Global Market Quick Take: Europe – 13 August 2024

Key points:

• Equities: Japanese equities gain 3%. Focus on Pandora and Home Depot
• Currencies: USD is range bound ahead of tomorrow’s US inflation report
• Commodities: Potential large Iranian attack on Israel is pushing crude oil higher
• Fixed Income: Bond markets steady amid awaited economic data and geopolitical tensions
• Economic data: Germany August ZEW, US PPI

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

In the news: Asian stocks muted ahead of economic data; Japan surges in catch-up trade (Investing), Why the Strait of Hormuz Is a Focus of Worry Again (Bloomberg), Leasing model behind Europe's EV drive at risk of breakdown (Reuters), Chipmakers face a looming crisis in labour (FT)

Macro: The NY Fed July consumer inflation expectations for the 1-year and 5-year ahead remained unchanged at 3.0% and 2.8%, respectively, but the 3yr dropped dramatically to 2.3% from 2.9%, which is the lowest since the start of the survey in June 2013. Focus today is on ZEW in Europe and later US July PPI before the big macro event of the week with US July CPI out tomorrow. Read our US inflation preview here.

Macro events (times in GMT): Germany August ZEW est. 34.0 vs 41.8 prior (09:00), US July NFIB Small Business Optimism est. 91.5 vs 91.5 prior (10:00), US July PPI Final Demand YoY est. 2.3% vs 2.6% prior)

Earnings events: Pandora has reported better than expected Q2 results on top of lifting the 2024 revenue guidance as underlying business momentum continues. The results are strong given the consumer weakness across many markets. The US earnings focus today is on Home Depot reporting before the US market opens with analysts expecting the first quarter with positive revenue growth in more than five quarters. Yesterday, Vestas surprised announced its Q2 results which included a narrower revenue forecast for 2024 and a cut to its upper band on expected EBIT margin as costs remain the key issue in the wind turbine industry.

• Tuesday: Foxconn, CSL, Flutter Entertainment, Home Depot, Sea Ltd, Franco-Nevada, Pandora
• Wednesday: Tencent, Meituan, Hapag-Lloyd, UBS, Cisco, E.ON, Commonwealth Bank of Australia, Carlsberg, RWE,
• Thursday: NU Holdings, Walmart, Applied Materials, Alibaba, Deere, Orsted, Fortum; NN Group, Geberit, Straumann, JD.com
• Friday: Adyen

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

Equities: Japanese equities are back after national holiday gaining 3% as the rebound in Asia continues. Futures are indicating a higher open in both the US (+0.2%) and Europe (+0.3%). The positive mood in equities could soon be punctuated by a sudden jump in geopolitical risks as US intelligence is warning Iran is planning larger attack on Israel. Today’s key macro events that can move the equity market are ZEW in Europe and later US PPI for July that could signalling further cooling of inflation in the US economy and bolster the market’s bet on a potential 50 basis points rate cut in September. There was no unusual volume in US equities yesterday except for Visa that said payments were boosted a lot by the Olympics. In Europe, the most active stock yesterday was Vestas after its profit warning driven by higher service costs causing its shares to decline 7.8%.

Fixed income: European bond markets saw little change as traders awaited key economic data. The German 10-year yield remained flat at 2.23%, while the UK 10-year gilt yield dropped 3 basis points to 3.92% ahead of job figures due this morning. Italian 10-year yields decreased by 1 basis point to 3.64%, with the BTP-Bund spread tightening to 141 basis points. In contrast, U.S. Treasuries experienced consistent demand despite a busy schedule of corporate bond issuances and rising oil prices due to geopolitical tensions, including potential conflict involving Iran and a military advance by Ukraine. Treasury yields fell, with the 10-year yield ending near 3.91%, driven by a risk-off sentiment as investors sought safety. Reports of Israel's preparations for an attack and Ukraine's territorial gains against Russia contributed to this trend. Despite $18 billion in new corporate bond issuance, including Eli Lilly's $5 billion issuance for Morphic’s acquisition, demand for Treasuries remained strong. Today, the focus is on the eurozone ZEW survey, and U.S. PPI data. UK data this morning showed a mixed picture. The unemployment rate fell unexpectedly to 4.2% while wage growth slowed more than expecting suggesting a cooling labor market.

Commodities: WTI crude oil rose 4.2% to $80.06 and Brent crude oil rose by 3.3% to close at $82.3 on Monday due to Middle East conflicts and increased US military presence. Positive US economic data and potential rate cuts also supported prices. OPEC lowered its 2024 oil demand growth forecast and extended output cuts until September. Gold rose 1.71% to $2,472.90 as US Treasury yields decline before crucial CPI data, with the 10-year yield at 3.902%. Unresolved Middle East tensions fuel demand for Gold as a safe-haven asset. Copper futures surpassed $4 per pound, recovering from a recent drop to a five-month low of $3.95 on August 7th, as markets evaluated potential supply disruptions and assessed demand levels.

FX: The US dollar was range-bound as it awaited the US inflation and retail sales reports this week for further insights into the state of the US economy and how fast the Fed may need to cut rates. The New Zealand dollar outperformed most of the other major currencies ahead of the Reserve Bank of New Zealand’s rate decision due on Wednesday and the shadow board recommending a rate cut. The Australian dollar also gained, as did the British pound and the latter may be subject to come volatility today as UK’s labor data is reported. The Japanese yen and the Swiss franc weakened, but the Swiss franc clawed back its gains amid safe-haven demand to hedge geopolitical risks. The Japanese yen only recovered slightly and awaiting key US data in the week ahead. For more on our macro and FX views, go to this weekly article.

Volatility: Volatility is starting to level off as the VIX rose slightly by 1.67% to 20.71, after a sharp decline last week. This pause comes just before two key economic reports—the Producer Price Index (PPI) today and the Consumer Price Index (CPI) tomorrow—which could bring some market movement. VIX futures are nearly flat, down just 0.08% to 19.45, indicating that traders are cautiously waiting for these reports. The expected moves for today are also dropping, with the S&P 500 expected to move up or down around 32 points (~0.60%) and the Nasdaq 100 around 162 points (~0.87%). This suggests that the market expects a bit less volatility today compared to previous sessions. Looking ahead, today's PPI report will be followed by earnings from Home Depot, which could also influence market sentiment. Keep an eye on how the market reacts as we get closer to the CPI release tomorrow. Yesterday's most active stock options were Nvidia, Tesla, Apple, Palantir Technologies, Intel, Advanced Micro Devices, Amazon, Marathon Digital Holdings, Super Micro Computer, and Meta Platforms.

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