Global Market Quick Take: Europe – 19 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: Biden Called ‘More Receptive’ to Hearing Pleas to Step Aside (The New York Times), Jobless claims hit highest level since August (YahooFinance), EU Commission head von der Leyen elected for second term (CNBC)

Equities: Semiconductors mixed: Nvidia still abov3e key support at 118. Big Tech also mixed Alphabet, Amazon, Apple and Microsoft lower but Meta rebounding after heavy selling past couple of days.  Fear of increased competition in obesity drugs market hit Eli Lilly –6.25% and Novo Nordisk -3.50% Plug Power lost 10% After-Hours on news that they are offering new public offering of stocks worth USD200 mio.  

Macro: the ECB leaves policy rates unchanged and doesn’t want to provide forward guidance as inflation remains above the central bank’s June macroeconomic forecasts. Weekly jobless claims in the U.S. rose to 243,000, exceeding expectations and marking the highest level since August 2023. Continuing unemployment claims also reached their highest level since November 2021, with nearly 1.87 million claims. This trend has supported calls for the Federal Reserve to consider cutting interest rates soon, as inflation slows.

Macro events (times in GMT): Germany PPI, UK Retail Sales and GfK UK Consumer Confidence (06:00), Chicago Fed National Activity Index (12:30), Richmond Fed Manufacturing Index and Existing Home Sales (14:00), Fed’s Daly, Bowman, Williams and Bostic speak.

Earnings events: Netflix posts modest Q2 beats for Revenue $9.56n vs $9.53b est. and EPS $4.88 vs $4.74. Subscribers grew by 8.05m in the quarter, far ahead of estimates. Shares down 1% in After-Hours. Danske Bank Q2 earnings DKK14,055 mio. Vs 13,871 exp. Net profit DKK 5,839 mio. vs 5,561 exp. Maintain guidance for full year. Swedish defense equipment maker SAAB profit rose 25% to SEK1.66 bln vs 1.29 expected. SAAB forecast sales growth of 15-20% for the year

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

Fixed income: The ECB's decision was yesterday's focal point in the bond markets. It became evident that the central bank is not in a hurry to cut rates and is hesitant to provide forward guidance due to persistent inflation, which is higher than forecasted in the ECB's recent macroeconomic projections. This stance contradicts the bond futures market, which had priced in an 80% chance of a September rate cut. It appears unlikely that the ECB will cut rates while also revising its inflation projections for 2024 upward, which would conflict with its mandate. As a result, we anticipate that markets will start to discount the possibility of a September rate cut, leading to a bear flattening of European yield curves, even though European bond markets closed nearly unchanged from the opening, shrugging off the ECB's monetary policy decision. In the US, Treasury yields increased by 3 to 4 basis points across various maturities, ending near the day's highest levels despite higher-than-expected jobless claims. This indicates that investors are continuing to adjust to a "Trump Trade," even with the US election still five months away.

Commodities: Gold prices continued their downward trend on Thursday, holding near $2,450 per troy ounce, amid growing speculation that the Federal Reserve might lower borrowing costs at the September meeting the initial jobless claims rose more than expected on Thursday suggesting an economic slowdown. At the same time, oil prices remained stable as investors grappled with conflicting signals regarding crude demand. The recent U.S. data bolstered the argument for the Fed to accelerate its rate-cutting plans, which could potentially encourage increased spending on oil. Finally, copper September futures dropped by more than 3%, reaching a three-month low, following President Xi Jinping's speech at the CCP’s Third Plenum. The speech, which did not include specific mentions of stimulus measures to boost domestic consumption, has caused concern in China's industrial sector, a key consumer of copper.

FX: A gauge of dollar strength rose for the first time in three days as Treasury yields edged higher and the market found its footing after Wednesday's selloff. The euro continued its slide after the European Central Bank kept interest rates steady and indicated that the September meeting is "wide open." EURUSD dropped 0.3%, trading near a session low of 1.0899, extending losses post-ECB meeting. GBPUSD fell 0.5% to a session low of 1.2948, following data showing UK wages grew at the slowest pace in nearly two years, in line with economists' expectations. The yen weakened from its strongest level in almost six weeks, as a recent sharp rally in Japan’s currency led local businesses to buy the greenback. AUDUSD declined 0.3%, trading near the day's low of 0.6705; earlier, it had risen as much as 0.2% after a report showed a faster-than-expected increase in jobs.

Volatility: The VIX continued its upward trajectory, reaching $15.93 (+1.45 | +10.01%), a level we haven’t seen since the beginning of May. The VIX1D spiked to $15.50 (+2.30 | +17.42%) and the VIX9D increasing to $14.90 (+1.74 | +13.22%). VVIX rose to 94.71 (+6.43 | +7.28%), while the SKEW index climbed to 151.12 (+4.73 | +3.23%). VIX futures remained stable at $15.30 (+0.005 | +0.04%) this morning. Expected moves for today, derived from options pricing, indicate the S&P 500 with an expected move of plus or minus 37.5 points (+/- 0.68%) and the Nasdaq 100 plus or minus 147.6 points (+/- 0.75%). S&P 500 and Nasdaq 100 futures showed a slight recovery overnight, with S&P 500 futures at 5,605.25 (+10.75 | +0.19%) and Nasdaq 100 futures at 19,959.25 (+60.00 | +0.30%). Today is July monthly expiry date, which may contribute to increased volatility. There are no major news events scheduled for today. Yesterday, Netflix (NFLX) reported strong earnings, with an EPS of 4.88, surpassing the forecast of 4.74, and revenue of $9.56B, beating the expected $9.53B. Looking ahead, next week will be crucial with significant earnings announcements from major companies including Microsoft (MSFT), Alphabet (GOOGL), Alphabet (GOOG), Tesla (TSLA), Visa (V), and Coca-Cola (KO) on Tuesday, July 23rd. Yesterday's top 10 most traded stock options were Nvidia, Tesla, Apple, Amazon, Advanced Micro Devices, Palantir Technologies, Taiwan Semiconductor ADR, Intel, Broadcom, and Meta Platforms.

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