Global Market Quick Take: Europe – 23 July 2024

Key points:

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

In the news: Harris Cements Democratic Support as 2024 Election Is Reset (Bloomberg), Geopolitics is back to break markets' stride (Reuters), Car dealers beef up incentives as US inflation takes bite out of demand (FT), Wall Street banks bet sterling will extend winning run (FT).

Macro: It's set to be a busy week in markets with several key events to monitor. The earnings season intensifies with major companies like Tesla, Alphabet, IBM, Ford, and General Motors reporting their second-quarter results. European banks, including Deutsche Bank, Lloyds, BNP Paribas, Banco Santander, and UniCredit, will also release earnings, providing insights into their financial health amid potential rate cuts by the ECB and political uncertainties. Eurozone PMI data on Wednesday will be closely watched for indications of economic growth and inflation pressures, influencing future ECB monetary policies. On Thursday, the advance U.S. 2Q GDP data will be released. Economists expect the US economy to have grown at an annualized pace of 1.9% in the second quarter, up from 1.4% in the first quarter. U.S. inflation data will be released on Friday, which could confirm expectations for a Federal Reserve rate cut in September. Additionally, oil prices, influenced by geopolitical tensions in Gaza and U.S. economic data affecting the dollar, will be important to monitor. The week will also be busy as markets react to the implications of Biden's withdrawal from the election race and Kamala Harris stepping in as his replacement.

Macro events (times in GMT): Eurozone Manufacturing, Service and Composite PMI (08:00), Eurozone Consumer Confidence (14:00), Richmond Fed Manufacturing Index (12:30), Existing Home sales (14:00), US Treasury sells $69 billion 2-year notes (17:00). ECB’s Lane speaks (07:00).

Earnings events: SAP Q2 EPS EUR 0.76 vs 0.97 expected. Sales EUR 8.29 bln vs 8.23 expected. Cloud backlog grew 28% Reiterates 2024 outlook. NXP Semiconductors Q2 2024 Adj EPS $3.20 Misses $3.21 Estimate, Sales $3.127B Beat $3.125B Estimate.

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

Equities: Delta Air Lines is still affected by CrowdStrike’s errant software update cancelling more than 10% of its flights Monday.  Delta has now cancelled approx. 3,800 flights in total since the software glitch (Marketwatch) CrowdStrike down another 14%. Marijuana stocks; Canopy Growth, GrowGeneration, Organigram and Tilray climbed on optimism of legalization regardless of who will be in office.  It is promise from VP Kamala Harris back from the last presidential election, but also according to reports is Trump’s VP candidate J.D. Vance supporter of states can set their own cannabis laws. (Newsedge). Shares of Mattel Inc. jumped 15% Monday on a report saying that the private-equity firm L Catterton had come forward with an offer to acquire the toy maker (Reuters). Hasbro Inc., +1.4%, which is scheduled to release earnings on 23rd. July after market close, is reportedly considering submitting its own offer submission for Mattel. (Newsedge).

Fixed income: Treasuries ended Monday with yields higher by 1 to 3 basis points, reaching their highest levels in over a week, with 10-year yields closing the day at 4.25%, and 2-year yields bouncing again above 2.5%. Yield curve spreads ended slightly wider, with the inverted 2s10s around -26, six basis points lower than last week's least inverted point since January, as markets priced in a Trump election victory, resulting in higher yields and a steeper curve. This move largely remained after Biden withdrew on Sunday and endorsed Vice President Harris. With the U.S. election still four months away, investors are likely to revert their focus to economic data. If Friday’s PCE data indicates that the Fed is nearing its 2% inflation target, the bond market could react positively, with 10-year yields potentially breaking below 4.18%. Conversely, if the data does not support this, yields may reject this level and continue to rise. The US Treasury auction cycle starts today with a $69 billion 2-year note sale, followed by 5- and 7-year notes over the next two days.

Commodities: Gold edged lower as traders reacted to President Biden's decision to end his re-election campaign and its potential impact on Donald Trump's chances of returning to the White House. This political uncertainty boosted gold's appeal as a safe-haven asset initially, but signs of weakening demand in Asia and potential selling pressures tempered gains. Gold remains influenced by various factors, including expectations of US interest rate cuts, central bank purchases, and geopolitical tensions. The precious metal hit a record high level of $2,480.23 on Tuesday last week, and has fallen since then below $2,400. Oil prices extended their recent decline as investors evaluated the impact of President Biden's decision to quit the election campaign. WTI's September contract settled near $78 a barrel, a five-week low as traders anticipated a potential victory for Donald Trump, who is expected to boost US crude production, potentially leading to lower prices in the long term. Copper prices fell for the sixth consecutive day as base metals experienced their worst weekly slump in nearly two years. A modest interest rate cut in China failed to alleviate concerns about demand in the world's largest commodities consumer. Despite China's efforts to support the economy, the lack of significant short-term stimulus has disappointed investors. This has particularly affected the copper-heavy property and construction sectors.

FX: The US dollar stayed on the backfoot overnight despite some gains in the US session yesterday after President Biden stepped away from the US presidential race. Risk-on currencies such as the Australian dollar and the New Zealand dollar underperformed safe havens such as the Japanese yen and the Swiss franc. The yen was seen gaining across the board as markets positioned for a likely rate hike from the Bank of Japan next week and a potential dovish shift from the Federal Reserve. 

Volatility: The VIX dropped to $14.91 (-1.61 | -9.75%). The VIX1D fell sharply to $11.02 (-2.90 | -20.83%) and the VIX9D slightly decreased to $14.79 (-0.25 | -1.66%). VVIX decreased to 93.66 (-4.27 | -4.36%), and the SKEW index declined to 141.38 (-5.61 | -3.82%). VIX futures increased slightly to $15.17 (+0.125 | +0.84%) this morning. Expected moves for today, derived from options pricing, indicate the S&P 500 with an expected move of plus or minus 29.88 points (+/- 0.54%) and the Nasdaq 100 plus or minus 159.28 points (+/- 0.79%). S&P 500 and Nasdaq 100 futures retreated slightly after their nightly session, with S&P 500 futures at 5,600.50 (-10.25 | -0.18%) and Nasdaq 100 futures at 19,935.00 (-66.00 | -0.33%). Economic events for today include the Existing Home Sales report at 16:00, with a forecast of 3.99M (vs previous 4.11M). However, the focus is likely to be on the earnings releases before and after market hours, given the significant names reporting today. Notable earnings include Alphabet (GOOG, GOOGL), Tesla (TSLA), Visa (V), and Coca-Cola (KO), which are expected to drive market volatility and provide insights into whether the market rebound yesterday has more substance. Yesterday's top 10 most traded stock options were Nvidia, Tesla, Apple, Crowdstrike Holdings, Amazon, Advanced Micro Devices, AMC Entertainment Holdings, Palantir Technologies, Gamestop, and Marathon Digital Holdings.

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