Global Market Quick Take: Europe – 10 July 2024

Key points:

• Equities: Japanese momentum continues. Kongsberg delivers significant Q2 beat on orders.
• Currencies: The USD is strengthening on Powell’s testimony
• Commodities: Gold Steady, Oil Dips Despite Positive Demand Outlook
• Fixed Income: Focus remains on Powell's testimony before Congress as the Treasury prepares to sell 10-year notes.
• Economic data: Powell testimony to House Financial Services

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

In the news: Why India will become a superpower (FT), Top ECB official sounds alarm on rising risks from shadow banking (FT), US economy no longer overheated, Fed's Powell tells Congress (Reuters), Microsoft, Apple Avoid OpenAI’s Board As US Scrutiny Grows (Bloomberg)

Equities: Japanese equities continued their ascent in today’s session gaining another 0.7% with the rest of Asian equity markets flat. Futures are pointing to a slightly higher opening in both Europe and US. The European defence company Kongsberg Gruppen has reported Q2 results this morning with revenue at NOK 11.6bn vs est. NOK 11.1bn and orders at NOK 17.3bn vs est. NOK 11.1bn. Intel shares gained another 1.8% in yesterday’s session as the chip rally broadens. TSMC reports Q2 revenue growth estimate of 40% YoY exceeding expectations of 35.5% driven by strong demand for AI infrastructure. Tesla shares were another high-volume gainer yesterday as Musk continue to advertise future growth saying new robot Optimus design will be completed later this year. BP was the big volume stock yesterday in Europe down 4.3% as the oil and gas company warned of weaker oil refinery and announced write-downs.

Macro: In prepared remarks ahead of his testimony in Washington, D.C., Fed Chairman Powell stated that "more good data would strengthen our confidence" in addressing inflation, but also acknowledged that "elevated inflation is not the only risk we face." Powell emphasized that policy rate cuts are not appropriate until the Fed is more confident that inflation is sustainably moving toward the 2% target. He noted that first-quarter data did not provide the necessary confidence for rate cuts, although there has been considerable progress toward the 2% inflation goal, with recent monthly readings indicating "modest further progress”.

Macro events (times in GMT): Norway June CPI YoY est. 3.6% vs 4.1% in May (06:00), ECB Nagel speaks (08:00), Powell testifies to House Financial Services (14:00)

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). Kongsberg Gruppen has already reported in the European pre-market session (see our comments in the equities section above). 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

• Today: 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: Sovereign bonds on both sides of the Atlantic ended the day lower yesterday. French government bond yields rose by 5 to 8 basis points after Moody’s warned of a potential downgrade. In the U.S., the 3-year Treasury auction saw strong demand thanks to the attractive risk-reward profile of the notes and a weakening macroeconomic backdrop. Speaking to lawmakers, Powell avoided specifying a timeline for interest-rate cuts but noted recent data indicating a cooling job market. He emphasized that elevated inflation is not the only risk, highlighting significant changes in labour market conditions. The yield curve twists steepened by the end of the day, with 2-year yields closing 0.6 basis points lower and 10-year yields nearly 2 basis points higher. Markets will continue to focus on Powell’s testimony today and the upcoming 10-year US treasury auction.

Commodities: Gold remains supported after the Federal Reserve's chairman emphasized the need for more evidence of slowing inflation before considering interest rate cuts. We believe long-term investor sentiment for gold will stay positive due to ongoing uncertainty about the U.S. economy and concerns over the unsustainability of the U.S. deficit. Meanwhile, oil closed lower yesterday despite the EIA's outlook indicating higher-than-expected oil demand for this year and next. Powell noted a cooling labour market, but his later comments did not suggest imminent rate cuts, contributing to the decline in oil prices.

FX: The USD rose yesterday after Federal Reserve Chair Jerome Powell's testimony, where he emphasized no rate cuts until inflation nears 2%. On the EUR, the ECB is expected to cut rates this year as inflation eased to 2.5% in June, though core inflation stayed at 2.9%. Politically, France's hung parliament reduced concerns about radical policies. NZD is stronger as the Reserve Bank of New Zealand (RBNZ) is expected to keep rates high for an extended period and maintain the official cash rate at 5.5% in its July meeting. Second-quarter inflation data is also anticipated later in the month.

Volatility: The VIX closed at 12.51 (+0.14 | +1.13%) on Tuesday, indicating a minor uptick in market volatility. The daily expected moves for today, based on options pricing, are +/- 18.26 points (+/- 0.33%) for the S&P 500 and +/- 110.79 points (+/- 0.54%) for the Nasdaq 100. VIX futures are currently at 14.200 (+1.205 | +9.27%). S&P 500 and Nasdaq 100 futures showed small positive movements, with S&P 500 futures at 5633.25 (+2.00 | +0.04%) and Nasdaq 100 futures at 20705.25 (+26.75 | +0.13%). Today's economic calendar is highlighted by Fed Chair Powell's testimony at 16:00 (CET). Market participants are also closely watching for tomorrow's CPI release, which is expected to significantly impact market movements. Yesterday's most active stock options were Nvidia, Tesla, Apple, AT&T, Intel, Advanced Micro Devices, Amazon, Palantir Technologies, Sirius XM Holdings, and Baidu.

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