Global Market Quick Take: Europe – 25 November 2024

Key points:

• Equities: US gained modestly, Asia mixed, Europe rose on tech and consumer cyclicals.
• Volatility: VIX fell below 16, expected moves subdued due to a holiday-shortened week
• Currencies: The US dollar gapped lower on Trump’s Secretary of Treasury nomination, but losses trimmed overnight
• Commodities: Gold slumps after last week’s surge amid reduced haven demand
• Fixed Income: U.S. Treasury yields rise, OAT-Bund spread widens on political volatility
• Macro events: Germany IFO Survey, US 2-year treasury note auction


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

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Macro data and headlines:

• US President-elect Donald Trump chose hedge fund billionaire Scott Bessent as Treasury Secretary. Bessent is known as a fiscal hawk who has advised Trump to create a “3-3-3" policy, including cutting the budget deficit by 3% of GDP by 2028, pushing GDP growth to 3% via deregulation and pumping extra 3 million barrels of oil each day. He is also expressed that tariffs should be used more as a negotiating tool and implemented more gradually.
• European services PMI data on Friday came in broadly lower than expected. Germany Nov services PMI came in at 49.4 vs 51.7 est, France services PMI at 45.7 vs 49 est and Euro-area services at 49.2 vs 51.6 est.
• A Bloomberg feature article reports that Amazon is attempting to build new AI chips to reduce its reliance on Nvidia.

Macro events (times in GMT): Germany Nov. IFO Business Climate survey (0900), US Nov. Dallas Fed Manufacturing Activity (1530), ECB Chief Economist Lane to speak (1630), US 2-year Treasury Auction (1800)

Earnings events:

• Today: Alimentation Couche-Tarde, Agilent, Zoom Video,
• Tuesday: Analog Devices, Dell, Crowdstrike, Workday, Autodesk, HP, Best Buy

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

Equities:

• US: US markets ended last week with modest gains; the S&P 500 rose 0.35%, and the Nasdaq 100 added 0.17%. Dow Jones outperformed, climbing 1%, boosted by strong performances in Boeing (+4.1%) and Nike (+3.06%). Investors are turning their attention to this week's economic data, including FOMC minutes and PCE inflation, with earnings from Dell Technologies, CrowdStrike, and Autodesk in focus.
• Asia: Asian markets opened the week positively, led by gains in Japan's Nikkei 225 (+1.2%) and South Korea's KOSPI (+1.4%), as investors favored cyclical stocks. Chinese indices, however, underperformed due to lingering economic concerns, with the CSI 300 down 0.6% and the Hang Seng index shedding 0.4%. Optimism over Wall Street's Friday session supported sentiment elsewhere, despite geopolitical tensions between Russia and Ukraine.
• Europe: European equities closed last week on a positive note, with the Stoxx 50 climbing 0.7% and the Stoxx 600 rising 1.2%. Gains in tech stocks, including ASML (+3.2%) and Adyen (+1.7%), propelled the indices higher, even as Eurozone PMI data pointed to contraction in private sector activity. Consumer cyclicals, like Stellantis and LVMH, added further support.

Volatility: Volatility indicators softened as the VIX declined 9.66% to 15.24, and VIX1D plunged 28.25% to 9.93, reflecting reduced near-term market risks. VIX futures also dropped, while market futures were buoyant ahead of the holiday-shortened week. Implied volatility remains subdued, with expected moves for the S&P 500 and Nasdaq 100 at 0.92% and 1.37%, respectively, largely reflecting the reduced trading window. Key options activity focuses on Nvidia, Tesla, and CrowdStrike as investors adjust positions ahead of earnings and economic data releases.

Fixed Income: Last week, European sovereign bonds rallied significantly after eurozone business activity data showed a sharp contraction, prompting traders to anticipate earlier rate cuts from the European Central Bank. German 2-year yields dropped 12 basis points to 1.99%, leading the decline, while 10-year Bund yields fell 7 basis points to 2.25%. Markets priced in 37 basis points of ECB cuts for next month, an increase of 8 basis points compared to the previous day. Treasuries experienced a volatile week. Early gains were reversed after stronger-than-expected US PMI data suggested resilience in the services sector. This led to curve flattening, with front-end yields rising slightly and long-end yields gaining support from demand. The 10-year Treasury yield ended the week at approximately 4.405%. This week, Germany’s IFO business climate index and eurozone CPI data will shape expectations for ECB policy, while speeches from ECB officials will provide further insight. In the US, markets will focus on the FOMC minutes, the Fed’s preferred PCE inflation gauge, and GDP and durable goods orders. Black Friday shopping data may also signal consumer strength. With auctions of 2-year, 5-year, and 7-year Treasuries scheduled early in the week, market volatility is likely, especially as the Thanksgiving holiday thins trading activity.

Commodities: Gold surged by the most in 20 months last week, only to tumble back below USD 2,700 overnight, with focus now on support at USD 2,650. Driven by US data strength almost ruling out a December rate cut, and after Trump picked Scott Bessent as his choice for incoming US Treasury Secretary. Seen as a fiscal hawk, this may inject more stability into the US economy and financial markets, thereby lowering haven demand from investors worried about the US debt situation. Crude trades lower after Israel said it is nearing a ceasefire agreement with Hezbollah, while industrial metals trade higher, supported by a weaker dollar and Bessent’s more moderate views on tariffs. EU gas prices may ease on milder weather this week, but a recent and premature decline in inventories has left the market on edge ahead of the peak winter demand period.

Currencies:

• The US dollar gapped lower in reaction to Trump’s choice of Scott Bessent for Treasury Secretary, with the move strongest versus CHF, JPY and the Euro. Bessent’s more moderate views on tariffs than some of the other choices and his views on reducing the deficit helped lower US yields, supporting the US dollar move. While yields held lower overnight in the Asian session, however, the US dollar bounced back, erasing some of the move.
• The euro has seen considerable drama after weak preliminary Nov. PMI’s on Friday saw it posting new lows for the cycle and trading below 1.0350 briefly in EURUSD before closing north of 1.0400. The weekend news from the US, however, saw the exchange rate gapping higher and briefly touching 1.0500 overnight.
• AUDNZD briefly hit new 2-year highs above 1.1150 overnight on the news of Trump’s treasury pick, as his stance on tariffs is seen as possibly easier on China at the margin, supporting the AUD. An important RBNZ meeting up this Wednesday, with a minority eyeing a large 75 basis point rate cut.

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