Global Market Quick Take: Europe – 12 June 2024

Key points:

• Equities: Chinese equities continue lower. Oracle up 10% on strong cloud demand.
• Currencies: Euro weakness amid French political uncertainty
• Commodities: Crude rises ahead of IEA and EIA reports
• Fixed Income: Treasury yields trade lower following solid 10-year auction
• Economic data: US CPI and FOMC Meeting

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

In the news: EU to impose multibillion-euro tariffs on Chinese electric cars (FT), Bond Traders Quick to Abandon Long Wagers Before Fed Meeting, CPI Data (Bloomberg), US to widen sanctions on sale of semiconductor chips to Russia (Reuters), China's inflation steady, maintains pressure for more stimulus to boost demand (Reuters)

Equities: Hong Kong equities are down another 1.3% today extending its decline to 9% from the peak in May as data points continue to suggest weakness in the Chinese economy. Futures are pointing to a slightly higher open in the US and Europe. Apple is the big story in equity markets up 7% yesterday as the company unveiled a partnership with OpenAI to integrate ChatGPT into its products. Oracle shares were up 10% in extended trading on strong demand in its cloud infrastructure. Today’s key event is the US May inflation report that will set direction in global equities and bonds over the next week.

Macro: US CPI and FOMC policy decisions are key events on the market radar today. For a full preview of both, read this article from our Global Market Strategist, Charu Chanana where she outlines the expected market reaction in different scenarios for both the inflation release and the shift in Fed’s dot plot. The market focus is on disinflation progress; April's softer-than-expected inflation raised hopes for rate cuts, but the May CPI print will be crucial in confirming this trend. The Federal Reserve is expected to keep interest rates unchanged at 5.25-5.50%, but the median dot for Fed Funds rate is likely to sift hawkish to reflect two or less rate cuts this year. Chair Powell is, however, likely to balance the narrative in his press conference. UK unemployment rate surged higher to 4.4%, the highest since 2021. Headline employment change also disappointed at -139k for 3M to Apr, while wage pressures remained sticky. China’s CPI rose 0.3% from a year earlier last month while factory prices dropped for the 20^th months in a row, fuelling concerns over persistently weak demand. Core inflation, which strips out volatile food and energy prices, rose 0.6%. The producer price index slid 1.4% in May from a year earlier after a 2.5% decline in April, largely due to rises in commodity prices.

Macro events (times in GMT):  UK Industrial Production (Apr) exp –0.1% MoM & 0.3% YoY vs 0.4% & 0.5% (0600), IEA’s Monthly Oil Market Report (1000) US CPI (May) exp 0.1% (MoM), 0.3% (ex F&E), 3.4% (YoY) vs 0.3%, 0.3% & 3.4% prior (1230), , US EIA’s Weekly Crude and Fuel Stocks report (1430), USDA’s World Agriculture Supply and Demand estimates (1600), FOMC rate decision and news conference (1800)

Earnings events: Today’s key event is Broadcom reporting tonight after the US market close. Analysts expect a huge rebound in revenue up 38% YoY and EPS of $10.80 up 30% YoY driven by growth in AI switching and ASICs in data centres on top of growth in its VMware business.

• Today: Dollarama, Broadcom
• Thursday: Adobe, Halma, Wise

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

Fixed income: Treasury yields dropped further on Tuesday following a solid $39 billion sale of 10-year debt which saw the highest bid-to-cover ratio since February 2022, reflecting market expectations that Wednesday's inflation report could bolster the case for the Fed to cut rates this year.

Commodities: Gold holds above $2300 ahead of US CPI and FOMC meeting, events that may impact the markets view on future rate cuts, and with that the price. Copper trades higher after hitting a seven-week low amid a steady increase in global inventories and weak Chinese demand. Crude oil extended the recent run of gains after the API reported a 2.4 million barrels drop in US crude stocks, and OPEC maintained their positive outlook for 2024 with demand expected to strengthen during in the second half of the year. Focus on EIA’s weekly stock report and monthly Oil Market Report from the IEA. Wheat prices rose 3% on Tuesday, having suffered a nine-session slide of 15%, on renewed worries about crop conditions in Russia. Focus on monthly world supply and demand report from the US Dept of Agriculture.

FX: Political instability from the French snap elections weakened the euro further, boosting the US dollar. EURUSD dropped to 1.0720, as we highlighted in this market note, before a slight recovery ahead of key US inflation data and the Fed announcement today. EURGBP fell below long-standing support at 0.85 to 0.8420, with the pound steady despite mixed UK employment data. GBPUSD trades above 1.27, with markets anticipating a large Labour majority in the July 4 elections. USDJPY stays above 157 despite lower US yields overnight, and USDCHF is attempting to move back to 0.90.

Volatility: The VIX ended yesterday at $12.85 (+0.11 | +0.86%), reflecting a slight increase in market volatility. Short-term volatility indicators showed significant changes, with the VIX1D skyrocketing to 18.10 (+9.84 | +119.13%) and the VIX9D rising slightly to $12.87 (+0.02 | +0.16%). Today's market focus will be on the CPI release before the US market opens and the Fed's interest rate decision at 20:00, followed by a closely watched press conference for any hints on future rate cuts. VIX futures are currently at $14.270 (+0.025 | +0.18%). S&P 500 and Nasdaq 100 futures are showing slight increases, with S&P 500 futures at 5387.00 (+3.00 | +0.06%) and Nasdaq 100 futures at 19257.25 (+15.00 | +0.08%). Yesterday's top 10 most traded stock options were Apple, Nvidia, Tesla, GameStop, Advanced Micro Devices, AMC Entertainment Holdings, Amazon, Palantir Technologies, Oracle, and Marathon Digital Holdings. Notably, Apple led the options volume with 4,306,778 contracts traded, followed by Nvidia and Tesla with significant trading volumes as well.