Global Market Quick Take: Europe – 16 October 2024

Key points:

• Equities: U.S. stocks down, ASML shares drop 16.2%, Nvidia falls 4.6%, oil prices decline, Bank of America up 0.5%, Apple hits record high
• Currencies: Sterling drops sharply on soft CPI figures this morning, JPY firms as US yields drop
• Commodities: LBMA sees silver gaining 40% in next twelve months
• Fixed Income: Drop in US yields yesterday post very weak Empire manufacturing survey, Canadian CPI data.
• Economic data today: Canada Sep. Housing Starts, US Sep. Import/Export prices

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

Saxo’s Q4 Outlook – published on 2 October 2024

Macro: The US rate cut cycle has begun
Equities: Will lower rates lift all boats in equities?
Fixed Income: Bonds hit reset. A new equilibrium emerges
Forex: USD in limbo amid political and policy jitters
Commodities: Gold and silver continue to shine bright

Macro:

• This morning, UK reported lower than expected September CPI figures, with the headline figure coming in at 0.0% MoM and 1.7% YoY vs. 0.1%/1.9% expected and the key core YoY inflation coming in at 3.2% YoY vs. 3.4% expected, a new cycle low and v. 3.6% in August. The CPI services figure was down to 4.9% YoY vs. 5.2& expected and 5.6% in August.
• New Zealand Q3 CPI out overnight at +0.6% QoQ and 2.2% YoY vs. +0.7%/2.2% expected, respectively.
• Yesterday, Canada reported that its annual inflation rate dropped to 1.6% in September from 2% in August, below the 1.9% forecast. This marks the second consecutive month below the Bank of Canada's 2% target, increasing the likelihood of further rate cuts.The trimmed-mean core rate remained at 2.4%. Monthly consumer prices fell by 0.4%.
• US Oct. Empire manufacturing, the first of the regional US manufacturing surveys, surprised very negatively yesterday with a reading of -11.9 vs. +3.6 expected and +11.5 in September. It is generally a very volatile survey.

Macro events (times in GMT): Canada Housing Starts (Sep) exp 235k vs 217.4k prior (1215), US Sep Export & Import prices (1230)

Earnings events: Earnings season is in full swing, with major U.S. banks wrapping up their reports today. In an unexpected twist, ASML mistakenly published its earnings yesterday, ahead of schedule, surprising the market. The company’s reported order bookings far below estimates, and its shares were pummelled. Investors will now turn their attention to other key companies reporting today.

• Today: Morgan Stanley, CSX, Kinder Morgan, Abbott Laboratories, U.S. Bancorp
• Thursday: ABB, Investor, Elevance Health, Netflix, Intuitive Surgical, Blackstone, Marsh & McLennan, Truist Financial, Travelers, Nordea, Nokia, Schindler
• Friday: CATL, Zijin Mining, Volvo, American Express, Schlumberger, Procter & Gamble

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

Equities: U.S. markets declined on Tuesday, led by a broad selloff in semiconductor stocks after ASML, the Dutch high-end chip-gear maker reported booking about half as many orders as expected. This drove ASML shares some 16% lower. The S&P 500 fell 0.7%, the Nasdaq 100 dropped 1.4%, and the Dow closed down by 324 points. ASML's shares plunged 16.2% after lowering its outlook, weighing heavily on other chipmakers, with Nvidia (-4.6%), AMD (-5.2%), and Broadcom (-3.5%) following suit. Energy stocks were also hit hard as Exxon Mobil (-3%) and Chevron (-2.7%) slipped alongside falling oil prices. In healthcare, UnitedHealth tumbled 8.2% after issuing a weaker earnings forecast, in contrast to Bank of America, which rose 0.5% on stronger-than-expected profits. On a positive note, Apple (+1.1%) reached an all-time high, buoyed by strong demand for its older models amid the iPhone 16 launch. After hours, LVMH warned of a revenue decline in the past quarter, surprising analysts who had expected growth, which could result in significant losses for the luxury goods maker today. Yesterday’s earnings saw mostly positive figures across sectors, including notable beats from UnitedHealth, J&J, and Goldman Sachs.

Volatility: Volatility picked up as markets sold off on Tuesday, with the VIX climbing 4.8% to 20.64, signaling increased caution among investors. The VVIX, which tracks volatility of volatility, also jumped by 5.3%, reflecting heightened nervousness around market moves. Implied volatility for the S&P 500 points to a 28 point expected move, while the Nasdaq 100 could see swings up to 154 points. Futures on the VIX edged slightly higher to 19.37. Market participants are bracing for more potential volatility around tomorrow’s U.S. retail sales report, with earnings season heating up as Netflix is set to report as well, potentially stirring further market swings if expectations are missed.

Fixed Income:  US Treasury yields traded softer overnight extending Tuesday’s decline led by a drop in the 10-year tenor supported by gains in Canadian bonds following benign inflation data. The rally tightened the 2s10s spread by over 6 basis points and the 5s30s spread by about 5 basis points. The 10-year yield fell by 7 basis points to 4.03%, while Canada’s 10-year yield decreased by 9 basis points. German 2 and 10-year yields both softened to trade near 2.2% ahead of Thursday’s ECB rate decision.

Commodities: Crude prices have steadied after suffering a +4% decline on Tuesday amid the IEA warning about a global glut into 2025 and the market trying to guess whether an Israeli attack on Iran would include its energy infrastructure. EIA’s weekly stock report will be released on Thursday. Gold trades higher for a second day supported by declining US Treasury yields with industry insiders looking for a 10% increase over the next year. Members of the London Bullion Market Association, meeting in Miami, see silver outpacing gold to reach USD 45. The copper tries to recover ahead of support following a correction triggered by worries China’s announced stimulus measures would not be enough underpin growth and demand.

FX: the drop in US yields yesterday on weak US and Canadian economic data saw the JPY supported in the crosses, while elsewhere the US dollar maintained a solid footing. This morning, the UK’s weak CPI inflation report drove sterling sharply lower, seeing the GBPUSD exchange rate testing the psychologically important round 1.3000 level. The New Zealand dollar softened overnight after the country’s Q3 inflation report was slightly lower than expected for the quarter-on-quarter level.

For a global look at markets – go to Inspiration.