Global Market Quick Take: Europe – 26 June 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: Nvidia’s half-a-trillion dollar wipeout leaves global chip stocks volatile (CNBC), FedEx stock surges as profit forecast tops analyst expectations (Investing), Rivian stock surges 36% after announcing $5 billion joint venture with Volkswagen (Investing), Australia's central bank says policy is restrictive, causing households pain (Yahoo), Australia inflation jumps to 6-mth high in May, ramps up rate hike risks (Yahoo), World headed for ‘food wars’ amid geopolitics and climate change, warns Olam (FT).

Equities:Third straight session of strong gains in Japanese equities up 1.4% in today’s Asia session. Futures are indicating European equities 0.6% higher on the open and US equities 0.1% higher. Nvidia will remain in focus today as the AI chipmaker rose 6.8% after three declining sessions taking the shares down 16%. Rivian and Volkswagen will also be in focus today as the German carmaker announces a $5bn investment into Rivian with shares rising 36% yesterday. FedEx shares rose 14% in extended trading as the logistics company reported a better-than-expected FY25 outlook on EPS at $20-22 vs est. $20.85 and announced expectations of buying back own shares worth $2.5bn. The capex outlook for FY25 was also lower than estimated suggesting lower reinvestments are needed to sustain growth which is net positive for shareholder creation.

Macro:US consumer confidence surpassed expectations as it printed 100.4 in June (exp. 100.0), albeit falling from the prior, revised lower, 101.3. Present Situation index rose to 141.5 (prev. 140.8), however the forward-looking Expectations Index dipped to 73.0 from 74.9. Canada's CPI came in hotter-than-expected, leaving the Bank of Canada's July rate cut hanging in the balance. Headline CPI rose +0.6% MoM (exp. 0.3%) and 2.9% YoY (exp. 2.6%) while the core trimmed mean came in at 2.9% YoY from 2.8% previously and expected. Fed Governor Lisa Cooksaid that policy is well positioned to respond to the economic outlook, and at some point, it will be appropriate to cut rates, but the timing will depend on the data. Michelle Bowman stressed the Fed is not yet at the point where it is appropriate to cut rates, noting the baseline outlook continues to be inflation will return to 2% with the policy rate held steady for some time. She said that she does not see 2024 rate cuts. Australia’s inflation accelerated faster than expected for a third straight month in May, sending the AUD higher as traders increased bets that the Reserve Bank will resume raising interest rates at its next meeting. The monthly consumer price indicator climbed 4% from a year earlier, exceeding economists’ estimate of 3.8%, while the trimmed mean core measure, which smooths out volatile items, advanced to 4.4% versus 4.1% a month earlier.

Macro events (times in GMT):US New Home Sales (May) exp 633k vs 634k prior (1400), EIA’s Weekly Crude and Fuel Stock Report (1430), US auction of USD 70 bln 5-year Notes (1700)

Earnings events: Today’s key earnings release is Micron Technology expected to report FY24 Q3 (ending 31 May) revenue growth of 78% YoY and EBITDA of $2.9bn vs $278mn a year ago. The cycle for memory chips has changed with supply having become tighter and pricing is increasing making us to believe that Micron could surprise to the upside against analyst expectations.

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

Fixed income: Inflation in Canada unexpectedly rose to 2.9% in May, contrary to the consensus expectation of a drop to 2.6% from 2.7% the previous month. This unexpected increase has reignited concerns that central banks' battle against inflation is far from over, causing bond yields to fluctuate between gains and losses on both sides of the Atlantic. By the end of the day, U.S. Treasury yields were slightly higher across the curve, with 10-year yields closing at 4.24% and 2-year yields at 4.74%. The 2-year U.S. Treasury auction saw strong demand, closing with an increase in indirect bidder participation. German 10-year yields closed relatively unchanged at 2.41%, while French and Italian 10-year yields settled at 3.17% and 3.93%, respectively. Today, the market's attention shifts to the 5-year U.S. Treasury auction.

Commodities: Oil prices fell from an eight-week high on Tuesday with demand concerns in China, where refinery runs according to Goldmans has fallen to a 20-month low, being offset by multiple geopolitical tensions and expectations for strong summer demand elsewhere. Ahead of today’s EIA data, the API reported a weekly stock increase of 0.9mn barrel. Precious metals, meanwhile, traded lower with silver falling back below $29 per ounce due to caution ahead of US inflation data, and continued uncertainty regarding the timing of the first US rate cut. Copper fell to a two-month low and key support, driven by technical selling and long liquidation from funds amid unusually weak Chinese demand.

FX: Recent hawkish comments from the Federal Reserve provided a modest boost to the US dollar across various currency pairs. The EURUSD pair tested but did not sustain a break below the 1.07 level due to supportive buying, and uncertainties related to the French elections continue to underpin. The GBPUSD pair remained under pressure, trading below 1.27. In the Japanese yen space, intervention concerns persisted, keeping USDJPY below 160 while both AUDJPY and GBPJPY hit record highs at 106.80 and 202.88 respectively. The AUD rose to a two-week high CPI beat expectations, bolstering the case for the central bank to resume raising interest rates. The USDCAD pair resisted upward momentum and stayed below 1.3680, following an unexpected rise in Canadian inflation, which cast doubt on the likelihood of a rate cut by the Bank of Canada in July.