Global Market Quick Take: Europe – 7 August 2024

Key points:

• Equities: Futures pointing to a higher open in Europe. Novo Nordisk cuts guidance
• Currencies: USD strength continues as BOJ’s Uchida calms markets on rate outlook
• Commodities: Brent crude continues to consolidate with support around $75/brl
• Fixed Income: Bond market sell-off sparks largest yield increases in months
• Economic data: EIA’s Weekly Crude and Fuel Stock Report

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

In the news: BOJ Sends Dovish Signal After Rate Hike Sparked Market Meltdown (Yahoo), Super Micro current quarter guidance tops estimates, but Q1 earnings fall short (Investing), Airbnb Plunges After Soft Outlook Signals Slowing US Demand (Bloomberg), China's exports growth slows to 3-month low in July, but imports up solidly (Reuters)

Macro: The Reserve Bank of Australia (RBA) delivered a hawkish hold at its August 6 meeting. The cash rate was kept unchanged at 4.35%, as expected, but there was an emphasis on upside risks to inflation. While markets have removed the odds of another rate hike from the RBA after the softer Q2 CPI last week, there were no clear signals from the meeting for the markets to start considering rate cuts. To read our analysis further on the RBA decision and what this means for the AUD, go to this article titled ‘AUD: Hard to Buy in RBA’s Hawkishness’. New Zealand’s Q2 labor market report came in slightly hotter-than-expected. Jobless rate rose less than forecast to 4.6% (vs. 4.7% exp) from a upward revised 4.4% in Q1. Employment rose 0.4% from the previous three months, beating an estimated 0.2% decline, while annual wage inflation slowed for a fifth straight quarter. This reduces the odds of an RBNZ rate cut next week, which is now 60% priced in. China’s July trade surplus narrowed to $84.65 bn, compared with $99 bn forecast and $99.05 bn in June after imports grew the most in three months and exports growth slowed to a three-month low. While the surge in imports may suggest some strength in domestic demand, the decelerating exports suggest cooling global demand, which has been a bright spot for the economy.

Macro events (times in GMT): German June Industrial Production (0600), EIA’s Weekly Crude and Fuel Stock Report (1430)

Earnings events: Novo Nordisk has reported Q2 results this morning with most drugs disappointing relative to estimates suggesting expectations had been too high going into Q2. Novo Nordisk is cutting its fiscal year guidance as supply expansion remains a key bottleneck for Europe’s most valuable company. While the big US technology earnings created uncertainty over AI, the earnings from Palantir bolstered AI sentiment again and last night Super Micro Computer (SMC) reported FY24 Q4 (ending 30 June) results in line with estimates, FY25 (ending 30 June 2025) revenue outlook was significantly above consensus. However, investors did not believe SMC’s outlook and sent shares down 12% in extended trading. Caterpillar, a good barometer on the economy, delivered better than expected earnings and outlook yesterday which gives us comfort that the global economy is still not close to rolling into a recession. Fortinet, the world’s second largest cyber security company, beat expectations yesterday and lifted its revenue outlook pushing shares almost 10% higher in extended trading. Airbnb saw its shares decline on soft demand outlook suggesting consumers are holding back a bit on leisure activities.

• Today: DBS Group, NTT, Novo Nordisk, Sony, SoftBank Group, McKesson, Walt Disney, CVS Health, Shopify, Nutrien, Maersk, Sampo, Siemens Energy, Glencore, Ahold Delhaize, Rockwell Automation, Monster Beverage
• Thursday: Kweichow Moutai, China Mobile, China Telecom, Zurich Insurance, Siemens, Allianz, Recruit, Tokyo Electron, Brookfield, Gilead Sciences, Eli Lilly, Deutsche Telekom, Parker-Hannifin, Genmab, Rheinmetall, Datadog
• Friday: Constellation Software, Generali

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

Equities: Japanese equities continue to rebound 1.2% today eliminating most of the decline from this Monday. Other markets in Asia are up today and futures in Europe and the US are pointing to a higher open with European equities guided 0.8% higher and US equities 0.6% higher. The macro calendar is light today so focus evolve around the key earnings releases in the US from yesterday (see earnings events section above) and earnings today from Novo Nordisk and Maersk in the European session.

Fixed income: On Tuesday, the bond market saw a significant sell-off, resulting in the largest yield increase across Treasury tenors since early summer. The yield on the 2-year Treasury rose to 3.983% from 3.883%, while the 10-year Treasury yield increased to 3.887% from 3.783%. The 30-year Treasury yield climbed to 4.177% from 4.071%. This shift in market sentiment from Monday was driven by data indicating the resilience of the U.S. economy despite a weakening labour market. On Monday, ISM services numbers together with PMI data came stronger than expected, on Tuesday, data showed that the U.S. trade deficit fell by 2.5% in June, bolstering positive sentiment. Additionally, a $58 billion auction of 3-year notes saw solid demand, with indirect bidders at 64.4%, consistent with the previous three months. In the meantime, the Fed RRP facility dropped below $300 billion to the lowest since May 2021 amid solid T-bill issuance. Attention now turns to consumer credit data and the 10-year U.S. Treasury auction, which will test investor demand amid the recent drop in yields.

Commodities: Crude oil tries to consolidate after slumping to a seven-month low, with support in Brent around $75 continuing to hold amid ongoing supply concerns and market recovery. Heightened fears of supply disruptions stem from escalating Middle East tensions, particularly Iran’s threats against Israel and the US. Additionally, production at Libya’s Sharara oilfield has been reduced due to protests. Ahead of EIA’s weekly stock report, the API reported a marginal change in crude and a large increase in fuel stockpiles. Gold trades steady below $2400 with focus on wider market developments, not least the direction of the yen and the dollar in general. France is forecast to produce its lowest wheat crop since 1983 due to excessive rain in the EU top grower, but ample supplies from other regions continue to keep the crop under pressure, trading near a four-year low.

FX: The US dollar trades higher for a second day, not least supported by a 2% drop in the yen after BoJ’s Deputy Governor Uchida saved the day, and those still holding carry trades, by saying the central bank wouldn’t hike interest rates when the markets are so volatile. USDJPY almost hit 148, reversing much of the post-NFP decline since Friday but still below 150+ levels it traded at before the BOJ meeting last week. The AUD budged the stronger dollar trend, trading higher for a second day after the RBA kept interest rates at a 12-year high and all-but ruled out a rate cut in the next six months on continued inflation risks. In Europe the British pound trades near a one-month low while the euro has returned to 1.09 after failing to break above 1.10 earlier in the week. Meanwhile the CAD awaits BOC minutes while the Kiwi was an outperformer today following good employment data

Volatility: After a record-breaking intraday spike on Monday where the VIX surged to $65.73, the highest since the COVID crash, the market showed signs of stabilization yesterday. The VIX closed at $27.71, down 28.16% from the previous day. The VIX1D and VIX9D also saw significant drops, reflecting the short-term easing of volatility. The VVIX remains elevated at 150.09, signaling continued uncertainty in the market. The SPX Put/Call Ratio dropped back to 1.55 (-42.80%), indicating that there are still a lot more puts traded than calls. The S&P 500 and Nasdaq 100 futures rebounded overnight, indicating a potential positive opening today, although high volatility persists, suggesting caution. VIX futures declined to $22.950 (-2.820 | -10.94%), suggesting a potential reduction in expected future volatility. The S&P 500 futures rose to 5,306.50 (+40.25 | +0.76%) and Nasdaq 100 futures increased to 18,352.00 (+173.00 | +0.95%). Expected moves for today, derived from options pricing, are 64.25 points (+/- 1.23%) for the S&P 500 and 300.68 points (+/- 1.66%) for the Nasdaq 100, down from yesterday (SPX: 1.70%, NDX: 2.22%). Notable earnings today include Walt Disney, which is set to report before the bell. Today's key economic event is the 10-Year Note Auction at 19:00 GMT.

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