Global Market Quick Take: Europe – 17 September 2024

Key points:

• Equities: Futures indicate higher open in Europe. Focus on Intel and Microsoft.
• Currencies: Dollar near year low ahead of FOMC
• Commodities: Oil getting squeezy; Stimulus hopes lift copper
• Fixed Income: Treasuries and European Bonds Rally Ahead of Fed Rate Decision
• Economic data: US retail sales, Canada CPI, German ZEW

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

In the news: Intel foundry business to make custom chip for Amazon, chipmaker's shares jump (Investing), Wall Street slashes its outlook on China (Investing), Goldman Sachs reiterates bullish view on gold prices amid Fed rate-cut hopes (Investing), Microsoft Announces $60 Billion Buyback, Raises Dividend 10% (Bloomberg), Fed rate cuts will not be as deep as the market expects, says BlackRock (Reuters)

Macro:

• NY Fed Empire manufacturing came in better-than-expected for September as the headline printed +11.5 (prev. -4.7, exp. -4.75). Looking at the breakdown, new orders jumped to +9.4 from -7.9, prices paid were more-or-less unchanged at 23.2 (prev. 23.4), with employment coming in at -5.7 (prev. -6.7). Shipments and unfilled orders soared to 17.9 (prev. +0.3) and 2.1 (prev. -7.4), respectively. Fed surveys or soft data are less in focus as markets remain focused on the start of the rate cut cycle from the Fed.

Macro events (times in GMT): German ZEW Survey Expectations (Sep) exp 17 vs 19.2 prior (0900), US Retail Sales (Aug) exp –0.2% MoM vs 1% prior (1230), Canadian CPI (Aug) exp flat MoM & 2.1% YoY vs 0.4% & 2.5% prior (1230), US Industrial Production (Aug) exp 0.2% MoM vs –0.6% prior (Aug), Business Inventories (Jul) exp 0.3% vs 0.3% prior (1400), NAHB Housing Index (Sep) exp 41 vs 39 prior (1400), API’s Weekly Crude and Fuel Stock Report (2000)

Earnings events: US home products company Ferguson Enterprises, the company sells products within plumbing, heating, air conditioning etc., reports FY24 Q4 earnings today in the US pre-market session. Analysts expect a 2% YoY revenue growth as the US housing market is still growing at a slow pace due to elevated interest rates.

• Tuesday: Ferguson Enterprises
• Wednesday: Vantage Towers, General Mills
• Thursday: FedEx, Lennar, Darden Restaurants, Next, FactSet Research Systems

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

Equities: Hong Kong equities are up 1.4% today on positive sentiment. Chinese appliance maker Midea rose 10% in its debut session in Hong Kong raising $4bn in the process. Futures are pointing to a 0.5% higher open in Europe this morning. Intel reported yesterday that they are pausing their new factory projects in Poland and Germany for two years as the US chipmaker shores up its business. The chipmaker also said that it will spin off its foundry unit as an independent business. Microsoft announced a 10% boost to quarterly dividends and sets up a $60bn buyback programme. Oracle was the most traded US stock relative to normal yesterday as the stock got a significant sell-side analyst boost on the back of the company’s strong backlog.

Fixed Income: U.S. Treasuries saw gains, particularly in the long part of the yield curve as the market focuses on the upcoming Federal Reserve rate decision on Wednesday. Yields on 10-year Treasuries dropped to around 3.625%. Early in the session, the front end of the curve led the performance, but later, long-term bonds caught up, leading to a flattening of the curve. Investors are positioned for a potential 50bp rate cut, with 118bps in cuts priced for the rest of the year. European sovereign bonds, particularly German bunds, saw gains, mirroring the rise in U.S. Treasuries. The yield on 10-year German bunds fell by 3 basis points to 2.12%. Additionally, traders priced in around 37.5bps of rate cuts by the European Central Bank (ECB) by the end of the year. ECB Chief Economist Philip Lane's comments reinforced the idea that the next rate cut would likely occur in December, rather than October. Italian bonds also saw yields drop, with the 10-year falling to 3.48% and the BTP-Bund spread remains stable at 136bps. Markets today will focus on US retail sales ahead of the FOMC meeting tomorrow.

Commodities: Oil trades near a one-week high, supported by a general market risk-on sentiment as we approach tomorrow’s US rate decision. In addition, supply disruptions in Libya and speculation that China needs to go big on stimulus to support the economy have helped trigger buying from hedge funds, who last week held the most bearish view on oil in recorded history. Gold holds steady near a record high with an incoming US rate cutting cycle adding support amid the prospect for lower funding costs lifting investment flows into exchange-traded funds. Note, a 25 basis point cut may trigger a setback given the current focus on a 50 basis point cut. Copper rose to challenge the August high amid signs that bloated inventory levels have started to roll over, as well as speculation about more economic support from the Chinese government. European gas slumped to a six-week low after the recent cold snap gave way to milder temperatures, allowing inventories to continue to build while demand remains subdued.

FX: The US dollar was under pressure Monday before steadying overnight in Asia as markets continued to increase the odds of a bigger rate cut from the Fed this week after former NY Fed President Bill Dudley reiterated his remarks from last week saying that he thinks the Fed will start off the easing cycle with a 50bp rate cut. The DXY index trades close to its YTD lows that were printed in August, and gains in the Monday session were led by activity currencies. Kiwi dollar, Aussie dollar and British pound were all up 0.7% against the US dollar and the only G10 currency that closed in the red was Canadian dollar as the Bank of Canada governor appears to be making a case for a bigger rate cut at the October meeting, and a softer Canada CPI due today could be a green flag for such a move. The Japanese yen rose to its highest levels in a year on Monday, after USDJPY briefly traded below 140 ahead of decisions this week from the FOMC and BoJ. For more on our FX views, read the Weekly FX Chartbook.

Volatility: Volatility (VIX) ticked up slightly, rising 3.5% to 17.14 as markets anticipate the Federal Reserve’s interest rate decision tomorrow. While volatility remains relatively low, the uncertainty surrounding the rate cut, especially whether it will be 25 or 50 basis points, keeps the market cautious. The expected moves, based on options pricing, indicate potential up-or-down movements of about 29 points (0.52%) for the S&P 500 and roughly 152 points (0.78%) for the Nasdaq 100. While volatility isn’t elevated, significant swings could still occur depending on how key events unfold this week. Today’s focus will be on the retail sales data, with the main event being the Fed’s interest rate decision tomorrow. Markets are likely to remain cautious ahead of the announcement. Yesterday’s most active stock options were Nvidia, Tesla, Apple, Intel, Palantir, Oracle, Amazon, AMD, Microsoft, and Meta Platforms.

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