Global Market Quick Take: Europe – 4 July 2024

Key points:

• Equities: Slightly positive sentiment in equities. Focus on Te
• Currencies: Broad dollar weakness on soft US economic data
• Commodities: Silver led the metals higher
• Fixed Income: US ISM services boosts sentiment in bond markets on both sides of the Atlantic.
• Economic data: UK election and US markets closed for Independence Day

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: Japan and Taiwan stock benchmarks hit all-time highs as Asia-Pacific markets rally (CNBC), Landmark UK election kicks off as center-left Labour seeks return to power after 14 years (CNBC), White House says zero chance Biden will withdraw (Yahoo), 'Several' Fed officials want more rate hikes if inflation persists, minutes show (Investing),

Equities: Another positive session in Asia with Japanese equities up 0.7% and futures point to a higher open in European equities. Tesla was the big US single stock move yesterday on high volume with shares 6.5% higher extending momentum following a slight beat on its Q2 deliveries. In Europe, the flow was concentrated in DSV and Maersk as the latter has pulled from the potential takeover deal of DB Schenker. Maersk shares were up 4% as shareholders were relieved. News flow around obesity drugs has become more negative this week with Democrats attacking high prices on Novo Nordisk’s Ozympic and Wegovy and Harvard study yesterday showing a link between Ozympic and a rare cases of vision loss causing Eli Lilly to trade lower.

Macro: Federal Reserve officials were divided on how long to keep interest rates high, awaiting more evidence of cooling inflation. Some advocated patience, while others stressed the need for a weaker labor market. Lowering rates was deemed inappropriate without clear evidence of hitting the 2% inflation target. Chair Jerome Powell emphasized the need for more definitive evidence before lowering rates, despite modest progress. The labor market's complexity, with job additions but rising unemployment, added to the uncertainty. US ISM data showed the largest contraction in services activity in four years in June, contrary to expectations of expansion. Additionally, the ADP report indicated that fewer private-sector jobs were added than anticipated in June, while the Department of Labor reported that continuing unemployment claims rose for the ninth consecutive week to their highest level in over two years.

Macro events (times in GMT):  UK Election Day, UK construction PMI (Jun) exp 54 vs 54.7 (0830), U.S. Markets closed for Independence Day

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

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

Fixed income: Bond markets closed higher yesterday due to weaker-than-expected U.S. Services ISM headline and component data for June. The cooling of the U.S. economy suggests the potential for interest rate cuts, leading bond futures to price in a 46 basis point rate cut by year-end, up from 40 basis points the previous day. At the same time, the U.S. yield curve bull flattened as recession fears grew. Ten-year Treasury yields fell by 7 basis points to 4.35%, while two-year yields edged slightly lower to 4.7%. In Europe, French and Italian sovereign bonds outperformed their peers, dropping by 7 basis points to 3.25% and 3.98%, respectively. Ten-year Gilt yields fell by 8 basis points, closing the day at 4.17% ahead of the elections. Today the U.S. market is closed, the focus is on the UK election later today and the US non-farm payrolls data on Friday. To learn more about the UK bond market amid the elections click here.

Commodities: Crude oil trades near two-month high, supported by big weekly draw in US stockpiles and after Hurricane Beryl threatened production in the Gulf of Mexico. Silver surged back above $30 per ounce, marking their fifth consecutive session of gains amid expectations of increased demand for the metal in renewable energy expansion, a focus that also helped copper move higher, thereby reducing the risk of additional long liquidation from funds. Meanwhile, gold rose to $2,362, its highest level in a month, benefiting from a decline in the dollar and Treasury yields following new data that bolstered expectations for a Federal Reserve rate cut in September.

FX: The USD weakened across the board, with the Euro briefly trading above 1.08, and GBP above 1.2770, and the AUD above 0.67. This decline was driven by increasing expectations of a Fed rate cut in September following disappointing economic data. While economic data in the Eurozone met expectations, President Lagarde noted that there was insufficient evidence to suggest that inflation is diminishing. JPY dropped to its lowest level since 1986, nearing 162 per dollar, due to interest rate differences with the US and potential for a second Trump presidency. The Bank of Japan's reluctance to change monetary policy and rising import costs are also factors.

Volatility: The VIX ended Wednesday at $12.09 (+0.06 | +0.50%), with the SKEW index rising to 148.83 (+1.67 | +1.13%), indicating a slight increase in perceived tail risk. The VIX1D rose significantly to 11.11 (+2.29 | +25.96%), reflecting heightened volatility around the upcoming unemployment release on Friday, which could provide more clues about future interest rate cuts. Today, US markets are closed for Independence Day. Tomorrow's key economic events, which could impact market movements, include Average Hourly Earnings, Nonfarm Payrolls, the Unemployment Rate, and the Fed Monetary Policy Report. VIX futures are at $13.220 (-0.050 | -0.38%). S&P 500 and Nasdaq 100 futures show minimal movement: S&P 500 futures are at 5590.75 (+0.50 | +0.01%) and Nasdaq 100 futures are at 20405.50 (-6.00 | -0.03%). Wednesday's top 10 most traded stock options included Nvidia, Tesla, Apple, Amazon, Advanced Micro Devices, Nike, Rivian Automotive, Sirius XM Holdings, Nio, and JP Morgan Chase.

For a global look at markets – go to Inspiration.