Global Market Quick Take: Europe – 4 September 2024

Key points:

• Equities: 2% decline in S&P 500 on Nvidia antitrust subpoena and weak ISM Manufacturing
• Currencies: Yen catching a fresh bid; Weak growth weakens the Aussie dollar
• Commodities: Crude slumps on growth concerns and restored supply
• Fixed Income: Yields fall as oil drops, stocks decline, and weak U.S. data fuels bond rally
• Economic data: US JOLTS job openings and factory orders

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

In the news: Nvidia loses $279B after selloff; DoJ steps up antitrust probe into chipmaker (Investing), Stocks battered, oil slides as growth concerns resurface (Reuters), Goldman Sees US GDP Hit If Trump Wins, Boost If Democrats Sweep (Bloomberg), Chinese EV Makers Suffer Setback in Europe as Tariffs Start (Bloomberg), Novo’s Ozempic shortage is getting worse (Quartz), Everything to know about Elon Musk's feud with Brazil's Supreme Court (Quartz)

Macro:

• US ISM Manufacturing PMI for August rose to 47.2 from 46.8 but was shy of the expected 47.5. With the current focus of the Fed and market participants on the labour market, the employment sub-index (ahead of payrolls on Friday) rebounded to 46.0 from 43.4. Prices paid rose to 54.0 (exp. 52.5, prev. 52.9), while new orders dipped to 44.6 from 47.4.
• Bank of Canada preview: The Bank of Canada (BoC) is expected to cut rates by 25 basis points at its meeting on Wednesday. While Q2 GDP growth exceeded expectations at 2.1% annualized (compared to the 1.8% forecast and the central bank's 1.5% projection), the details were less encouraging. Meanwhile, labour market cracks are widening and continues to pose hard-landing risks to the Canadian economy. This could BOC to cut rates again, especially with the comfort also around the Fed starting its easing cycle this month. The market sees a 20% chance of a surprise 50bps cut.
• Australia’s Q2 GDP rose 0.2% from the previous quarter and 1% from a year earlier as economic weakness persisted as consumers hunkered down in the face of elevated borrowing costs and stubbornly sticky inflation, while export revenues declined as the price of iron ore and coal both fell. Excluding the Covid-19 pandemic period, the 1.5% annualised growth rate was the lowest since 1991-92

Macro events (times in GMT):  Eurozone Composite PMI (Aug final) exp. unchanged at 51.2 (0800), UK Composite PMI (Aug final) exp. unchanged at 53.4 (0830), Eurozone PPI (Jul) exp –2.5% YoY vs –3.2% prior (0900), Bank of Canada Rates Decision exp. -0.25% to 4.25% (1345), US JOLTS Job Openings (Jul) exp 8100k vs 8184k (1400), US Factory Orders (Jul) exp 4.7 vs –3.3% prior (1400), US Federal Reserve Beige Book (1800), API’s (delayed by a day) Weekly Crude & Fuel Stock Report (2000)

Earnings events: Zscaler shares declined 15% in extended trading as the company issued a profit outlook for the FY25 that was below consensus estimates despite its revenue outlook hit expectations. For macro investors today’s earnings release from Dollar Tree can give insights into the US consumer economy as low-cost retailers thrive relatively under income uncertainty and a weaker economy.

• Today: Vantage Towers, Copart, Alimentation Couche-Tard, HP Enterprise, Casey’s General Stores, Dick’s Sporting Goods, Dollar Tree, Hormel Foods
• Thursday: Sun Hung Kai Properties, CVC Capital Partners, BNP Paribas Fortis, Sekisui House, Broadcom, Samsara, Guidewire Software, DocuSign, BioMerieux
• Friday: Puig Brands

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

Equities: US equities declined 2.1% yesterday driven by Nvidia shares down 9.5% which interestingly happened with usual volume potentially indicating that the move was driven more by retail investors than institutional investors. ISM manufacturing new orders yesterday were also very weak adding to the negative sentiment. The move in Nvidia shares was driven by the US Department of Justice issuing a subpoena in a growing antitrust case against the semiconductor company. Historically, the number of antitrust cases has gone down over the years as they often prove difficult to win for governments and recent antitrust cases against Google and Apple have shown investors that they often do not detail the long-term growth of these companies. The biggest volume stock relative to normal trading session was Boeing seeing its shares down 7.3% as Wells Fargo issued a negative view on the company saying no upside with the key risk being more equity capital needed in the years to come which could dilute shareholders further.

Fixed income: Falling oil prices, a stock market downturn, and softer-than-expected U.S. PMI and ISM data drove yields down by 4-7 basis points across the curve, with the long end leading the gains and further flattening the yield curve. The 10-year yield dropped by 6 basis points, closing around 3.84%, in line with similar moves in European peers. European sovereign bonds saw a strong rally, with German 10-year yields falling by 6 basis points to 2.28%. This decline was fueled by lower oil prices, which eased inflation expectations, and robust demand for duration in the primary bond markets. Austria successfully issued €550 million of its 2086 bonds after a failed attempt last week, while the UK saw strong demand for its new 2040 bonds. By day's end, money markets had increased expectations for ECB rate cuts next year, pricing in 160 basis points of easing by 2025. UK Gilts also surged, with 10-year yields dropping 6 basis points to just under 4%.

Commodities: Crude oil tumbled Tuesday on a combination of weak US economic data clouding the demand outlook further and the potential for a deal in Libya that could restore crude flows. Having broken previous lows momentum-driven short sellers are currently in control with focus on what OPEC+ will and can do next to stem the slide. China’s increasingly disappointing economic recovery and the general risk-off sentiment saw industrial metals tank with copper hitting a two-week low, surrendering most of its August gains. While silver’s weeklong slide continued with a drop below USD 28, gold managed a bounced back towards USD 2500 after finding support at USD 2475 amid a softer dollar and demand from investors focusing on weak US data potentially raising the prospect for a 50-bps cut from the FOMC later this month. For now, however, the yellow metal remains in consolidation/correction mode, part of that due to seasonality.  How speculators are positioned across key commodities, you can read more about in our weekly COT update. Also our latest update covering ongoing challenges in crude and copper.

FX: Fresh dollar selling was seen in Asia overnight after the greenback hit a two-week high on Tuesday with demand for yen being the main driver. We discussed the US dollar dynamics in this article yesterday, and noted some catalysts that could prompt a sharper reversal in the greenback. Labor market focus continues this week and JOLTS job openings numbers will be key today. Bank of Canada also announces its policy decision and there is a slim chance of a 50bps rate cut as well, which together with weakness in oil prices could make the Canadian dollar vulnerable. The underperformer in the major currency space yesterday was the Australian dollar which continued lower following another weak GDP which suggest the RBA can remain in a holding pattern regarding the next rate move. The Swiss franc also gained, despite softer Swiss CPI hinting at another SNB rate cut in September.

Volatility: Yesterday saw a big spike in volatility as the VIX surged by 33.25% to 20.72. Short-term volatility measures like the VIX1D (1-day volatility) and VIX9D (9-day volatility) also jumped by over 35%, reflecting increased concern in the immediate future. VIX futures followed suit, rising 5.12% overnight to 20.00, which is a significant move for an overnight session. The markets took a hit, with the S&P 500 down 2.12%, the Nasdaq 100 plummeting 3.15%, and the Russell 2000 dropping 3.09%. Overnight, S&P 500 futures fell 0.57%, and Nasdaq 100 futures dropped 0.81%, suggesting continued pressure going into today’s session. Today's expected moves are still notable, with the S&P 500 expected to move up or down 43 points (~0.77%) and the Nasdaq 100 about 205 points (~1.08%). The JOLTs Job Openings data, due later today, could bring additional volatility. On the earnings front, Hewlett Packard (HPE) and Dollar Tree (DLTR) are set to report. Yesterday's most active stock options were Nvidia, Tesla, Apple, AMD, Intel, Amazon, Meta Platforms, Alphabet, Palantir, and Broadcom.

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