Global Market Quick Take: Europe – 9 August 2024

Key points:

• Equities: Sentiment continues to improve. Focus on Equinor in Europe on rising gas prices
• Currencies: USD is stabilizing amid turbulent week
• Commodities: Headed for first weekly gain in five weeks on rising gas prices
• Fixed Income: U.S. Treasuries decline amid weak jobless claims and weak 30-year bond auction
• Economic data: Italy July CPI

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

In the news: Trump, Harris Agree to Debate as Republican Looks to Shift Race (Bloomberg), S&P 500 futures inch higher after index registers best day since 2022 (CNBC), US, Qatar and Egypt push urgent talks with Israel and Hamas on Aug 15 (Reuters), Perplexity’s popularity surges as AI search start-up takes on Google (FT)

Macro: Global markets breathed a sigh of relief after US weekly jobless claims declined by the most in nearly a year, alleviating some concerns that labor market is cooling too fast following last week’s disappointing jobs report. The weekly figure fell by 17,000 to 233,000 versus 240,000 expected, signalling an economy that at this point at worst is slowing, not contracting. China’s consumer prices rose more than expected in July, largely due to seasonal factors like weather, leaving intact concern over sluggish domestic demand and boosting the case for more policy support. The CPI climbed 0.5% from a year earlier, exceeding the 0.3% estimate. Excluding volatile food and energy costs, core CPI rose 0.4%, the least since January, indicating lingering weakness in overall demand.

Macro events (times in GMT): German July CPI (0600), Norway July CPI (0600), Italy July CPI (0800), Canada July unemployment rate (1230), Weekly COT reports from CFTC and ICE Europe (1900)

Earnings events: Contrary to the reaction in Novo Nordisk shares, Eli Lilly saw its shares rise 10% as its Q2 revenue significantly beat expectations and the US pharmaceutical company lifted its revenue outlook for 2024.

• Today: Constellation Software, Generali

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

Equities: Global equity markets are calming down day by day with another positive session in Asia although the Japanese equity market is still ending the week 2.5% lower. Futures are pointing to a higher open in Europe and currently a flat opening in the US equity market. As we said yesterday, the focus would be on semiconductors, which came true with Nvidia rising 6% and Intel gaining 8%. In yesterday’s positive session, Monster Beverage shares declined 11% as investors are worried about the company’s price hikes. With rising natural gas prices in Europe, focus continues on Europe’s largest gas supplier, Norwegian-based Equinor, which gained 2.7% yesterday.

Fixed income: On Thursday, U.S. Treasuries fell, resulting in a flatter yield curve following a larger-than-expected drop in initial jobless claims. The selloff intensified due to weaker demand in the 30-year bond auction, which resulted in a 3.1 basis point tail, the largest since November 2023. Direct bidders were particularly weak, dropping to 15.5%, the lowest since February.This weak demand was likely influenced by high levels of corporate bond issuance, which added $6.4 billion to the weekly total on Thursday, following Wednesday's record high of nearly $32 billion. By the end of the day, yields had risen by about 8 basis points at the short end and 5 basis points at the long end, with the 2-year yield closing at 4.043% and the 10-year yield at 3.98%.  Bond futures continued to predict a 50 basis point rate cut at the September FOMC meeting. In this environment, European sovereign bonds outperformed their U.S. peers. The focus now shifts towards next week’s U.S. PPI and CPI reports.

Commodities: The sector is heading for its first weekly gain in five, with strong gains in natural gas, crude oil, cocoa and coffee offsetting some weakness in silver, copper and the main grains contracts. As the sentiment-driven crude sell-off eases, traders have turned their attention back to supply risks, not least the Middle East. Gold trades back above USD 2400 as the recent correction was driven by forced reductions following an across-market volatility spike, and not a change in the outlook which in our opinion remains supportive. EU and US natural gas futures are both heading for strong weekly gains, with European prices supported by supply risks while the US contract was supported by a lower-than-expected weekly storage injection of 21 bcf compared with estimates of +25 bcf. Stockpiles totaled 3270 bcf, some 14.9% above the five-year avg.

FX: The dollar trades steady for a second day following a turbulent week where Monday’s at times disorderly rewinding of short yen carry trades and recession angst in the US eventually gave way to a more settled outlook, not least after the BoJ stepped into damage control mode saying that further rate hikes were off the table, so long markets were in turmoil. In addition, as mentioned above, the lowest weekly US jobless claims number in 11 months reduced the risk of an economic contraction, with a sure call for a 50-basis point cut on September 18 being called into question. Overall, the Bloomberg Dollar Index trades down 0.25% on the week with a softer JPY, CHF and GBP being offset by strength in CAD, AUD and MXN, while the euro trades flat on the week.

Volatility: Yesterday, the markets made a strong comeback after better-than-expected jobless claims numbers (233K vs 241K expected). This positive news pushed the VIX, which measures how much volatility or "fear" is in the market, down by 14.58% to 23.79. The S&P 500 and Nasdaq 100 both surged, with the S&P 500 closing up 2.30% and the Nasdaq 100 up 3.06%. Looking ahead to today, the market expects, based on options pricing, the S&P 500 to move about plus or minus 57 points (~ 1.08%) and the Nasdaq 100 plus or minus 266 points (~ 1.45%). Futures are showing slight declines this morning, but nothing too dramatic. There’s no major economic news or earnings reports scheduled for today, so the focus will likely stay on how the market reacts to yesterday's rally. Yesterday's most active stock options were Nvidia, Tesla, Apple, Energy Transfer, Intel, Palantir Technologies, Amazon, Advanced Micro Devices, Meta Platforms, and Robinhood.

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