Global Market Quick Take: Europe – 11 July 2024

Key points:

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

In the news: Pelosi, Clooney, Democratic senators raise new doubts about Biden (Reuters), Europe braced for a weakened Emmanuel Macron (FT), Powell’s closer attention to cooling job market boosts hopes for Fed rate cuts (Yahoo Finance), China plays down hopes for ‘strong medicine’ at top economic policy meeting (FT).

Equities: US equities continued their ascent in yesterday’s session gaining another 1% with Semiconductor sector up more than 2%. Uranium stocks were best performing sector with 4.45% on back of news that the President Biden signed the “ADVANCED” Act to support nuclear power. The act is aimed at bolstering the nuclear power sector.  It was primarily the Uranium mining companies that advanced Wednesday. The world’s second largest semiconductor provider, Advanced Micro Devices announced Wednesday it is acquiring a privately held Finnish Silo AI, an AI research and lab company in a transaction worth $665 million in cash. AMD is competing with Nvidia. Intuit is cutting 20% of its workforce to focus on AI. Honeywell is buying Air Products and Chemical’s liquefied Natural Gas business for $1.81 billion in all cash deal.Danish Insurance company Tryg announce record Q2 earnings pre-tax 2.212 mio. Net 1.642 mio vs 2.474 expected.

Macro: The Hang Seng Tech index rose 2.5%, and mainland China indexes gained after Beijing's market-support measures. Asian markets, including Nikkei, Kospi, and ASX 200, also performed well. S&P and Nasdaq futures dipped slightly after Wednesday's highs. The 10-year US Treasury yield held near 4.29%, while Australian yields rose. WTI crude neared $82.87, and gold increased to around $2,383.

Macro events (times in GMT): Germany CPI YoY final readings est. 2.5% in June vs .5% in May (08:00), UK Industrial Production MoM 0.3% in May vs. -0.9% in April (14.30), UK Manufacturing Production MoM 1.2% in May vs. 0.4% in April (14.30), U.S. CPI YoY est. 3.1% in June vs 3.3% in May (14.30), U.S. Initial Jobless Claims for July 6th week est. 235k vs. 238k a week earlier (14:30), U.S. Initial Continuing Claims for June 29th week est. 1864k vs. 2858k a week earlier (14:30), Fed’s Cook, Bostic and Musalem speak (01:30, 17:15, 19:00), BOE credit conditions survey and bank liabilities review (10:30), 30-year U.S. Treasury auction (19:00).

Earnings events: The Q2 earnings season kicks off this week with the three most watched earnings being PepsiCo, and JPMorgan Chase and Citigroup (Fri). PepsiCo is expected to report another quarter of stagnant growth with revenue only expected to be up 2% YoY which means that in real terms these parts of the consumer market are still weak.

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

Fixed income: Following a dovish signal from the RBNZ, sovereign bonds rallied all around the globe, with yield curves bull flattening. Italian BTPs outperformed their peers, with 2-year BTP yields falling 6 basis points compared to a 2.8 basis point drop in German Schatz, and 10-year yields decreasing 8.8 basis points to 3.85%, versus a 4.7 basis point drop to 2.52% in Bund yields. However, UK Gilts trimmed initial gains after Huw Pill stated that more work is needed to combat inflation. In the U.S., a solid 10-year Treasury auction, which priced at 4.276% and stopped through When Issued by 1 basis point, showed signs of duration extension. This auction coincided with Powell’s testimony before Congress, where he expressed hope that inflation is on the right path and emphasised that the Fed doesn't need inflation to drop below 2% before considering rate cuts.

Commodities: Gold edged higher after Federal Reserve Chair Jerome Powell informed US lawmakers that he expects inflation to decline, boosting hopes for a potential interest rate pivot this year. We believe long-term investor sentiment for gold will remain positive due to ongoing uncertainty about the U.S. economy and concerns over the unsustainability of the U.S. deficit. Meanwhile, oil surged to close above $82 a barrel, driven by an EIA report indicating increased demand for refined products following the Fourth of July holiday, which outweighed concerns about the timing of Federal Reserve rate cuts.

FX: The USD dropped yesterday following a strong 10-year US Treasury auction and Fed Chair Powell’s testimony to Congress, where he indicated that inflation doesn’t need to fall below 2% before rate cuts could begin. Meanwhile, in the Eurozone, investors are gearing up for next week’s ECB meeting. The central bank is expected to maintain a data-dependent stance, but investors will particularly focus on the PEPP disinvestments that started this month and policymakers’ addressing the recent widening of European sovereign spreads. The Australian dollar is rising due to increased risk appetite from leveraged funds, while the New Zealand dollar is climbing as traders cover short positions against both the Australian dollar and the US dollar.

Volatility: The VIX ended Wednesday at $12.85 (+0.34 | +2.72%). Notably, the VIX1D rose significantly to $13.03 (+5.69 | +77.52%), indicating heightened uncertainty surrounding today's CPI release. The VVIX, a measure of volatility in VIX options, rose to 83.41 (+4.83 | +6.15%), and the SKEW index, which measures the perceived risk of outlier moves in the S&P 500, increased to 156.96 (+5.87 | +3.89%). VIX futures are at $14.220 (+0.065 | +0.46%). Expected moves for today, derived from options pricing, are higher than yesterday: the S&P 500 has an expected move of plus or minus 34.68 points (+/- 0.62%) and the Nasdaq 100 plus or minus 195.16 points (+/- 0.94%). S&P 500 and Nasdaq 100 futures show minimal movement, with S&P 500 futures at 5685.25 (-2.75 | -0.05%) and Nasdaq 100 futures at 20883.75 (-16.00 | -0.08%). Today's key economic event is the CPI release at 14:30, which is expected to have a significant impact on market movements. Eyes are also on upcoming earnings, with notable releases including PepsiCo today, followed by major banks like JPMorgan, Wells Fargo and Citi tomorrow. Yesterday's top 10 most traded stock options were Nvidia, Tesla, Apple, AMD, Amazon, Palantir Technologies, Intel, Microsoft, GameStop, and Meta Platforms.

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