Global Market Quick Take: Europe – 9 October 2024

Key points:

• Equities: Futures are pointing to a lower open. Focus on PepsiCo post Q3 earnings.
• Currencies: Dollar holds near seven-week high
• Commodities: Broad losses on fading China stimulus hopes
• Fixed Income: Markets brace for inflation data following Friday’s strong jobs report.
• Economic data: FOMC Minutes (Sep 18 meeting)

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

Saxo’s Q4 Outlook – published on 2 October 2024

• Macro: The US rate cut cycle has begun
• Equities: Will lower rates lift all boats in equities?
• Fixed Income: Bonds hit reset. A new equilibrium emerges
• Forex: USD in limbo amid political and policy jitters
• Commodities: Gold and silver continue to shine bright

Macro

• Australia’s NAB business confidence improved to -2 in September 2024 from -5 in August, driven by retail and personal services, but still below average. Business conditions rose (7 vs. 4), with gains in sales, profitability, and employment. Costs eased, but forward orders remained weak at -5. Capacity utilization rose to 83.1%.
• The Reserve Bank of Australia's minutes highlighted persistent inflation, with the headline CPI for August expected below 3% due to electricity subsidies. The RBA stressed restrictive policies until inflation nears the 2-3% target, despite weak GDP growth and a tight but easing labor market.
• China's NDRC introduced new support measures, including CNY 1 trillion in special sovereign bonds and a CNY 100 billion investment plan, but avoided major stimulus. Authorities aim to revive the economy, especially the property market.
• In the US, the trade deficit narrowed by 10.8% in August to $70.4 billion as exports rose and imports fell, with third-quarter growth estimates at 3.2%.

Macro events (times in GMT): Japan September PPI YoY est. 2.3% vs 2.5% (23:50), EIA’s Weekly Crude and Fuel Stock Report (1430), FOMC Minutes from 18 September meeting (1800)

Earnings events: PepsiCo shares rose 2% yesterday as strong cost controls generated a small beat on earnings despite organic revenue growth was only 1.3% vs est. 3% YoY. The soft drink and snacks company lowered its fiscal year revenue guidance to around zero growth or slightly above down from 4% expected. It is obvious that there is an obesity drug impact on the business demand, but many of these food companies dare not to say it. Instead, they give the blame on geopolitics.

• Today: Aeon, Vantage Towers
• Thursday: Seven & i, Fast Retailing, Domino’s Pizza, Delta Air Lines
• Friday: Tryg, Bank of New York Mellon, JPMorgan Chase, Wells Fargo, Fastenal, BlackRock

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

Equities: This morning, US equity futures are showing slight weakness, with the S&P 500 futures down 0.3%, and the Nasdaq 100 futures off by 0.4%. Despite this, yesterday saw the Magnificent 7 stocks pulling the broader indices higher, with Nvidia gaining 4.1%, helping the Nasdaq close 1.6% up. Taiwan Semiconductor (TSMC) reported a strong 40% YoY increase in September revenue figures, contributing to its impressive 79% year-to-date rise. Rio Tinto announced it would acquire Arcadium for $6.7bn, pushing shares higher. Investors are now eyeing today’s 10-year bond auction and the FOMC meeting minutes later in the day, which are expected to provide more insight into the Fed's next moves.

Volatility: Volatility eased, with the VIX dropping to 21.42 (-5.39%) and VIX9D falling 10% to 18.00. Despite this pullback, VIX futures remain elevated, with the front-month futures around 19.85, signaling that traders expect volatility to persist in the near term. Based on options pricing, expected moves for today are around 28.88 points (0.50%) for the S&P 500 and 141.06 points (0.70%) for the Nasdaq 100. While VIX levels have softened, the combination of elevated VIX futures and market highs suggests caution, with volatility likely to resurface as the earnings season begins later this week.

Fixed Income: The front end of the Treasuries curve led losses, extending Friday's post-payrolls decline as traders adjusted their expectations for the Federal Reserve's policy.  The 2s10s spread has tightened to around 6 basis points, after briefly dipping below zero on Monday with US 10-year yields trading 4.02% and the 2-year at 3.95%. Japanese funds bought a record amount of U.S. sovereign bonds in August, according to Japan's Ministry of Finance data released. With inflation data due later in the week, investors will be watching minutes from the September 18 FOMC meeting.

Commodities: The sector trade sharply lower on Tuesday before a small rebound was seen overnight during the Asian session, with losses being led by energy and metals, both industrial and precious, while the agricultural sector traded mixed. An eagerly awaited press briefing by China’s top economic planners delivered nothing new in terms of providing additional economic support, and China demand dependent commodities from crude oil to copper to iron ore traded sharply lower. The lack of military action from Israel on Monday, and the lack of new measures in China saw crude oil slump by more than 4%, a reminder that without the geopolitical risk premium and China stimulus, Brent would probably trade close to USD 70 than USD 80. Gold traded lower for a fifth day as a deflating risk premium allowed the market to focus on recent US data strength and reduced rate cut expectations.

FX: The dollar has stalled near a seven-week high after the Dollar index measuring the greenback against six currencies recorded a weekly gain of over 2% last week, its largest in two years. This after a strong U.S. jobs data lowered the November rate cut expectation to 25-basis point and geopolitical tensions added a bid. The yen weakened further overnight after Japan's top currency diplomat warned against speculative moves, causing the USDJPY to rise back above 148. Meanwhile, the NZDUSD fell to a seven-week low, dropping below 61 cents, after RBNZ cuts the official cash rate by 50 basis points to 4.75%

For a global look at markets – go to Inspiration.