Global Market Quick Take: Europe – 6 September 2024

Key points:

• Equities: Futures pointing to a lower open. Broadcom shares down 7% on outlook.
• Currencies: USD sees renewed pressure ahead of US jobs report
• Commodities: Energy and industrial metals drive weekly loss
• Fixed Income: Government bonds climb following weak ADP data
• Economic data: US jobs report

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

In the news: Markets on tenterhooks ahead of key US jobs data  (Reuters), Broadcom forecasts lukewarm quarterly revenue despite AI chip surge, shares fall (Yahoo), NIO Q2 Earnings: EPS Beat, Deliveries Growth, Strong Q3 Outlook And More (Yahoo), Japan July household spending rises, weaker than expected (Investing), Donald Trump doubles down on his tariff ideas before New York business leaders (Yahoo), Can globalisation survive the US-China rift? (FT's Big Read)

Macro:

• US ISM services saw a small rise to 51.5 from prior and expected 51.4. Looking at the sub-components, employment fell to 50.2 from 51.1 but remained in expansion, with prices paid and new orders lifting to 57.3 (prev. 57.0) and 53.0 (prev. 52.4), while business activity fell to 53.3 from 54.5. Inventories lifted back above 50 to 52.9 (prev. 49.8), while backlog of orders, new exports orders, imports, and inventory sentiment all tumbled. The report continued to highlight that some sections of the US economy continue to be resilient.
• ADP survey labor data sent a dovish signal as national employment fell to 99k in August from the prior (revised lower) 111k, beneath the expected 145k. All attention now turns to payrolls data due today which is likely to be the key determinant of whether the Fed cuts by 50bps or 25bps this month. Saxo’s preview of the payrolls data can be found here.
• US jobless claims (w/e 31st Aug) remained within recent ranges, but slightly dipped to 227k (prev. 232k, exp. 230k), leaving the 4wk average at 230k (prev. 231.75k). Continued claims (w/e 24th Aug) also fell to 1.838mln from 1.860mln, shy of the expected 1.865mln and outside the bottom end of the guidance range.

Macro events (times in GMT): EZ Revised Q2 GDP (0900), US Nonfarm Payrolls (Aug) exp 165k vs 114k prior (1230) – preview here, Canadian Unemployment/Wages (Aug) exp 6.5% vs 6.4% prior (1230), Weekly commitment of traders reports from CFTC and ICE Europe (1930)

Earnings events: Broadcom shares fell 7% in extended trading as the chipmaker Q3 results in line with estimates, but disappointed slightly on its Q4 revenue outlook at $14bn vs est. $14.1bn. Management said it sees the non-AI chip business reaching a bottom now  with bookings up 20% and that AI chips demand remains strong.

• Friday: Puig Brands

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

Equities: Weaker than estimated ADP employment change for August yesterday and slightly disappointing outlook from Broadcom have pushed sentiment lower with futures indicating a lower open in Europe (-0.3%) and the US (-0.2%). Recent weak macro data points have not pushed the market a lot closer to pricing in a 50 bps rate cut this month, so for now the market is staying calm ahead of the US Nonfarm Payrolls figures later today. The biggest mover in US stocks yesterday was McKesson dropping 10% as its fiscal Q2 profit outlook was below estimates. Orsted was one of the more active European stocks yesterday up 3.2% with the utility expected drop more green hydrogen projects.

Fixed income: U.S. Treasuries rose in the morning following weaker-than-expected ADP data, but gains were trimmed after a stronger-than-expected ISM services prices report, causing the yield curve to flatten. Long-end yields dropped by about 4bps, while shorter-term yields ended the day 1bp lower. The 10-year yield settled at 3.725%, down 3bps. Markets are pricing in 110bp Fed rate cuts, with attention now shifting to today’s nonfarm payroll report, where expectations are set at 165k. For a preview on the NFP and what it means for bond markets, click here. In Europe, sovereign bonds advanced, led by German Bunds, especially at the front end of the curve. Traders are anticipating significant ECB rate cuts, with 63bps of easing expected by year-end. The OAT-Bund spread remained stable after Michel Barnier's nomination as France's prime minister. Overall, yields for Bunds, Italian, and French bonds dropped between 1-3bps across the curve.

Commodities: The Bloomberg Commodity Index trades lower on the week amid weakness across energy and industrial metals, two growth-dependent sectors suffering after industrial activity data in the US and China both showed signs of slowing. Crude oil, in particular, has taken a beating after breaking below key technical levels, with China demand concerns, weak global refinery margins, and resumption of supply from Libya all countering an attempt by OPEC+ to support prices as they look set to postpone an October production increase. Ahead of today’s US jobs report, the gold price has risen to near last month’s record levels in anticipation of a weak number supporting a 50-basis-point cut from the FOMC later this month. Iron ore sank to its lowest level since 2022 as China’s main steel industry group advised mills should be cautious about boosting output too quickly. Copper trades down 2% on the week following heavy selling earlier in the week on worries about the prospect of weaker global economic growth dampening demand for industrial metals.

FX: The US dollar slipped further on Thursday amid mixed economic data continuing to put the focus on Fed’s rate cuts. Overall, the greenback is heading for a small weekly loss with gains against the MXN and AUD being offset by losses against GBP, EUR, CHF and not least the JPY which trades up around 2.6% on the week. Markets still remain divided between whether the US economy will achieve a soft landing or a hard landing, the two scenarios we discussed in this article.

Volatility: All eyes are on the Non-Farm Payrolls report today, as it could significantly impact the markets. The report will provide clues about the size of the expected interest rate cut later this month. The market is bracing for volatility, with the expected move for the S&P 500 being up or down 58 points (~1.05%) and the Nasdaq 100 up or down 275 points (~1.45%). These moves are based on option pricing, indicating that the market could swing significantly in either direction. A major sign of this is the VIX1D (1-day volatility), which is up 33.89% to 21.69—higher than both the VIX9D (9-day) and the broader VIX, which closed at 19.90 (down 6.66%). This indicates the market expects large price movements today, especially in the short term. VIX futures have also risen by 2.39% overnight, further signaling that traders are preparing for major market shifts following today’s key data releases, including Non-Farm Payrolls, Average Hourly Earnings, and the Unemployment Rate. Yesterday’s most active stock options were Nvidia, Tesla, Apple, Amazon, Intel, Broadcom, NIO, Dollar Tree, Bank of America, and AMD.

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