Global Market Quick Take: Europe – 25 July 2024

Key points:

In the news: China surprises with one-year policy interest rate cut (NikkeiAsia), Netanyahu Vows to Press On in Gaza in Defiant Speech to Congress (Bloomberg), Scholz Clings to Reelection Plan Despite Germany’s Struggles (Bloomberg), ECB scrutinises geopolitical risks for banks after Russia 'lesson' (Reuters).

Macro: Yesterday’s Purchasing Managers' Index (PMI) data for the Eurozone showed a decline in private sector activity, hitting a five-month low in July and raising concerns about the recovery's momentum for the second half of the year. Meanwhile, the US Manufacturing PMI fell to 49.5 from 51.6 in the previous month, indicating a slowdown in manufacturing activity and adding to concerns about the overall economic outlook. Today, the advance US Q2 GDP data will be in the spotlight, with economists expecting the economy to have grown at an annualized pace of 1.9%, up from 1.4% in the first quarter. Additionally, tomorrow’s release of the US PCE data could confirm expectations for a Federal Reserve rate cut in September. Markets remain split between the potential impact of the "Trump Trade" and the possibility of a Democratic White House. To understand how election results have influenced markets in previous elections, click here.

Macro events (times in GMT): German Ifo Business Climate Index (08:00), ECB M3 Money Supply YoY (08:00), U.S. GDP Annualized 2Q 2024, U.S. Personal Consumption, U.S. GDP Price Index, U.S. Initial Jobless Claims, U.S. Durable Goods Orders (12:30), US Treasury sells $44 billion 7-year notes (17:00). ECB’s President Lagarde attends the Paris Summit (15:00).

Earnings events: IBM Q2 adj. EPS USD 2.43 beats 2.19 estimate. Sales USD15.800 bln beat 15.616 lbn estimate. Shares up 3.5% after market. World’s largest gold mining company Newmont Q2 EPS USD0.62 beat 0.62 estimate, sales at 4.402bln vs. 4.116 estimated. Ford Motor EPS 0.47 vs 0.67 estimated, Ford maintaining guidance. Shares down 11% after market. Unilever H1 EPS EUR1.47, sales growth 4.1%, quarterly dividend raised by 3%. Astra Zeneca Q2 total revenue grew 13% to $12.94 billion from last year's $11.42 billion. EPS up 6% at USD1.24, lifts FY2024 outlook. TotalEnergies Q2 net profit slips to USD3.79 bln vs 4.09 last year. Sales fell 4.5%. announces increase in dividends. Nestle net profit of CHF5.644 blnEPS CHF2.16 for first half, compared with CHF5.649 bln or EPS CHF2.13 vs same period last year. Nestle lower expected organic growth from 4 to 3%. Roche H1EPS CHF10.23 vs 10.10 last year. Raises outlook

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

Equities: Tesla closed down 12% after Tuesday’s earning release. Google parent Alphabet minus 5%. Gainers were Health Care and Utilities. Surprisingly Solar companies ended on a positive note. Roku lost 10% after Comcast had announced during their earnings release that they had lost 500,000 paid subscribers leading to investors questioning the future for second-tier streaming (Yahoo Finance)   

Fixed income: On Wednesday, US Treasuries ended the day mixed as the yield curve steepened sharply. Short-term yields fell, influenced by expectations of additional Federal Reserve easing and a call from former New York Fed President Dudley for rate cuts to start soon. Conversely, long-term yields rose during the afternoon, driven by heavy trading volumes and mediocre demand for a 5-year note auction, which tailed When Issued by 1.1bps after a rally into the auction trimmed the yield by 4bps. This divergence significantly widened the gap between short and long-term yields. Elevated corporate bond issuance also contributed to the selloff of the long-end, marking the busiest July since 2017. Looking ahead, key US economic data including Q2 GDP and PCE figures are expected today and tomorrow. These data points will be closely watched as investors adjust their expectations for the upcoming interest rate cutting cycle. If Friday’s PCE data shows that the Fed is nearing its 2% inflation target, the bond market could react positively, potentially pushing 10-year yields below 4.18%. Conversely, if the data does not support this, yields may continue to rise. Additionally, tonight’s $40 billion 7-year US Treasury auction is in focus (for a preview click here).

Commodities: Gold prices fell below $2400 as bond yields rose, with traders awaiting key US economic data published today and tomorrow that could influence the Federal Reserve's interest rate decisions. Oil prices increased after a government report showed a significant drop in US crude inventories, rebounding from recent losses, though the rise was limited by declines in equity markets and concerns about demand in China. WTI closed the day slightly above $77 a barrel. Copper prices continued to decline due to weak Chinese demand and a supply-demand imbalance, dropping nearly 20% from their late May high as global inventories rise and production outpaces demand.

FX: The US dollar had a mixed session on Wednesday as it plunged earlier amid continued gains in the Japanese yen but recovered later amid a risk-off sentiment driven by a plunge in US equities. The risk-off sentiment also drove other safe-havens like the Japanese yen and Swiss franc higher, and the British pound also remained resilient with the UK PMIs coming in stronger than Europe and even the US. Meanwhile, commodity currencies Australian dollar and kiwi dollar continued to plunge as commodity prices retreated due to China’s gloomy economy. The Canadian dollar also weakened after the Bank of Canada’s dovish rate cut. The move in Japanese yen is key to watch, with markets expecting the Fed to tilt dovish next week in contrast to the Bank of Japan likely announcing a rate hike. We discussed the Powell Put and its implication yesterday and the risks of an unwind in yen-funded carry trades today.

Volatility: Market volatility saw a significant uptick. The VIX surged to $18.04 (+3.32 | +22.55%), with the VIX1D spiking to $18.59 (+6.55 | +54.40%) and the VIX9D jumping to $19.79 (+5.18 | +35.46%). VVIX climbed to 106.12 (+17.61 | +19.90%), and the SKEW index slightly declined to 136.84 (-0.16 | -0.12%). VIX futures increased marginally to $17.100 (0.030 | +0.16%) this morning. Expected moves for today, derived from options pricing, indicate the S&P 500 with an expected move of plus or minus 42.9 points (+/- 0.76%) and the Nasdaq 100 plus or minus 224.35 points (+/- 1.16%). S&P 500 and Nasdaq 100 futures resume their downward trend after a calm nightly session, with S&P 500 futures at 5,468.50 (+-3.50 | -0.06%) and Nasdaq 100 futures at 19,191.75 (-11.50 | -0.06%). Yesterday was a rough day in the markets, with the S&P 500 experiencing its largest one-day drop since September 2022, closing at 5,427.13 (-128.61 | -2.31%), and the Nasdaq 100 plummeting to 19,032.39 (-721.95 | -3.65%). Key economic events today include the Durable Goods Orders report, GDP (QoQ) for Q2, and Initial Jobless Claims, all scheduled for 14:30. As markets digest the recent volatility, all eyes will be on next week's earnings to gauge further market direction. Today's top 10 most traded stock options were Nvidia, Tesla, Apple, Advanced Micro Devices, Alphabet (GOOGL), Amazon, Sirius XM Holdings, Palantir Technologies, Meta Platforms, and Taiwan Semiconductor ADR.

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