Global Market Quick Take: Europe – 3 July 2024

Key points:

• Equities: European equities indicated higher. Tesla shares up 10% on Q2 deliveries beat.
• Currencies: Slightly weaker US dollar on Powell inflation comments
• Commodities: Oil remains bid while gold is still in a trading range
• Fixed Income: Powell's speech boosts sentiment on both sides of the Atlantic.
• Economic data: Eurozone PPI and US ADP Employment change

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

Saxo’s Quarterly Outlook is out and can be accessed here

The title is Sandcastle economics reflecting that the economy and financial markets look pretty with resilient growth and equities at an all-time high. We expect favourable market conditions to continue in Q3, but sandcastles are naturally fragile and thus our clients should be aware of the potential risks lurking around the corners ranging from geopolitics, US election in Q4, unsustainable fiscal trends, and demographics longer term.

In the news: Le Pen Faces Uphill Struggle to Get Majority in French Election (Bloomberg), China's services activity growth hits 8-month low, Caixin PMI shows (Reuters), Joe Biden under new pressure to quit race as Democratic disquiet spreads (FT), The risk of a replay of the lost decade in US stocks (FT)

Equities: Strong session in Asia with Japanese equities up 1.3% and Hong Kong equities up 1.1%. Futures are pointing to a 0.7% higher open in European equities. The most interesting move yesterday was Tesla up 10% as the EV maker announced Q2 deliveries of 443,956 beating estimates of 439,302. European stocks that traded with above average volume yesterday were Munich Re, Porsche, and Pandora. JOLTS job openings rose surprisingly yesterday suggesting the US labour market remains tight. Eurozone inflationary dynamics are still worrying the ECB with comments from Lagarde leaning more hawkish than dovish.

Macro: US JOLTS job openings rose to 8.140mln from the revised down 7.92mln and above the 7.91mln forecast. The quits rate was unchanged at 2.2%, while the vacancy rate ticked up to 4.9% from 4.8%. The slight increase in JOLTS shows the labour market remains strong which will make the Fed patient before cutting rates. The next focus point for the labour market will be the NFP report on Friday (read our preview). Fed Chair Powell spoke at the Sintra conference, where he noted the progress on disinflation, but they need to be more confident before reducing policy rates. Comments tilted slightly more dovish than previously, but still very balanced. The RBA minutes from the June meeting (where the cash rate was held at 4.35%) revealed the Board judged the case for holding rates steady was stronger than hiking, although a hike might be needed if the board judged its policy was not sufficiently restrictive. With data suggestive of upside risk for May CPI, the minutes also unveiled that the recent data wasn't sufficient for the Central Bank to change its inflation target outlook for 2026.

Macro events (times in GMT): Eurozone PPI (May) exp -0.1% & -4.1% vs -1% & -5.7% prior (09:00), US ADP Employment Change (Jun) exp 165k vs152k (1215), US Initial jobless claims exp 235k vs 233k (12:30), US Factory Orders (May) exp 0.2% vs 0.7% (1400), EIA’s Weekly Crude and Fuel Stock Report (14:30)

Earnings events: There are no important earnings releases this week.

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

Fixed income: Jerome Powell’s speech at the panel in Sintra, alongside ECB President Christine Lagarde and Brazil’s Central Bank Governor Roberto Campos Neto, was in the spotlight. The Federal Reserve Chair expressed confidence that inflation would soon resume its downward trajectory but emphasized the necessity of additional evidence before considering rate cuts. The discussion had a positive impact on sovereign bonds on both sides of the Atlantic. In the U.S., the yield curve bull-flattened, with 2-year yields decreasing by 1.4 basis points to 4.74%, while 10-year yields dropped by 3 basis points to 4.43%. In Europe, Italian BTPs outperformed their peers, with 10-year yields falling by 3 basis points to 3.4%, while German Bunds remained steady around 2.59%. Today is expected to be a busy data day ahead of the Fourth of July holiday, with key economic indicators such as jobs data, U.S. PMI, ISM Services Report, and the FOMC meeting minutes scheduled for release. Ahead of the UK elections, Gilts have also risen and the yield curve disinverted. However, given the fiscal uncertainty, short-term rates present a more attractive proposition compared to longer-dated Gilts. To learn more about the UK bond market amid the elections click here.

Commodities: Oil remains bid trading at the highest levels since April as positive economic growth drivers and tighter supply are underpinning higher oil prices. Gold is still locked in its trading range with upside driven by inflation surprises and downside risks linked to potential rate cuts.

FX: The US dollar weakened marginally as Fed Chair Powell’s comments took comfort in disinflation and hinted that rate cuts could come earlier this year if these trends were to continue. The weaker dollar saw high-beta currencies outperform, while Swiss franc and Japanese yen underperformed. The Japanese yen touched new lows despite the rise in Japan’s bond yields, heading to 161.74 against the US dollar. However, any moves towards 165 will continue to increase intervention risks by Japanese authorities. The British pound was stronger going into the July 4 general elections, while the Australian dollar also gained with the RBA minutes from June meeting keeping an August rate hike in play.

Volatility: The VIX closed Tuesday at $12.03 (-0.19 | -1.55%), continuing its downward trend. The SKEW index rose to 147.16 (+1.34 | +0.92%), indicating increased perceived tail risk. Despite a half day of trading, today's economic news could significantly impact market volatility, with the ADP Nonfarm Employment Change, Initial Jobless Claims, S&P Global Services PMI, and the release of FOMC Meeting Minutes. US markets close early at 1 PM EST (7 PM Brussels time) today. VIX futures are currently at $13.150 (-0.055 | -0.42%). S&P 500 and Nasdaq 100 futures are slightly down: S&P 500 futures at 5563.25 (-5.50 | -0.10%) and Nasdaq 100 futures at 20245.25 (-10.00 | -0.05%). Tuesday's top 10 most traded stock options included Tesla, Nvidia, Apple, Amazon, Advanced Micro Devices, Nike, Rivian Automotive, Palantir Technologies, Marathon Digital Holdings, and Sirius XM Holdings. Notably, it's the first time since Nvidia's stock split that it wasn't the most traded.

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