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The Saxo Quick Take is a short, distilled opinion on financial markets with references to key news and events.
In the news:
Macro:
Macro events: RBA Minutes (June), Australian & Canadian Manufacturing PMI Final (June), EZ Flash CPI (June), Unemployment Rate (May), US JOLTS Job Openings (May). Speakers: Fed's Powell, ECB's Lagarde
Earnings: N/A
Equities: U.S. stocks closed higher as the second half of the year began. The S&P 500 increased by 0.3%, the Dow Jones rose by 0.1%, and the Nasdaq climbed 0.8%, driven by strong performances from tech giants such as Apple (+2.9%), Amazon (+2%), and Microsoft (+2.2%). Nvidia saw a rebound with a 0.6% increase, while other chip makers like AMD (-2.8%) and Arm (-2.9%) experienced declines. Tesla notably surged by 5.9%, and Meta recorded slight gains despite facing regulatory concerns in the EU over its ad-free services model on Instagram and Facebook. CAC 40 climbed 1.1% to close at 7,561 on Monday, after initially surging up to 2.8%. Investors are processing the election results, recognizing that political instability is likely to persist.
Fixed income: U.S. 10-year bond yield hit a 4-week high of 4.48% due to fiscal risk concerns and Fed policy outlook. Anticipation of a Trump presidency and expansionary fiscal policies increased inflation worries. ISM data showed a significant manufacturing contraction and slowing prices. About 65% of the market expects a Fed rate cut in September, with over 60% predicting two or more cuts this year. The yield on the German 10-year Bund increased to 2.57% at the start of July, its highest in over two weeks. Political uncertainty in France contributed to volatility in the European bond market, while investors analyzed recent domestic price data for insights into the ECB’s policy outlook. UK's 10-year Gilt yield climbed to 4.24%, reaching a three-week high ahead of the upcoming parliamentary elections.
Commodities: Oil prices rose due to summer demand expectations and concerns over Middle East conflicts. Brent prices climbed 6% in June, bolstered by OPEC+ extending output cuts until 2025. Additionally, Hurricane Beryl's approach to the Caribbean's Windward Islands could affect oil and gas production and consumption in the Americas. US natural gas futures dropped roughly 5% to a six-week low of $2.47/MMBtu on Monday, driven by higher production, reduced demand forecasts, and an excess of gas in storage. Silver surges more than 1% from its daily low of $28.95 and gold gained 0.22% to above $2,330.
FX: There was a sense of relief in the European markets 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.
For all macro, earnings, and dividend events check Saxo’s calendar.
For a global look at markets – go to Inspiration.
2024: The wasted year
Markets are driven by election optimism, overshadowing growing debt and liquidity concerns. The 2024 elections loom large, but economic fundamentals and debt issues warrant cautious investment.
As US economic slowdown hints at a shift away from exceptionalism, USD faces downside with looming Fed cuts. AUD and NZD set to outperform as their rate cuts lag. JPY gains on carry unwind bets and BOJ pivot.
Amid AI and obesity drug excitement, equities see varied prospects: neutral on overvalued US stocks, negative on Japan due to JPY risks, positive on Europe. European defence stocks gain appeal.
With the economic slowdown, quality assets will gain favour, especially sovereign bonds up to 5 years. Central banks' potential rate cuts in Q2 suggest extending duration, despite policy and inflation concerns.
Commodities poised for rebound. The "Year of the Metal" boosts gold and silver, copper awaits rate cuts. Grains may recover, natural gas stabilises. Gold targets $2,300-$2,500/oz, copper's breakout could signal growth.
