Global Market Quick Take: Europe – 18 June 2024

Key points:

• Equities: Positive sentiment continues. Focus on BYD as Buffett trims holding.
• Currencies: Dollar softens on upbeat risk sentiment
• Commodities: Crude oil higher, China drags copper down
• Fixed Income: Fed comments put a brake on recent yield slide
• Economic data: German ZEW, US retail sales

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

In the news: Warren Buffett’s Berkshire Hathaway trims its stake in Chinese EV maker BYD to 6.9% (CNBC), Nvidia to get 20% weighting and billions in investor demand, while Apple demoted in major tech fund (CNBC), Tesla gets Shanghai approval to,  test advanced driver assistance (BNNBloomberg), European markets head for positive open after choppy start to the week (CNBC), Apple supplier TDK claims solid-state battery breakthrough (FT), China Starts Anti-Dumping Probe on Imports of EU Pork (Reuters)

Equities: Futures are pointing at a higher open in Europe up 0.5% following yesterday’s technology rally in the US equity market and a generally positive session in Asia with Japanese equities up 1% and Australian equities up 0.8%. Key event today is the June ZEW survey expected to show economic expectations rising again compared to May. Chinese equities will remain in focus as Warren Buffett’s Berkshire Hathaway is trimming its holding in Chinese based electric vehicle maker BYD in a clear sign that the US investment firm is reducing geopolitical risks in its portfolio and reassessing profitability of EVs in the future.

Macro: The Reserve Bank of Australia kept interest rates unchanged at a 12-year high at 4.35%, and highlighted that inflation is proving sticky, suggesting it will be some time before policymakers are ready to signal easing. The RBA’s goal is to slow consumer prices while holding onto significant job gains since the pandemic, and to achieve that the RBA restated that it wasn’t “ruling anything in or out,” a signal that a hike isn’t out of the question. Short-end bond yields edged up as traders lowered the chance of a 2024 rate cut to just 40%. NY Fed Manufacturing came in better-than-feared at -6 (exp. -9); its highest print in four months. Unemployment dipped to -8.7 (prev. -6.4), new orders notably improved to -1 (prev. -16.5). But there was a sense of relief in inflation gauges with prices paid and prices received fell to +24.5 (prev. +28.3) and +7.1 (prev. +14.1), although still remaining high. Fed’s Harker (2026 voter) said if his economic forecast plays out, he thinks one rate cut would be appropriate by years end, meanwhile two cuts or none are also quite possible, but it depends on data. After softening CPI last week, May PPI also came in lower than expected, and expectations for core PCE are now being pruned, suggesting markets may remain supported despite Fed’s dots suggesting only one rate cut for this year.

Macro events (times in GMT): Ger ZEW Survey (Jun), expectations 50 vs 47.1 prior and current situation exp. -65 vs –72.3 prior (0900), EZ CPI (May Final) exp unch. 2.6% YoY (0900), US Retail Sales (May) exp. 0.3% vs flat prior, and ex. Auto 0.2% vs 0.2% prior (1230), US Industrial Production (May) exp. 0.3% MoM vs –0.3% prior (1315), API’s Weekly Crude and Fuel Stock report (2030)

Earnings events: Today’s earnings release to watch is UK-based Ashtead. The company has already reported in the pre-market session with revenue coming a bit lower than estimated while fiscal year free cash flow is higher than expected.

• Tuesday: Ashtead
• Thursday: Accenture, Kroger, Darden Restaurants, Jabil
• Friday: FactSet, CarMax

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

Fixed income: The US 10-year Treasury yield rose to 4.28%, pressured by a surge in corporate issuance totalling over USD 20 billion and Fed speakers focusing on one cut as opposed to the two being projected by the money market. Traders are waiting for more information to assess the economic and monetary policy outlook. This week, several Fed policymakers will speak, providing further insight into the Fed's interest rate intentions for the rest of the year. Minneapolis Fed President Kashkari suggested that it is likely the Fed will cut interest rates once this year, possibly towards the end of the year.

Commodities: Crude oil traded higher on Monday, supported by funds rebuilding long positions as a summer supply deficit is emerging, especially in Europe, despite data showing Chinese refineries are operating at their slowest pace this year as the country grapple with weak margins. Copper led the base metals sector lower after Chinese economic data highlight persistent weakness in its economy and the metals has now given back half the +40% strong gain seen between February and May. Gold holds above USD 2300 while silver prices trade near $29 per ounce, as a weaker industrial outlook offset support from gold. Chinese government support for solar panels has led to overcapacity, prompting industry groups to call for reduced investment and limiting the outlook for silver input buying by manufacturers.  Wheat slumps to eight-week low on technical selling as the US winter wheat harvest picks up pace.

FX: The upbeat risk sentiment kept a lid on the US dollar on Monday, and gains were led by euro while Japanese yen was the weakest. Looking ahead, eyes will be on Tuesday for US retail sales and remarks from Fed's Barkin, Collins, Kugler, Logan, Musalem, and Goolsbee. EURUSD climbed higher to 1.0740 from lows of 1.0668 last week amid French election jitters with ECB sources postulating the Bank is in no rush to discuss a French bond rescue. GBPUSD was also back above 1.27 ahead of Bank of England rate decision on Thursday. The AUD holds above support around 0.66 after the RBA as expected left rates unchanged, while signaling the next move could go in either direction. USDJPY remains capped below 158 on intervention risks.

Volatility: The VIX ended Monday at $12.75 (+0.09 | +0.71%). Short-term volatility indicators were mixed, with the VIX1D at $9.85 (-0.59 | -5.65%) and the VIX9D rising to $11.94 (+0.94 | +8.55%). The SKEW index, which measures the perceived risk of outlier moves in the S&P 500, is again declining, ending at 153.84 (-2.34 | -1.50%), yet still above the 150 mark. Today the Core Retail Sales and Retail Sales figures might have impact on market volatility. VIX futures are currently at $14.450 (+0.130 | +0.91%). S&P 500 and Nasdaq 100 futures show slight movements: S&P 500 futures are at 5544.50 (-1.75 | -0.03%) and Nasdaq 100 futures are at 20178.75 (-14.00 | -0.07%). Yesterday's top 10 most traded stock options were Nvidia, Tesla, Apple, GameStop, Advanced Micro Devices, Palantir Technologies, Amazon, Microsoft, Micron Technology, and Super Micro Computer.