Global Market Quick Take: Europe – 28 June 2024

Key points:

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

In the news: Biden has shaky debate showing as Trump repeats falsehoods (CNN), A raspy Biden gets off to a halting start against Trump in the first 2024 presidential election debate (FOX News), Nike stock sinks after company projects larger sales decline than expected in 2025 (Investing), Fed's Bostic expects one rate cut in 2024, as many as four in 2025 (Investing), Core inflation in Japan's capital accelerates in June (Investing), Tesla Stock Nears $200. Why It’s Make or Break Time (Barron’s)

Equities: Positive sentiment ahead of the weekend across all equity markets with futures pointing European equities to open 0.5% higher. Nike shares traded 12% lower in extended trading as revenue for the previous quarter came in lower than estimates and FY25 1H revenue outlook indicated only mid-single digit revenue growth as several headwinds are persisting. Walgreens was also in focus yesterday declining 22% after cutting its fiscal year earnings outlook as the company is facing multiple headwinds and are forced close down stores. The big macro events to watch today are preliminary June CPI figures for France and Italy, and later US May PCE figures (the official inflation gauge used by the Fed).

Macro: The US presidential debate saw Trump make several false claims while Biden stumbled through exchanges, a performance that risks exacerbating concerns about his age and intensifying Democratic worries about their candidate’s ability to defeat Republican Donald Trump in November’s election. US Q1 GDP was revised higher to 1.4% from 1.3%, despite expectations that it will be left unchanged. Consumer Spending was revised down to 1.5% while PCE Prices and core were revised fractionally higher to 3.4%, and 3.7%, respectively. However, Q1 data is now stale, and markets are aware that disinflation trends were interrupted. Focus now is on May PCE that is scheduled to be reported today (preview below). US jobless claims eased slightly to 233k from 239k, beneath the expected 236k, but remains elevated compared to just a month ago. Signals on the US labor market remain mixed and do not spell any urgent need for rate cuts for now. Japan’s Tokyo CPI came in slightly above expectations, especially on the core measures. Headline inflation was at 2.3% YoY for June, as expected and above 2.2% YoY in May. Ex-fresh food inflation jumped higher to 2.1% YoY from 1.9% previously and ex-fresh food and energy rose to 1.8% from 1.7%. This may give room to BOJ to hike rates or reduce bond buying at the July meeting, but it is unlikely to be a respite for the yen. US PCE Preview: Today, the Fed’s preferred inflation gauge, is released and May CPI and PPI suggest that disinflation may be back after being questioned in Q1. Core PCE is expected to soften to 0.1% MoM from 0.2% previously or 2.6% YoY from 2.8% in April. Market expectations are muted but any downside surprise can still bring Fed rate cut expectations forward to September, pushing 2-year yields closer to 4.50% while reducing the recent strong bid. 

Macro events (times in GMT): France CPI (Jun) est. 2.5% vs 2.6% prior (0645), Ger unemployment change (Jun) est. 15k vs 25k prior (0755), US Personal Income & Spending (May) exp 0.4% and 0.3% (1230), US PCE Price Index (May) est. 0% vs 0.3% MoM & 2.6% vs 2.8% YoY, Core PCE est. 0.1% vs 0.2% MoM & 2.6% vs 2.8% (1230), U. of Michigan Sentiment (Jun) est. 66 vs 65.6 prior (1400)

Earnings events: There are no important earnings releases today

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

Fixed income: In the European sovereign bond market, German bonds remained steady yesterday while French government bonds lost ground ahead of Sunday’s first round of voting. The OAT-Bund spread widened to 83 basis points, the highest since 2012 amid the European sovereign crisis. Before the French election, attention is on today's inflation data from Italy, Spain, and France, as well as the U.S. PCE numbers (click here to find out more). Consensus expects a 2.63% year-over-year rise in PCE, the lowest in three years. U.S. Treasuries rose yesterday due to several economic reports. The government revised personal spending downward by half a percentage point, impacting the primary driver of the U.S. economy. Other data showed declines in orders for certain business equipment, weakness in the job market, and a decrease in home buying, which led to a drop in the Atlanta Fed’s GDPNow estimate to 2.7% from 3%. The 7-year note auction saw solid demand and stopped through 0.3 basis points. Ten-year yields closed the day 4 basis points lower at 4.28%, while two-year yields closed at 4.71%. Conviction that the Fed will cut interest rates by the end of the year increased, with bond futures pricing in a 45 basis point rate cut by year-end, up 2 basis points from the previous day.

Commodities: The sector trades close to unchanged on the week with losses across the grains sector, especially corn, being offset by demand for sugar and cotton, primarily driven by funds covering short,while the energy and industrial sectors trades close to unchanged on mixed performances. Gold managed a strong rebound back above USD 2300 as buying interest below remains firm at this point, supported by key data suggesting the Federal Reserve may still cut rates in September. Crude oil trades up on the week but overall remain stuck in the narrowest range since 2021, ahead of the US PCE print and today’s Presidential election in Iran, as Middle East supply concerns outweighed a surprise increase in US stockpiles. 

FX: Ahead of Friday’s key US core PCE print, the broad-focused Bloomberg Dollar index is heading for a sixth consecutive weekly gain, thereby completing a quarter that has seen it rise by around 2%, mostly driven by a 10% slump in the MXN and a 6% drop in the JPY. The EURUSD returned to 1.07 again, with ECB rate cuts hinting that market expectations of about two rate cuts this year seem to be about right. Weekend French elections in focus, and volatility is likely to pick up. Japanese yen remained pegged near recent lows despite intervention threats, with USDJPY at 160.70, AUDJPY testing a break above 107, and GBPJPY rising to 203.40. Swedish krona underperformed as Riksbank signaled three more rate cuts for this year despite other major central banks turning more cautious about further rate cuts this year. USDSEK rose above 200-day moving average at 10.59.

Volatility: The VIX ended Thursday at $12.24 (-0.31 | -2.47%). Short-term volatility indicators showed mixed movements, with the VIX1D at $10.82 (+2.13 | +24.51%) and the VIX9D at $10.49 (-0.02 | -0.19%). The rise in the VIX1D is likely due to the upcoming release of the PCE numbers, one of the Fed's preferred gauges for determining interest rate decisions. Today's economic focus, which will influence market volatility, includes the Core PCE Price Index and the Chicago PMI. VIX futures are currently at $13.750 (-0.010 | -0.06%). S&P 500 and Nasdaq 100 futures are showing positive movements: S&P 500 futures are at 5557.00 (+11.00 | +0.20%) and Nasdaq 100 futures are at 20105.25 (+65.75 | +0.33%). Thursday's top 10 most traded stock options were Nvidia, Amazon, Tesla, Micron Technology, Apple, Rivian Automotive, GameStop, Advanced Micro Devices, Walgreens Boots Alliance, and Palantir Technologies.