Global Market Quick Take: Europe – 18 December 2024

Global Market Quick Take: Europe – 18 December 2024

Key points

• Equities: Main US indices suffer modest correction. Ugly breadth indicators as Dow Jones suffers ninth consecutive losing day,
• Volatility: VIX spikes, Fed rate decision in focus
• Currencies: JPY firms slightly on softer US treasury yields. CAD and AUD dip to new cycle lows versus USD
• Commodities: Gold drifts as focus shifts to next year’s rate outlook
• Fixed Income: US yields edged modestly lower ahead of FOMC, UK yields jump again after strong wage data.
• Macro events: FOMC Meeting and Fed Chair Powell press conference

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

Macro data and headlines

• UK Nov. CPI out this morning showed the headline in-line with expectations at +0.1% M/M and +2.6% Y/Y while the core Y/Y level was slightly lower than expected at 3.5% (3.6% expected) and 3.3% in October. CPI Services was steady at 5.0% Y/Y vs. 5.1% expected.
• US retail sales for November rose 0.7%, above the expected 0.5%, and rising from the prior, revised higher, 0.5%. Retail sales ex-autos came in beneath forecasts at 0.2% (exp. 0.4%, prev. 0.2%), and ex-gas/autos was 0.2% (prev. 0.2%). Retail control printed 0.4%, as expected, lifting from October’s -0.1%. The solid headline was led by vehicle sales (+2.6% M/M) but still showed signs of broad-based strength, with control group sales increasing at a healthy pace too.
• Chinese leaders plan to raise the budget deficit to a record 4% of GDP next year, sources tell Reuters. The economic growth target remains around 5% for 2025.
• Canada CPI was slightly cooler Y/Y, but Median and Trim came in hot M/M; the average of the BoC eyed measures ticked down to 2.43% from a revised up 2.50%.
• FOMC preview: The Federal Reserve is widely expected to deliver a 25 basis-points (bps) rate cut this week, reducing the target range for the federal funds rate to 4.25-4.50%. The 2025 dot plot is a point of interest as the market has the end-2025 Fed rate expectations near 3.85% (a half percent below the Fed’s September dot plot forecast), while the Fed’s long term dot plot forecasts are centered on about 3.00%, while the market sees low likelihood of further rate cuts. The more the Fed moves to agree with current market projections, the more it would make a cut tonight a hawkish one – with changes to the economic projections another point of contention. To read more on what the Fed is likely to do and how to position, read our preview article here.
• BOJ preview: The Bank of Japan policy decision is out tomorrow, and communication has shifted lately to suggest that the bank is likely to not hike the rate as the BOJ views delaying tightening as low-risk and waits for more wage growth evidence and Trump policy risks in Jan 2025. With both Fed and BOJ within 12 hours, there is heightened volatility risk in the Japanese yen.

Macro events

Central bank meetings: FOMC (Today), Bank of Japan, Sweden Riksbank, Norway Norges Bank and Bank of England (Thursday)

Earnings events

• Today: Micron Technology (after close), Lennar (after close)
• Thursday: Fedex, Cintas, Nike, Accenture, Darden Restaurants
• Friday: Carnival

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

Equities

• US: US equities retreated on Tuesday ahead of the Federal Reserve's key policy announcement later today. The Dow fell 0.61% (-267 points), marking its ninth straight loss—the longest streak since 1978. The S&P 500 slipped 0.39%, while the Nasdaq 100 dropped 0.43%, pressured by declines in Nvidia (-1.2%) and Broadcom (-3.9%), which reversed recent gains. Tesla outperformed, rising 3.5% amid strong buying momentum. Retail sales data surprised to the upside, increasing 0.7% in November, raising concerns that persistent economic strength could delay deeper Fed rate cuts in 2025.
• Europe: European stocks edged lower on Tuesday as investors remained cautious ahead of central bank decisions. The STOXX 50 dipped 0.1% to 4,943, while the STOXX 600 fell 0.4% to 514, weighed down by weak German business sentiment (Ifo decline) and lower oil prices dragging TotalEnergies and ENI (-1.2% to -2.4%). Financials underperformed, with Santander and BBVA shedding over 1.5%. However, ASML bucked the trend, climbing 2% on upbeat chip sector sentiment. Markets await clarity from the Fed's rate outlook and UK inflation data ahead of Thursday’s Bank of England meeting.
• Asia: Asian markets were mixed on Wednesday as traders awaited the Fed’s decision and Beijing’s policy updates. The Hang Seng Index rebounded 1.03% to 19,903, snapping a three-session slide, led by gains in tech and consumer stocks. Mainland Chinese markets underperformed, with the Shanghai Composite declining 0.5% amid disappointment over a lack of detail in stimulus measures and concerns over weak retail sales. Japan’s Nikkei remained flat, with markets split on whether the Bank of Japan will shift its monetary stance later this week.

Volatility

• US treasury yields settled a few basis points lower after their recent run higher into today’s FOMC meeting as the market awaits the FOMC messaging on the policy rate and staff economic projections on the economy, which also send a message on the anticipated path of policy (although the Fed has often proved a poor forecaster). Key level for the US 10-year benchmark treasury yield is 4.50%
• German and European yields settled slightly lower after the recent steep run-up
• UK yields jumped on yesterday’s hotter-than-expected UK earnings data. The 2-year Gilt yield is up nearly 15 basis points over the last two days, trading near 4.45% (November highs were just north of 4.50%), while the longer 10-year Gilt benchmark has pulled above 4.50% (November high just under 4.60%.)

Commodities

• Crude oil steadied after a two-day drop, supported by another seasonal decline in US stockpiles after the API, ahead of today's official data from the EIA, reported a 4.7-million-barrel drop. Continued concerns about the demand outlook in China have otherwise been the focus this week, leading hedge funds to lower bullish bets.
• Gold prices continue to trade soft as traders look beyond today’s expected US rate cut and towards an uncertain interest rate outlook next year, as US economic data strength and Trump’s expected actions continue to underpin the USD by sending Treasury yields higher. Also, some end-of-year profit-taking has been noted following bullion’s best year since 2010.
• Iron ore fell for a second day on signs of weakness in China’s steel market, even as the central government has signaled greater fiscal and monetary support for the economy headed in 2025. Meanwhile a six-day decline has taken range bound copper down towards support near USD 4.1 per pound as China uncertainty continues to weigh

Currencies

• The US dollar was mixed once again ahead of today’s FOMC meeting, with EURUSD sticky around the 1.0500 magnet and the JPY making a comeback late yesterday from above 154.00 in USDJPY on US treasury yields dipping as a modest bout of risk aversion settled over markets.
• USDCAD posted a new cycle and multi-year high above 1.4300 despite firmer than expected core Canadian CPI and AUDUSD pushed to a new cycle low, nearly touching 0.6300 for the first time since late 2023.