa posts new record high
• Fixed Income: US treasury yields lifted sharply all along the curve in the wake of the hawkish read of the FOMC meeting
• Macro events: Sweden Riksbank Policy Rate (0830), Norway Norges Bank (0900), UK Bank of England Policy Rate (1200), US Dec. Philly Fed Business Outlook (1330), US Weekly Initial Jobless Claims (1330), US Nov. Existing Home Sales (1500), Japan Nov. National CPI (2330)

The Saxo Quick Take is a short, distilled opinion on financial markets with references to key news and events.

Macro data and headlines

• US FOMC meeting: produced a “hawkish cut” in which the Fed guided for fewer future cuts than the market was expecting it to (only two additional cuts for 2025 were in the Fed’s refreshed “dot plot” of rate projections). The Fed also projected the US unemployment rate a bit lower this year and next, while core PCE inflation was projected much higher for 2025 – to 2.5% YoY vs. 2.2% in September. One hawkish dissent called for no cut to the policy rate at this meeting.
• Bank of Japan: No change to rates as was almost universally expected, with one hawkish dissenter calling for a 25-bp hike. There is a clear sense from the Governor Ueda press conference this morning that the Bank wants a good look at Trump policies and their impact before knowing how to proceed. Ueda also says the inflationary trend Is very slow and mentions the spring wage negotiation round, suggesting we may have to wait longer than the January BoJ meeting for the next hike. At the same time, Ueda mentions monitoring the impact of FX moves, and USDJPY has gone vertical again after this dovish performance, trading north of 156.00 as of this writing, with the press conference ongoing.
• New Zealand Q3 GDP fell 1.5% YoY vs. an estimated drop of 0.4%, showing a country in recession, with the negative revision of Q2 GDP to -1.1% QoQ from -0.2% adding to the gloom and to the pressure on the New Zealand Dollar.

Earnings events

• Today: Fedex, Cintas, Nike, Accenture, Darden Restaurants
• Friday: Carnival

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

Equities

• US: US equities plunged on Wednesday as investors reacted to the Federal Reserve's decision to lower rates by 25 basis points, coupled with a more hawkish-than-expected outlook for 2025. The Dow dropped 1,123 points (-2.58%), marking its 10th straight loss, the longest streak since 1974. The S&P 500 fell 2.95% and the Nasdaq 100 sank 3.56%, its worst day in nearly five months. Tesla led Nasdaq losses, falling 8.3% after a strong rally earlier this month. Micron plummeted 16% in after-hours trading on weak revenue guidance, while Lennar declined 8.8% on soft demand forecasts. Small-cap stocks were particularly hard hit, with the Russell 2000 down 4.4%.
• Europe: European stocks closed higher on Wednesday, trimming two days of losses as markets positioned ahead of the Federal Reserve's decision. The STOXX 50 rose 0.3% to 4,960, while the STOXX 600 gained 0.1% to 514. ASML climbed 2.2%, supported by chip sector resilience, and Renault surged 5.6% on reports of a potential merger with Honda. Financials were mixed, with UniCredit adding over 2% after raising its Commerzbank stake. However, optimism was tempered by expectations of fewer Fed rate cuts in 2025, which could weigh on global growth prospects.
• Asia: Asian stocks tumbled on Thursday following Wall Street’s steep declines. The Hang Seng Index fell 1%, marking its lowest level in two weeks, as tech and consumer sectors retreated. Mainland Chinese markets were also weaker, with the Shanghai Composite down 0.73%, reflecting disappointment over a lack of concrete stimulus measures from Beijing. Japan's Nikkei fell 0.5% after the Bank of Japan left rates unchanged but signaled cautious optimism on inflation. Tech-heavy indices across Asia faced additional pressure as investors locked in profits from recent gains.

Volatility

Fixed Income

• US treasury yields exploded higher all along the curve on the back of the FOMC decision and on the new Fed projections for the economy and Fed policy, rising further during the Fed Chair Powell press conference. The sharp rise took the 2-year benchmark yield close to the significant high in mid-November near 4.38%, while the 10-year benchmark yield rose over 10 basis points and above the critical 4.50%, with the next focus on the 2024 highs just shy of 4.75%.
• Japanese Government bond yields were volatile – gapping higher to open trading overnight but settling lower after the BoJ statement. The first comments from BoJ Governor Ueda at the press conference suggest the bank wants to see the impact from US policy under the incoming Trump administration before deciding on next moves.

Commodities

• Precious metals were sent sharply lower by the hawkish read of the FOMC meeting, with gold falling nearly USD 60 to 2585 at one point before recovering sharply in the Asian session, more than cutting the move in half to 2612 as of this writing. The key chart point to the downside is the November low of 2536. Silver dropped below 30 and below the key twice-touched multi-month low of 29.64 and the 200-day moving average in the same area after the Fed decision.
• Cocoa ripped to a new all-time high yesterday, with the front month contract breaking the prior all-time high established back in April. The March contract settled at USD 12,565 per tonne.

Currencies

• The US dollar ripped higher in the wake of the hawkish read of the FOMC meeting and the market taking US treasury yields sharply higher all along the curve. Further follow-through in USDJPY higher in late Asian trading after the JPY tried to stay resilient pre-BoJ as Ueda sounded hesitant and dovish at the press conference. EURUSD nearly reached the spike lows from late November at 1.0335 before bouncing. Elsewhere, EM currencies and commodity FX were under significant pressure against the mighty greenback. AUDUSD fell below is 2023 low of 0.6270, leaving only the post-pandemic low of 0.6170 as the last chart point of note.
• The NZD was punched to new lows for the cycle against the US dollar after a weak GDP report and revision of the prior quarter’s growth data. NZDUSD traded as low as 0.5608, nearly within a figure of an enormous post-GFC chart point at 0.5500.