Global Market Quick Take: Europe – 10 June 2024

Key points:

• Equities: Negative sentiment following Friday’s strong Nonfarm Payrolls
• Currencies: Euro falls on election jitters, general dollar strength
• Commodities: Metals suffer big declines; Fund long in Brent hits 10-year low
• Fixed Income: US Treasury yields surge as rate cut hopes fade again
• Economic data: NY Fed 1-yr inflation expectations

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

In the news: Gold slides 3% on double blow of strong jobs report, China data (CNBC), Treasury yields shoot higher after May payrolls top expectations (CNBC), Wall Street praises Spotify price hikes — and notes other audio streamers should follow suit (Yahoo), Japan revises Q1 GDP contraction to annualised 1.8% (Investing), Euro falls in warning sign for markets after Macron calls snap France vote (Investing), Far-right makes significant gains in European parliament elections (FT)

Equities: Negative session in Asia and futures are pointing to a lower start in European equities as equity markets are digesting the big upside surprise on Nonfarm Payrolls on Friday which has caused markets to price the next Fed rate cut at December. This week on earnings the focus is on Oracle (Tue), Broadcom (Wed), and Adobe (Thu) with Broadcom being interesting to watch as the company is a big supplier into the consumer electronics markets with Apple as one of its biggest customers. On macro, equities will search for direction off Wednesday’s US May inflation report expected to core inflation remains at levels above where the Fed wants it to be. In today’s European equity session focus will be on French stocks as Macron has called for a general election following yesterday’s EU parliament election results.

Earnings events: Quiet week ahead on earnings with the key releases to watch being Oracle (Tue), Broadcom (Wed), and Adobe (Thu). Today’s only large earnings release is Autodesk (no time) which is expected to report revenue growth of 10% YoY and EPS of $1.77 up 141% YoY.

• Monday: Autodesk
• Tuesday: Oracle, GameStop, Casey’s General Stores
• Wednesday: Dollarama, Broadcom
• Thursday: Adobe, Halma, Wise

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

Macro: US non-farm payrolls for May came in surprisingly hot with headline NFP at 272k, beating expectations of 180k and April’s 165k. There was a huge jump in private payrolls to 229k, above the 170k forecast and prior 158k. The wage metrics were also hot, rising to 4.1% Y/Y from an upwardly revised 4.0%, above the 3.9% forecast, with M/M earnings rising 0.4% above the 0.3% forecast and prior. The hot labour market report is at odds with some of the softer reports we have seen recently (falling JOLTS, rising jobless claims, soft ADP) and is likely to keep the Fed away from considering rate cuts at this point. Focus this week is on the US CPI release as well as the dot plot from the Fed meeting. European Parliamentary elections results has weakened the euro after French President Emmanuel Macron called a snap parliamentary election for June 30 after he received a drubbing at the hands of his far-right rival Marine Le Pen. His German counterpart Olaf Scholz didn’t fare much better, with his Social Democrats suffering their worst performance in an EU election in history, while Prime Minister Giorgia Meloni right-wing party appeared to be the winner in Italy. Overall, however the three centrist groups -- EPP, the Socialists and the liberals -- will hold a comfortable majority, despite the far-right gaining seats, while the Greens suffered losses, and with European Commission President Ursula Von der Leyen’s center-right EPP grouping projected to cement its place as the biggest group in parliament, she is well placed to win a second term

Macro events (times in GMT): NY Fed 1-yr inflation expectations for May (15:00), USDA’s weekly grain planting and condition reports (20:00)

Fixed income: US 10-year Treasury yields jumped 15 bps on Friday following a robust May jobs report, with projections for a rate cut by the Federal Reserve being pushed back to December, instead of the previously expected November meeting. French and German bond yields pointing higher for a third day following European Parliament election voter backlash against its leaders.

Commodities: The metal sector suffered big declines on Friday, triggered by PBoC gold buying pause, rising copper stocks in Shanghai, and accelerated by dollar and yield strength following a surprisingly strong US jobs report. Gold traders will be watching the USD 2270-75 area while copper by now has given back half the strong gains seen between February and May. Oil trades stable following a weekly decline, as the market continued to process OPEC+'s decision to commence supply restoration and mixed macroeconomic signs. Looking ahead, the market will be monitoring monthly oil market reports from OPEC (Tuesday) and IEA (Wednesday) for any signs of demand growth downgrades to help justify the recent price slump which has seen hedge funds cut bullish Brent bets to a ten-year low.

FX: Friday’s strong US jobs report saw the dollar make solid gains against most of its G10 peers. Not least against the euro which suffered a double-blow from general dollar strength, and the results of European parliamentary elections out over the weekend which saw far-right parties gaining momentum. The two-day slump has seen EURUSD brake below 1.09, hitting one-month lows around 1.0750. EURGBP extended its decline to 0.8457, the lowest since August 2022. EURCHF is down to 0.9650 amid a safe haven bid as political uncertainty in Europe comes in focus. Activity currencies slumped on the back of dollar strength, with NZDUSD testing 0.61 handle and AUDUSD plunging to 0.6580. USDJPY rose back to 157 from lows of 154.55 seen last week, and Fed and BOJ meeting this week could keep the pair volatile.

Volatility: The US market volatility index, the VIX, ended lower on Friday at $12.22 (-0.36 | -2.86%). All secondary VIX indicators (VIX1D, VIX9D, VVIX, SKEW) similarly indicated easing volatility following the Non-Farm Payrolls (NFP) release. This week's volatility will primarily center around the Interest Rate Decision by the Fed and the FOMC Statements and Press Conference on Wednesday. Expected moves for this week, as measured by options pricing, suggest heightened volatility. The S&P 500 has an expected move of plus or minus $72.25 (+/- 1.35%), up from $58.83 (+/- 0.95%) the previous week. Similarly, the Nasdaq 100 has an expected move of plus or minus $349.14 (+/- 1.84%), compared to $288.65 (+/- 1.56%) the prior week. Notable earnings this week are limited, with Oracle and Adobe being the most significant. Friday's top 10 most traded stock options, in order: GameStop, Nvidia, Tesla, AMC Entertainment, Apple, Advanced Micro Devices, Amazon, Palantir Technologies, Marathon Digital Holdings, and Meta Platforms.