Global Market Quick Take: Europe – 12 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: US inflation falls to 3% in June (FT), S&P 500 retreats from record as investors sell high-flying Big Tech stocks, Nvidia drops 5%: Live updates (CNBC), Biden Confuses Kamala Harris for Trump, Zelenskiy for Putin at Vital Moment (Bloomberg), BOJ rate check fuels yen intervention speculation after a big gain (thejapantimes)

Equities: Main US Indices down Thursday: Nasdaq 100 down 2.25%, S&P500 -0.88 lead by Semiconductors -3.4% and big caps in the Tech sector. Small Cap Index Russell 200 gained 3.5%! Could be a market rotation from big caps into small caps.  Alternative Energy sector up 5.75%. R al Estate companies had their best day of the year. Homebuilders also rose due to lower interest rates. Reports out that Tesla will delay its Robotaxi debut by two months in order to build more prototypes. Shares down 8.4%. FirstSun Capital financial holding company for Sunflower Bank is expected to start trading on Nasdaq 12th July, ticker FSUN

Macro: June's headline CPI numbers surprised on the downside, coming in at 3% YoY (vs. est. 3.1%) and core CPI falling to 3.3% YoY (vs. est. 3.4%). Notably, the monthly headline reading was -0.1%, marking the first negative reading since April 2020.  Following the CPI report, Treasuries rallied, with traders nearly fully pricing in rate cuts for September and December, weakening the U.S. dollar. The UK economy expanded at twice the anticipated rate in May, with GDP rising 0.4% month-on-month following a flat reading in April. This growth surpasses the 0.2% increase forecasted by economists.  In early Asian trading, the yen experienced initial volatility, rising over 2% against the dollar overnight. This significant movement led to speculations that Japanese authorities might have stepped in to intervene. S&P futures remain stable, Nasdaq futures dip by 0.1%, and US 10-year Treasury futures show a slight decline from yesterday’s close.

Macro events (times in GMT): CPI readings for Sweden, France and Spain in the morning, U.S. PPI data MoM est. 01% in June vs. -0.2% in May (14:30), University of Michigan Survey (16:00), BOE releases quarterly bulletin article (13:00).

Earnings events: The Q2 earnings season kicks off this week with the three most watched earnings being today JPMorgan Chase and Citigroup. PepsiCo announced weaker-than-expected second-quarter revenue and a downgraded full-year outlook. The snack and soft-drink giant faces challenges from more budget-conscious consumers. JPMorgan is expected to see increased fees in wealth and investment banking, higher trading revenue, and net interest income aligned with guidance. Citigroup is expected to see higher charge-off rates and loss provisions, but strong trading, and services growth should support revenue, with stable expenses. Danish Insurance company Topdanmark Q2 earnings better than expected but is lowering expectations for 2024. Q2 EPS: DKK 3.6 vs Q2 2023: 2.9. Combined ratio 86.0 vs 82.3. Topdanmark has agreed to been taken over by Finnish Insurance Sampo. Low cost carrier Norwegian H2 earnings NOK477,1 mio. vs 319,1 expected. EBIT dropped to 593,0 mio but better than expected at 426,8. Revenue up by 36%

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

Fixed income: Bond markets celebrated faster-than-expected disinflationary trends, with bond futures pricing in more than two rate cuts by the end of the year, and a full rate cut expected in September. This caused yields to fall on both sides of the Atlantic and led yield curves to bull steepen. The two-year U.S. Treasury dropped by 10.8 basis points to 4.51%, while ten-year yields dropped by 7.6bps to test support at 4.18% but failed to close below it. Dampening the bond bull rally was a weak 30-year U.S. Treasury auction that tailed by 2.2 basis points more than the "when issued" rate, the most since January 2023. Despite an increase in direct bidders to the highest level since December 2014, indirect bidders tumbled from 68.7% in June to 60.7%, the lowest since November last year. The auction highlighted a lack of appetite from foreign investors to add ultra-long duration at the 4.405% level, raising serious questions about the sustainability of the U.S. deficit. As explained in this analysis, while the bond bull rally is expected to continue in the short term, the performance of the long end of the yield curve remains at risk from a reacceleration of the economy as the Fed begins to cut rates.

Commodities: Gold surged past $2,400 an ounce, nearing the record high set in May, and climbing by as much as 2.3% following softer-than-expected CPI data, which showed a 0.1% monthly decrease in consumer prices—the first negative reading in over four years. This fueled optimism that the Federal Reserve might soon start lowering interest rates. We believe that uncertainty about the U.S. economy and concerns over the sustainability of the U.S. deficit will support gold prices in the long term. Oil futures also finished higher on Thursday, as lower interest rates can positively impact the economy, leading to increased consumer energy demand and supporting oil prices.

FX: The cooler US inflation fueled gains in the Japanese yen, and suspected intervention from Japanese authorities amplified the move. While Japanese authorities have not confirmed intervention, another few rounds of yen strength in the Asian session have prompted intervention talk. Volatility in the yen remains high and the Bank of Japan may need to follow up with a rate hike at the July meeting to make this move in yen sustainable. Sterling also gained on the back of strong monthly GDP report in the UK, and Aussie dollar found a fresh bid in Asia. We wrote an FX note yesterday to discuss the cyclical weakness in the US dollar and which G10 currencies can benefit. The Swedish krona also weakened as Sweden’s inflation came in below expectations and supported Riksbank’s view of three more rate cuts this year. Focus today will be on US PPI report to confirm the softening trend seen in the CPI. 

Volatility: The VIX increased slightly to 12.92 (+0.07 | +0.54%). Notably, the VIX1D dropped to 10.64 (-2.39 | -18.34%), indicating reduced short-term volatility expectations after the favourable CPI numbers release. The VVIX rose to 84.47 (+1.06 | +1.27%), reflecting increased volatility of volatility. The SKEW index fell back to 152.23 (-4.73 | -3.01%), yet still above the 150 thresholds. VIX futures are currently at 14.170 (-0.025 | -0.19%). The S&P 500 and Nasdaq 100 futures started the day with minimal movement, with S&P 500 futures at 5,641.00 (+1.25 | +0.02%) and Nasdaq 100 futures at 20,420.50 (-21.25 | -0.10%). The expected move for the S&P 500 today is ±26.20 points (0.47%), and for the Nasdaq 100, it is ±163.76 points (0.81%). Today's key economic events include the release of PPI (MoM) and (YoY) for June at 14:30. This will be closely watched by the market as it could provide more clues about the future direction of interest rates. In earnings news, PepsiCo reported EPS of 2.28, beating the forecast of 2.16. However, revenue was below expectations at 22.5B. The stock opened at 159.10 but was able to regain those initial losses and ended at 163.95 (+0.36 | +0.22%). JPMorgan, Wells Fargo, and Citigroup are scheduled to release their earnings today, which will be closely monitored for indications about the health of the financial sector. The most active stock options yesterday were Nvidia, Tesla, Apple, Advanced Micro Devices, Amazon, Palantir Technologies, Meta Platforms, Intel, Microsoft, and American Airlines.

For a global look at markets – go to Inspiration.