Global Market Quick Take: Europe – 16 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: Donald Trump picks Ohio senator JD Vance as 2024 running mate (FT), Trump’s VP Pick Vance Says China Is the ‘Biggest Threat’ to US (Bloomberg) Recent inflation data 'do add somewhat to confidence' Fed can cut rates: Powell (YahooFinance), China tries to hit more birds with one stone in property rescue push (Reuters).

Equities: Bitcoin and Ethereum gained 10%. Crypto related stock surged in Monday’s session after Marathon Digital up 10%, Riot +18, Coinbase +12 and Cleanspark +16%. Alternative Energy had a bad day, where small cap Index Russell 2000 gained 2%. Goldman Sachs ended up 2.57% after Q2 earnings beat analysts expectations. Tyson Food reported revenues of 13.07 bln in line with analysts expectations. Shares ended down 7.3%. Rio Tinto reported a 2% YoY increase in Q2 iron ore shipments from Western Australia, exporting 80.3M tons from April to June. Full-year guidance for Pilbara operations remains 323-338M tons, with cash costs of $21.75-$23.50 per ton. Richemont Asia Pacific sales dropped 18% in Q1 with China sales –27%, other regions saw higher sales.  Swedbank reported Q2 profit at SEK8.6 bln from 9.12 vs 7.93 expected. SEB Q2 Net profit at SEK9.42 bln vs 8.8 expected.  (Newsedge). 

Macro: S&P and Nasdaq rose on the back of Fed Chair Powell's optimistic remarks on US inflation. The 10-year Treasury yield declines, remaining a couple basis points off its support level at 4.17%. WTI crude futures slide, gold rises, and Bitcoin surpasses $64,500 during the Asian session but tumbles at Europe's market open. Asian markets are mixed: the Hang Seng Tech index declined while Japanese indexes rise after a long weekend. South Korean and Australian stocks remain steady within a narrow range. The dollar strengthens, the yen weakens, and the Australian and New Zealand dollar retreat. 

Macro events (times in GMT): CPI readings for Italy, Hungary, and Poland, German ZEW Survey (09:00), U.S. Retail Sales, Import and Export price Index (12:30).

Earnings events:  Goldman Sachs reported 2Q Net Revenue of $12.73B, Est. $12.39B and on the trading side, both FICC and equities came in ahead of expectations. Shares rare up 27.6% year to date. Looking ahead, earning reports from Ocado, Bank of America and Morgan Stanley, Danske Bank will be in focus. Ocado retail division is projected to continue demonstrating strong revenue growth, maintaining the positive trend seen in 2023.

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

Fixed income: Yesterday, bond markets have been contending with the dual impact of the "Trump Trade" and anticipated interest rate cuts, leading to a twist-steepening of the U.S. yield curve where short-term yields have slightly decreased, while long-term yields have surged. In a recent interview with David Rubenstein, Federal Reserve Chair Jerome Powell emphasized that second-quarter economic data has increased policymakers' confidence that inflation is on track to reach the central bank's 2% target. This development suggests that imminent interest rate cuts are likely, contributing to a drop in short-term yields. Concurrently, the prospect of a Trump victory, with anticipated policies such as tax cuts, higher tariffs, and deregulation, is expected to boost economic activity and potentially spur inflation, thereby driving long-term yields higher. Although a Trump victory appears increasingly likely following recent events, the election outcome remains undecided. The focus is likely to shift back to disinflationary trends and interest rate cuts, causing additional steepening of the yield curve, and long-term yields to follow suit. European sovereign bonds reacted positively to the expectations that the Fed will soon be cutting rates. German Bunds closed over 2 basis points lower across tenors, while Italian BTPs outperformed peers with a 5 basis points drop across tenors. Today's attention remains on rate cut expectations and expectations at this week’s ECB meeting (for a preview click here).

Commodities: Gold surged to $2,439.75, nearing its all-time high, as investors responded to Federal Reserve Chairman Jerome Powell's recent remarks hinting at potential interest rate cuts, which favor non-interest-bearing assets like gold. The ongoing uncertainty in the U.S. political and economic landscape, coupled with concerns about the sustainability of the U.S. deficit, is expected to support gold prices in the long term. Meanwhile, oil prices declined as traders evaluated signs of weak demand in the U.S., where consumption typically peaks around the Fourth of July holiday, and in China, the world's largest crude consumer, as the country's GDP slowed to 4.7%, the lowest in five quarters.

FX: Fed Chair Powell remained non-committal to a September rate cut, while the Trump Trade was in full display after the brutal violence against the former president over the weekend and the start of the Republican Convention yesterday. This saw the US dollar strengthen broadly, with Aussie dollar and kiwi dollar losing even as the euro, Chinese yuan and Mexican peso erased some of the losses. The New Zealand dollar has been in a downtrend since the last RBNZ meeting that opened the door to a rate cut, and the Q2 CPI is out overnight. Bank of Canada’s quarterly survey highlighted growing pessimism and Canada’s CPI is due today, which will be key for whether the central bank cuts rates at the July meeting or not. Focus will also be on the US retail sales. The Japanese yen resumed its downtrend after the intervention-driven gains last week and we listed the reasons for potential yen weakness in this article. 

Volatility: The VIX closed at $13.12 (+0.66 | +5.30%) on Monday, showing a divergence from the typical inverse relationship with the markets. Despite the rise in the S&P 500 and Nasdaq, the VIX increased, suggesting heightened nervousness among investors. The VIX1D rose to 9.93 (+0.26 | +2.69%), and the VIX9D jumped 1.63 (+15.45%) to 12.18, indicating that the next 9 days have more implied volatility. The VVIX increased to 83.86 (+2.25 | +2.76%), while the SKEW index fell to 147.40 (-3.46 | -2.29%). Expected moves for today, based on options pricing, show the S&P 500 with an expected move of +/- 26.25 points (0.47%) and the Nasdaq 100 at +/- 146.34 points (0.72%). Key economic events for today include: Core Retail Sales (MoM) (Jun) with a forecast of 0.1% (vs previous -0.1%) and Retail Sales (MoM) (Jun) with a forecast of -0.3% (vs previous 0.1%). The earnings season continues with notable releases from UnitedHealth, Bank of America, Morgan Stanley, and Charles Schwab. S&P 500 and Nasdaq 100 futures are slightly positive, with the S&P 500 futures at 5693.00 (+10.00 | +0.18%) and Nasdaq 100 futures at 20641.75 (+58.00 | +0.28%). The VIX futures (VX1D) are at 14.21 (+0.01 | +0.07%). Monday's top 10 most traded stock options were Nvidia, Tesla, Apple, Amazon, Marathon Digital Holdings, Palantir Technologies, Advanced Micro Devices, Sofi Technologies, Sirius XM Holdings, and Trump Media & Technology Group.

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