Global Market Quick Take: Europe – 2 July 2024

Key points:

• Equities: European equities indicated lower ahead of inflation. Focus on Nike.
• Currencies: Dollar rises as Trump risk lifts US yields
• Commodities: Crude near two-high; natural gas slumps
• Fixed Income: Eurozone preliminary June CPI data are in the spotlight.
• Economic data: Eurozone June CPI, US JOLTS job openings

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

Saxo’s Quarterly Outlook is out and can be accessed here

The title is Sandcastle economics reflecting that the economy and financial markets look pretty with resilient growth and equities at an all-time high. We expect favourable market conditions to continue in Q3, but sandcastles are naturally fragile and thus our clients should be aware of the potential risks lurking around the corners ranging from geopolitics, US election in Q4, unsustainable fiscal trends, and demographics longer term.

In the news: Dollar soars near 38-year yen peak as Trump risk lifts US yields (Reuters), Tesla deliveries set to fall for second straight quarter (Reuters), Salesforce shareholders reject compensation plan for CEO Marc Benioff (CNBC), Iran faces runoff election between reformist and ultra-conservative presidential candidates amid record low turnout (CNBC), China property firms jump after big developers show smaller sales drop (Reuters), Anger mounts at Joe Biden’s inner circle after debate debacle (FT), Hurricane Beryl, the earliest Category 5 Atlantic hurricane on record (CNN)

Equities: European equities were starting yesterday on a positive note after the French first-round election results showed that National Rally was less likely to get an outright majority in the French election. But the positive mood was short and European equities ended the session lower with futures pointing to a lower open again today. The key event today is the Eurozone preliminary June CPI figures expected to indicate 2.8 % YoY vs 2.9 % YoY complicating the picture for the ECB as inflation figures are lagging and forward indicators are suggesting Eurozone growth is picking up. Later in the US session, we get JOLTS job openings which is getting more attention in recent years because of its link to understanding labour market tightness. In the US equity session yesterday, the high-volume stocks were Nike, HCA Healthcare, and Tesla. Nike is stabilising after its brutal decline last week following a weaker than estimated revenue outlook.

Macro: US ISM manufacturing PMI for June saw the headline post a surprise decline to 48.5 from 48.7, beneath the 49.1 forecast. The subcomponents of the report saw prices paid ease to 52.1 from 57.0, taking it to the lowest level in 2024 so far, while employment fell into contractionary territory at 49.3 from 51.1. New Orders rose to 49.3 from 45.4, indicating a further slowdown, albeit at a slower rate than in May. We discussed the broadening of weakness in the US economy in yesterdays Saxo Market Call podcast, and the US JOLTS jobs openings will be key to watch today. Germany’s headline inflation came in lower than expected in June, although core is not reported in the preliminary numbers. Headline inflation was at 2.5% YoY from 2.8% in May, driven by lower fuel costs. Today’s focus turns to Euro-area inflation for June.

Macro events (times in GMT): EC CPI (Jun Prelim) exp 2.5% YoY vs 2.6% prior and core 2.8% vs 2.9% prior (0900), US JOLTS Job Openings (May), exp. 7864k vs 8059k prior (1400), API’s Weekly Crude and Fuel Stock Report (2030).  Speakers: Fed's Powell, ECB's Lagarde (1330)

Earnings events: There are no important earnings releases this week.

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

Fixed income: Sovereign bonds on both sides of the Atlantic tumbled as French centrist and left-wing parties consider joining forces to prevent the rally party from gaining an absolute majority. Traders unwound their safe-haven positions, leading to a roughly 10 basis point spike across tenors, resulting in 10-year Bund yields closing at 2.6%. Interestingly, Italian BTPs outperformed their peers, rising only about 2 basis points, while French government bonds rose by approximately 5 basis points on the day. The outperformance of Italian sovereigns might be due to ongoing fiscal concerns, which will continue to put pressure on sovereign bonds, prompting investors to prefer higher-yielding securities. In the U.S., yields rose as markets weighed the implications of a potential Trump presidency following the U.S. Supreme Court's ruling granting partial immunity from criminal charges, ensuring that a trial won’t occur before the November election. Ten-year Treasury yields rose by 8 basis points in the long end while remaining flat in the short end. Today the focus is on Europe CPI preliminary data, which is expected to come in at 2.8% June from 2.9% in May.

Commodities: Oil prices trade near a two-month high, supported by Middle East tensions, an unusual early start to the Atlantic hurricane season, and summer demand expectations. The 5% rally during the past month has been further fuelled by hedge funds, who according to the latest COT report doubled their net long during a three-week period to June 25. U.S. natural gas futures slumped to a six-week low, driven by higher production, reduced demand forecasts, and an excess of gas in storage. Gold and silver both finding a bid despite rising yields and a stronger dollar on speculation a Trump presidency may add upward pressure to inflation

FX: There was a sense of relief in the European markets on Monday following the first round of French elections, which signaled that Marine Le Pen may not get an absolute majority. The euro rose while the safe-haven currency Swiss franc underperformed. US bond yields rose late in the overnight session with markets considering the possibility of another Trump presidency after last week’s debate and Supreme Court ruling limiting the chance of Trump facing a trial before the November election. The US Dollar rose as a result, while the Japanese yen slipped to record lows once again. The New Zealand dollar and the Australian dollar also slipped, and the latter will be eyeing the minutes from the Reserve Bank of Australia’s June policy meeting where the door for a rate hike was kept open. To read more about our FX view, go to the Weekly FX Chartbook published yesterday.

Volatility: The VIX closed Monday at $12.22 (-0.22 | -1.77%), continuing last week's decline. The SKEW index rose to 145.82 (+4.03 | +2.84%). Today's focus will be on the Fed Chair Powell's speech and JOLTs Job Openings, which are expected to influence market volatility. VIX futures are currently at $13.400 (-0.020 | -0.13%). S&P 500 and Nasdaq 100 futures showed negative movement: S&P 500 futures are at 5527.00 (-6.75 | -0.12%) and Nasdaq 100 futures are at 20010.75 (-41.25 | -0.21%). Monday's top 10 most traded stock options included Nvidia, Tesla, Apple, Amazon, Advanced Micro Devices, Nike, Marathon Digital Holdings, GameStop, Rivian Automotive, and Chewy.