Global Market Quick Take: Europe – 29 July 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: Analysis-BOJ's victory lap on deflation paves way for rate-hike cycle (Investing), Oil Holds Near Six-Week Low with Chinese Demand, OPEC+ in Focus(Bloomberg), Dow Finishes Strong After Terrible Week for Tech. Small-Caps Shine (Barron’s), Kamala Harris raises $200mn in first week of presidential campaign (FT), Israel Hits Hezbollah for Golan Attack But Eyes Gaza Truce (Bloomberg), Yellen Rebuffs Trump Argument on Dollar Hurting US Manufacturing (Bloomberg)

Macro: With political risks receding, investors are refocusing on fundamental economic drivers. US PCE data did not alter the Fed narrative in any meaningful way. Core PCE in June rose by 0.2% M/M, above the prior revised 0.13% and forecast of 0.1%. The Y/Y print rose by 2.6%, matching the prior month pace but above the 2.5% forecast. The annualised metrics saw the 3mth tick down to 2.3% from 2.9%, 6mth rise to 3.4% from 3.3%. Headline numbers were in line with expectations, rising 0.1% M/M and 2.5% Y/Y. The final UoM Consumer Sentiment Survey in July saw headline sentiment revised up to 66.4 from 66.0, despite expectations for this to be left unchanged. The upside was led by a rise in forward looking expectations to 68.8 from 67.2, although current conditions slipped to 62.7 from 64.1. Monetary policy decisions in Japan and the US on Wednesday and the UK on Thursday will take the centre stage this week, after global markets were ravaged by the yen’s recent rally on expectations for the Bank of Japan to hike its key rate while the Bank of England may cut rates for the first time since 2020.

Macro events (times in GMT): Germany May Retail sales (6:00), UK M4 Money Supply for June (08:30), Dallas Fed Manufacturing Business index for July (14:30), Japan unemployment rate (23:30)

Earnings events: Alibaba jumped 5.5% to HK$77.10. A new 0.6% service fee on Taobao and Tmall merchants in September could boost revenue. Potential inclusion in southbound trading could lift the share price.Mitsubishi Motors climbed over 5.8% after Nikkei Asia reported the company's plans to join the Honda-Nissan alliance to standardize in-vehicle software.

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

Equities: US markets experienced an upbeat session on Friday as the S&P 500 rose by 1.1%, the Nasdaq 100 was up 1%, and the Dow climbed 654 points. Investor sentiment was lifted by data showing potential signs of easing inflation, raising the possibility of an interest rate cut in September. The PCE, the Federal Reserve's preferred inflation metric, matched expectations, with the core rate rising slightly by 0.2% against a forecast of 0.2%. All sectors saw gains, led by industrials, notably 3M, which soared 23.1%, reaching a milestone not seen since 1972. Conversely, DexCom plummeted 40% after cutting its sales forecast for the year. Apple, Amazon, Microsoft, and Meta are set to report quarterly results this week, alongside McDonald's, Starbucks, Boeing, Exxon Mobil, and Chevron. Markets are also awaiting the Federal Reserve's policy decision on Wednesday.

Fixed income: U.S. Treasury yields fell on Friday after the June PCE price index showed slower inflation, reinforcing expectations for Fed rate cuts starting in September. The decline was aided by positive technical factors and no upcoming auctions until August 6. Yields hit session lows in the morning and remained down by 3-5 basis points by afternoon. Short-term yields benefited from increased expectations of Fed rate cuts, reducing the 2s10s yield curve inversion and steepening the 5s30s curve. Ten-year U.S. Treasury yields are testing resistance at 4.20%. This week's focus includes the FOMC, BOE, and BOJ meetings, as well as key non-farm payrolls on Friday.

Commodities: The commodities sector is heading for a monthly loss of +4%, bringing the YTD gains in the BCOM Total Return index back to near zero. Traders and investors holding elevated longs have been hurt by the recent loss of risk appetite across equity markets with energy and industrial suffering the most amid ongoing concerns about demand in China. Meanwhile, rising rate cut expectations and multiple geopolitical concerns, including the US election, continues to underpin gold which trades higher on the month, albeit well below the recent record high near USD 2500, Saxo’s yearend target. Crude oil trades higher amid Middle East concerns and after a slump to a six-week low helped attract fresh demand. 

FX: The US dollar trades mixed at the start of a pivotal week with three key central bank meetings ahead from the Federal Reserve to Bank of Japan and Bank of England along with key Mag 7 earnings as well. This is pushing down the low-yielding currencies such as the Japanese yen and the Swiss franc which were the outperformers last week. The Japanese yen faced carry unwinding risks last week, which could be prolonged if the Fed signals a rate cut this week, however BOJ’s inaction could bring back yen weakness.  Sterling is unchanged after ending last week lower, with economists expecting the Bank of England to cut rates this week. Overall, the Bloomberg Dollar index trades down around 1% on the month with gains in JPY (4.7%), GBP, CHF and EUR being only partly offset by losses in AUD and CAD. 

Volatility: On Friday, the VIX decreased to $16.39 (-2.07 | -11.21%). Other related volatility indices (VIX1D, VVIX, SKEW, …) all followed a similar downwards trajectory. During their overnight session VIX futures seemed to continue this decline, having VIX futures at $15.850 (-0.325 | -2.02%) this morning. Expected moves for the week, derived from options pricing, indicate the S&P 500 with an expected move of plus or minus 99.80 points (+/- 1.83%) and the Nasdaq 100 plus or minus 550.78 points (+/- 2.90%). S&P 500 and Nasdaq 100 futures indicate positive sentiment, with S&P 500 futures at 5,526.75 (+27.75 | +0.50%) and Nasdaq 100 futures at 19,325.50 (+151.00 | +0.79%). Markets ended last week on a positive note, with the S&P 500 closing at 5,459.10 (+59.88 | +1.11%) and the Nasdaq 100 ending at 19,023.66 (+193.07 | +1.03%). However, the week itself ended negatively for both indices. This week is expected to be highly volatile with numerous economic reports and one of the most important earnings weeks of the season. Key economic events include the CB Consumer Confidence and JOLTs Job Openings on Tuesday, ADP Nonfarm Employment Change and FOMC Statement on Wednesday, Initial Jobless Claims and ISM Manufacturing PMI on Thursday, and Nonfarm Payrolls and the Unemployment Rate on Friday. For details on this week's significant earnings reports (of which there are many), please refer to the earnings events section above. Friday's top 10 most traded stock options were Nvidia, Tesla, Apple, Advanced Micro Devices, Microsoft, Alphabet (GOOGL), Amazon, Meta Platforms, Ford Motor Company, and Marathon Digital Holdings.

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