Global Market Quick Take: Europe – 9 July 2024

Key points:

• Equities: Strong momentum continues in Japanese equities. Intel in focus on breakout.
• Currencies: The US dollar continues to weaken ahead of Powell speech
• Commodities: Gold tumbled post the French election
• Fixed Income: Markets Focus on Powell's Congressional Testimony and 3-Year U.S. Treasury Auction
• Economic data: NFIB small business optimism

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

In the news: World’s largest oil company bets on the enduring power of petrol (FT), France Now Has to Face the Bond-Market Risk It Prefers to Ignore (Bloomberg), Biden tells wavering Democrats he will not abandon campaign (Reuters)

Equities: Japanese equities are up 2.3% in Asia session making a new all-time high and increasing the year-to-date return to 24.8%. Futures are pointing to 0.2% higher open in US equities and flat start to the session in Europe. Intel was the big gainer yesterday on high volume up 6.2%, but the move a technical breakout on no specific news. Another high-volume stock yesterday was Nike down 3.2% as the company has rehired retired executives to fix its retail partnerships that have been the culprit of recent revenue disappointments. Maersk was the big loser yesterday down 5.2% extending the selloff erasing the gains from prior weeks.

Macro:

• Eurozone investor confidence: The Eurozone sentix investor confidence index for July declined to -7.3 vs est. -0.5 as the French election uncertainty clearly made a negative impact on investor confidence, which has also been quite observable in the strong flows in US and Japanese vs. European equities.
• US inflation expectations: NY Fed Survey of Consumer Expectations for June saw the 1-year expectations move lower to 3.0% from 3.2% in May, the 3-yearr moved slightly higher to 2.9% from 2.8% in May, while the longer-term 5-year also came in lower at 2.8% from 3.0% in May.
• RBNZ Preview: The Reserve Bank of New Zealand (RBNZ) will conduct its latest Monetary Policy Review this week and decision is due on Wednesday (02:00 GMT). The central bank is expected to maintain the policy rate at the current level of 5.50%, but the tone will be one to watch after a hawkish hold at the last meeting in May. Economic conditions are deteriorating, and Governor Orr has not been as hawkish in his comments lately. To read more on RBNZ and other major macro and FX events this week, go to our Weekly FX Chartbook published Monday.

Macro events (times in GMT): US June NFIB Small Business Optimism est. 90.2 vs 90.5 prior (10:00), Japan June PPI YoY est. 2.9% vs 2.4% prior (23:50)

Earnings events: The Q2 earnings season kicks off this week with the three most watched earnings being Kongsberg Gruppen (Wed), PepsiCo (Thu), and JPMorgan Chase (Fri). Analysts expect Kongsberg to report Q2 revenue of NOK 11.2bn up 16% YoY and EPS of NOK 5.42 up 24% YoY. PepsiCo is expected to report another quarter of stagnant growth with revenue only expected to be up 2% YoY which means that in real terms these parts of the consumer market are still weak. It will interesting to hear whether PepsiCo

• Wednesday: Vantage Towers, Kongsberg Gruppen
• Thursday: Seven & i, DNB Bank, Tryg, Fast Retailing, PepsiCo, Delta Air Lines, Conagra Brands
• Friday: Progressive, EMS-Chemie, Aeon, Aker, Ericsson, Lifco, JPMorgan Chase, Wells Fargo, Fastenal, Citigroup, Bank of New York Mellon

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

Fixed income: On Monday, market attention focused on French politics, where the election resulted in a hung parliament. This outcome was positively received, with the OAT-Bund spread dropping to 63 basis points after an initial spike to nearly 70 basis points. Later in the afternoon, attention shifted to the New York Fed's 1-year inflation expectation report, which showed a decrease in consumer expectations to 3% from 3.2% in May. Markets welcomed this data, especially in anticipation of Thursday's CPI release. Economists predict that headline inflation will have decreased to 3.1% in June from 3.4% in March, while core CPI is expected to remain stable. Despite this, the U.S. yield curve bear flattened, with 2-year yields closing a few basis points higher ahead of Powell's two-day testimony before Congress. Today, market attention will also turn to the 3-year U.S. Treasury auction.

Commodities: Gold tumbled on Monday as geopolitical and inflation concerns eased, driven by the French election results welcomed by markets and lower inflation expectation readings from the New York Fed. This morning, gold is recouping some of yesterday's losses. Long-term, we believe investors will remain positive on gold due to ongoing uncertainty about the US economy and the unsustainability of the US deficit. U.S. crude and Brent crude prices also fell yesterday, but they continue to show upward momentum amid significant reductions in U.S. crude inventories and robust demand from the summer holiday season. Additionally, OPEC+ supports prices through ongoing production cuts. This week's EIA data will be closely watched for further insights.

FX: Given the strong session in Japanese equities it is strange to see it comes on the back of days of a stronger Yen which remains one of the weakest currencies. The Chinese Yuan is in focus as the currency continues be at the lower part of the fixing band and a recent survey shows that Chinese banks believe the Chinese central bank can loosen its tight grip on the Yuan without triggering unorderly developments in markets. The past week has been all about the weak US dollar as recent US economic data points have indicated some softening of the economy. Fed Chair Jerome Powell will hold a semi-annual testimony to the US Congress today with the market looking for dovish clues about a potential rate cut in September.

Volatility: The VIX closed at $12.37 (-0.11 | -0.88%), continuing its decline from the previous session. The VIX1D fell significantly, ending at $7.23 (-1.31 | -15.34%), indicating a decrease in immediate market volatility. Today's key economic event is Fed Chair Powell's testimony at 16:00 (GMT+2). In the futures market, S&P 500 and Nasdaq 100 futures started the day positively: S&P 500 futures are at 5637.75 (+12.50 | +0.22%) and Nasdaq 100 futures are at 20725.50 (+65.75 | +0.32%). Expected moves for today, derived from options pricing, show the S&P 500 with an expected move of plus or minus 18.10 points (0.32%) and the Nasdaq 100 with an expected move of plus or minus 109.18 points (0.53%). Yesterday's top 10 most traded stock options were Nvidia, Tesla, Apple, Advanced Micro Devices, Palantir Technologies, Amazon, Intel, Meta Platforms, Nike, and AMC Entertainment Holdings.

For a global look at markets – go to Inspiration.