Global Market Quick Take: Europe – 16 August 2024 Global Market Quick Take: Europe – 16 August 2024 Global Market Quick Take: Europe – 16 August 2024

Global Market Quick Take: Europe – 16 August 2024

Macro 3 minutes to read
Saxo Strategy Team

Key points:

  • Equities: Japanese equities fully recoup losses
  • Currencies: Dollar in third weekly retreat
  • Commodities: Copper supported as supply disruptions rise, a rare summer withdrawal support natural gas
  • Fixed Income: Strong US retail sales data trigger global bond market declines
  • Economic data: University of Michigan sentiment, US housing stats

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

In the news: Applied Materials delivers upbeat earnings guidance as Q3 results beat estimates (Investing), Walmart beats sales, raises outlook as higher-income consumers continue to turn to the retail giant (Yahoo), Latest economic data cools US recession worries (Yahoo), Alibaba revenue edges up to US$33.5 billion but misses estimate in June quarter (Yahoo), Political uncertainty may prod BOJ to pause, but not end, rate hike path(Reuters)

Macro:

  • US retail sales surprised on the upside, easing fears about a recession that had prompted markets to expect a 50bps rate cut from the Fed at the September meeting. Headline retail sales for July rose by 1.0%, well above the expected 0.4%. The core metric, ex autos, rose by 0.4%, above the 0.1% forecast while the prior was revised up to 0.5% from 0.4%. Super core, ex gas and autos, rose by 0.4%, easing from the prior 0.8%. The Retail Control, which feeds into the GDP, rose by 0.3%, above the 0.1% forecast and but slowing from 0.9% in June.
  • US weekly jobless claims also quelled fears about a rapid cooling in the labor market. Jobless claims for the week of August 10 slowed to 227k from 234k in the previous week and 235k expected. Still, claims data can be choppy around the summer months and focus remains on non-farm payrolls for August due on September 6.
  • Fed’ Bostic (voter) said he is open to a September rate cut as inflation cools and said as price pressures ease officials also need to be conscious of their mandate of maintaining full employment. Fed’s Musalem (2025 voter) added the recent data have bolstered his confidence on inflation, and the time may be nearing for a change in policy rate.
  • UK’s Q2 GDP came in as expected at 0.6% QoQ (vs. 0.7% prior) and 0.9% YoY (vs. 0.3% prior) signalling resilience in the UK economy. Private consumption was weak at 0.2% QoQ vs. 0.5% expected but that July retail sales out today could shed more light on the state of the consumer.
  • Australia’s July jobs numbers were upbeat with total employment at 58.2k for July coming in better than 20k expected, and full-time employment very healthy. Participation rate, however, jumped higher to 67.1% from 66.9%, pushing the unemployment rate higher to 4.2% from 4.1%.

Macro events (times in GMT): UK Retail Sales (Jul), exp 0.6% & 1.4% vs –1.2% & -0.2% prior (0600), US Housing Starts (July) exp 1333k vs 1353k prior (1230), US Building Permits (Jul) exp 1425k vs 1446k prior (1230), Uni of Michigan Consumer Sentiment (Aug) exp 66.9 vs 66.4 (1400). Fed’s Goolsbee speaks at 1100, 1725 & 2015.

Earnings events: Walmart shares rose 6.6% yesterday as the major US retailer raised its outlook on both revenue and profits. In addition, losses in its e-commerce business are coming down, adding to a positive development on the bottom line. Applied Materials shares gained 5% in the primary session before giving most of it up as its earnings results and revenue guidance were a bit weaker than estimated. Deere’s earnings results surprised despite a weak backdrop in global agricultural fundamentals with shares gaining 6%. There are no major earnings releases today.

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

Equities: Japanese equities are up another 3.6% today extending the gains to 21% from the lows 8 trading sessions ago. Japanese equities have now recouped the losses from the JPY carry trade fallout and subsequent global selloff. Futures are pointing to a higher open in Europe and the US. The equity market sentiment was bolstered yesterday by strong US July retail sales and initial jobless claims declining back to levels below 230k reaffirming that the US labour market remains strong enough despite some weakness. Today’s focus is on US July housing starts and Michigan August sentiment. In Europe, investors will focus on earnings from NKT and Nibe Industrier. Nike could also be in focus today as the hedge fund Pershing Square has taken a share in Nike lifting the shares 5% yesterday and making Nike one of the most trade stocks.

Fixed income: On Thursday, U.S. Treasury yields surged, leading to a sharp flattening of the yield curve. This movement was driven by stronger-than-expected retail sales data and lower-than-anticipated weekly jobless claims. Short-term yields jumped by up to 14 basis points, while 30-year yields rose by about 5 basis points. The market's response reflected a reduced likelihood of a significant Federal Reserve rate cut in September, with bond futures now pricing in a 32 basis point cut, down from 50 basis points last week. European bond markets also declined following the U.S. data. German 10-year yields increased by 8 basis points to 2.26%, while UK 10-year yields rose by 10 basis points to 3.93%, the largest jump since July 1st, as traders reassessed expectations for rate cuts by the ECB and the Bank of England. Markets are now pricing in a 65 basis point rate cut by the ECB and a 40 basis point cut by the BOE by the end of the year. Today the focus shifts on the University of Michigan Sentiment, while markets prepare for next week's European CPI numbers.

Commodities: Industrial metals shrugged off weak Chinese economic data to push higher, with copper heading for a 3.4% weekly gain as strike action at BHP’s Escondida mine in Chile entered a third day, impacting 5% of global supply. Lundin, another miner operating in Chile, has also been forced to lower production. Gold dipped following a strong set of US data, only to bounce back with bulls focusing on a September rate cut, and not the actual size of it. Brent crude, the global benchmark, is heading for a second weekly gain after rebounding from a seven-month low. The market remains on alert for developments in the Middle East, as Israel entered talks about pausing the conflict in Gaza. US natural gas was underpinned by the first summer withdrawal of stocks in six years, but strong demand through late summer heat and production restraint are still needed to underpin prices.

FX: The US dollar is heading for a third, albeit small, weekly decline with the Bloomberg Dollar Index trading near a four-month low. This week it has faced two opposing forces, with rising Treasury yields pushing it higher but offset by reduced recession concerns supporting a risk-on sentiment and pushing the US dollar lower. The Japanese yen, however, suffered on both accounts and has retraced all its gains since recession concerns first picked up with the July US jobs report on August 2. Activity currencies, however, saw a sharp rebound after the initial US retail sales-driven decline. UK’s pound as well as Australian dollar were eventually higher against the US dollar, while the euro near €1.10 may record its highest weekly close this year.

For a global look at markets – go to Inspiration.

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