Global Market Quick Take: Europe – 5 December 2024

Key points

• Equities: US Stock indices hit fresh record highs

• Currencies: USD weaker after ISM Services pushed yields lower. JPY firms overnight.

• Commodities: Crude weakens ahead of OPEC+ decision. Wheat hitting fresh lows

• Fixed Income: Bond markets brace for volatility following France's no-confidence vote

• Macro events: Weekly Jobless Claims

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

Macro data and headlines

• Fed Chair Powell gave little new guidance on the path of monetary policy, but he did speak up about the economy, stating unemployment is still very low and the Fed is making progress on inflation, albeit they are not quite there yet on inflation. This could suggest some caution on rate cuts, and Mary Daly also signaled no urgency to cut rates, and Alberto Musalem noted it may be appropriate to pause rate cuts as soon as this month, but markets were excited about the resilience of the US economy.

• The French government fell after a no-confidence vote, ending PM Michel Barnier’s three-month old administration and pitching the country into a probable period of turbulence. Emmanuel Macron, who isn’t expected to lose his job, is set to address the nation Thursday at 8 p.m. local time.

• US ISM services fell to 52.1 in November from 56.0 and came in significantly below the expected at 55.5. Prices paid ticked marginally higher to 58.2 from 58.1 while business activity dipped to 53.7 from 57.2. New orders (53.7 from 57.4), Employment (51.5 from 53.0), Backlog, and Supplier Deliveries all declined, with the latter falling into contractionary territory.

• US private payrolls were broadly in-line with expectations. Headline ADP printed 146k in November, down from 184k in October but only a notch below the 150k forecast. Pay emetrics saw median change in annual pay for job stayers rise to 4.8% from 4.6%, while for job changers pay increased to 7.2% from 6.2%, indicating some wage pressures. The non-farm payrolls report, up on Friday, will be the next big focus and Saxo’s trading desk has put out a preview here.

• Today: Lululemon, Kroger, Hewlett Packard, Cooper, Ulta Beauty, Dollar General, Veeva Systems, Samsara

• Next week: Oracle, Autozone, Inditex, Lennar, Costco, Adobe, Broadcaom

Equities

• US - All three major U.S. stock indices hit record highs on Wednesday, with the S&P 500 and Nasdaq 100 up 0.6% and 1.2%, and the Dow Jones gaining 303 points to close above 45,000 for the first time.

• Salesforce surged 11.1% on exceeding revenue forecasts and raising guidance. Marvell rose 23% on strong earnings, while Foot Locker dropped 8.6% due to revenue shortfall.

• Germany - DAX closed above 20,230 for the first time on Wednesday, marking a five-day rally. SAP led the gains with a 3.5% increase, supported by Airbus, Siemens, and Allianz, which rose 0.7% to 1.1%.

Fixed Income

Today's bond market spotlight is on France, where the government has collapsed following a vote of no confidence. This development could lead to a further widening of the OAT-Bund spread, potentially reaching 100 basis points, while the BTP-OAT spread may tighten, possibly achieving parity. In the U.S., Treasuries rallied into the close of yesterday's session, with yields falling across the curve, particularly at the front end. Early losses were reversed after weaker-than-expected U.S. ISM Services data, with gains accelerating on dovish remarks from Fed Chair Jerome Powell and a block trade in Ultra 10-year futures. Additional support for long positions came from declining crude oil prices and reduced volatility in dollar rates.

Commodities

• WTI crude oil futures fell 2% to $68.50 ahead of today’s OPEC+ production decision. Meanwhile US production is running at record pace with robust refinery activity causing a strong seasonal rise in US product stocks.

• Gold received a small bid as Powell emphasized cautious monetary policy. Mixed U.S. economic data, including disappointing ADP employment changes, supported cautious investor sentiment. Silver gained 0.9% to $31.30.

• U.S. wheat futures fell to fresh contract lows on Wednesday on sluggish demand for U.S. exports before rebounding on concerns about poor winter crop conditions in top supplier Russia

• The US dollar fell sharply on the surprisingly weak ISM Services reading for November, as US treasury yields also dipped on the data release. Fed Chair Powell’s rhetoric failed to inspire volatility as he touted the strength of the US economy. Odds for a 25-basis point December rate cut shifted higher to about 77%.

• USDJPY fell further and dipped below 150.00 overnight on the USD weakness and US treasury yield drop.

• Australia’s remains weak after rate cut bets picked up on the weak GDP release the prior day, with AUDUSD touching 0.6400 in yesterday’s session before the weak US dollar stemmed losses. That 0.6400 area is near the lowest daily close of 2024. AUDNZD nosed to new local lows.

• EURSEK dipped sharply as short Swedish rates picked up yesterday, possibly on an inflation expectations survey that saw expectations steady.