Global Market Quick Take: Europe – 30 May 2024

 Key points:

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

Equities: The negative sentiment continues across all equity markets with equity futures pointing lower as rising economic growth expectations continue to fuel higher central bank rates for longer. The exception is ECB which is expected to cut the policy rate next week but rising German 10-year yield is sending a signal from the market that it might be a policy mistake perceived by the market as it will underpin inflationary pressures at a time when global growth is accelerating. Pure Storage reported earnings last night reiterating its revenue and profit outlook seeing shares gaining 10% in extended trading. Salesforce earnings delivered the opposite reaction with shares down 16% in extended trading as the revenue outlook came in lower-than-expected highlighting that the current demand for AI workloads is not currently translating into higher revenue growth for Salesforce.

FX: Risk aversion and higher Treasury yields pushed the dollar higher, with other G10 currencies all in the red. AUDUSD plunged to test the 0.66 handle despite a higher-than-expected inflation suggesting rate cuts from the RBA could be delayed. NZDUSD also down to 0.6110, reversing all of this week’s gains. EURUSD is testing the critical 1.08 level, as likely ECB rate cut draws closer, but EURGBP held up at the 0.85 support once again, a level that has held up since H2 2022. GBPUSD also below 1.27 with stronger dollar and a weaker equity sentiment. USDJPY rose to highs of 157.71 before easing slightly to 157.50 in early Asian trading and focus today turns to second print of US Q1 GDP and comments from Fed’s Williams. To know more, read our Weekly FX Chartbook.

Commodities: A broad risk off tone weighed on markets, including commodities, on Wednesday after another tepid US bond auction saw Treasury yields rise to near this year’s high (see fixed income below) while the dollar rose. The energy sector led by a 6% slump in natural gas while crude oil reversed lower after WTI and Brent struggled to find fresh demand above $80 and $85 respectively. A 6.5m barrel drop in US crude stock reported by the API did little to support prices ahead of today’s delayed EIA update, with focus on Sunday’s OPEC+ meeting. Industrial metals traded mixed with aluminum continuing its recent rally, reaching a two-year high on China and developed market demand hopes, while copper slumped through key support around $4.74 as speculators exited recent established longs amid current  soft fundamentals in China

Fixed income: Sovereign bonds on both sides of the Atlantic continued their decline yesterday, driven by higher-than-expected German inflation data and a weak Treasury auction. The German flash CPI rose to 2.8% from 2.4% in April, casting doubts about the ECB's anticipated rate-cutting cycle starting next week. Ten-year Bund yields increased by nearly 10 basis points to a six-month high of 2.69%, while two-year Schatz yields rose to 3.1%, closing at the highest level since November 2023. In the United States, the selloff intensified following a weak seven-year note auction, which tailed by 1.3 basis points. The primary dealer award rose to 17%, while direct bidders fell to 16.1%, down from over 20% the previous month. This marks the third weak auction this week, with the two- and five-year notes also showing poor bidding metrics. US ten-year yields ended around 4.62%, up by seven basis points, while two-year US Treasury yields closed at 4.97%. Today, the focus is on the Euro Area unemployment rate for April and the second estimate for US Q1 GDP, expected to come in at 1.3% versus 1.6% prior. We’ll also hear from Fed officials Bostic, Williams, and Logan, as well as ECB's Makhlouf.

Volatility: US market volatility, as indicated by the VIX, is on a wild ride, closing at $14.28 (+1.35 | +10.53%). This sentiment is even more pronounced in the shorter-term indices: VIX9D at 13.41 (+1.90 | +16.51%) and VIX1D at 10.89 (+2.90 | +36.30%), signaling significant expected market movement. Upcoming economic releases, including today's GDP and Initial Jobless Claims, and tomorrow's Core PCE Price Index, may impact volatility. Key earnings releases today are from Costco, Dell, and MongoDB. VIX futures stand at 14.650 (+0.310 | +2.17%), with S&P 500 and Nasdaq 100 futures at 5253.75 (-30.25 | -0.57%) and 18675 (-127.50 | -0.68%), indicating a possible lower opening. Yesterday's top 10 most traded stock options, in order: Nvidia, Tesla, American Airlines, Apple, AMD, Amazon, Faraday Future, Qualcomm, AMC, and Chewy.

Macro: The Fed's Beige book was digested without much fanfare, and noted that national economic activity expanded from early April to mid-May, with varying conditions across industries and Districts; most Districts reported slight or modest growth, while prices increased modestly. Fed member Bostic was on the wires and said that the breadth of price gains is still pretty significant, and less inflation breadth would add to confidence to cut rates. He hinted at a possible Fed cut in Q4. NY Fed President Williams speaks today before focus turns to PCE data on Friday. German CPI for May saw an uptick, rising to 2.8% from 2.4% in April, beating expectations of 2.7%. Spain inflation due today is also expected to rise before the region-wide print on Friday. The ECB meeting next week is likely to bring a rate cut, but the narrative may start to be more neutral after that as inflation concerns linger. Australia’s inflation came in higher-than-expected for April. Headline rose 3.6% YoY (vs. 3.5% prior and 3.4% expected) and core was unchanged at 4.1% YoY. Trimmed mean was also higher at 4.1% YoY (vs. 4.0% prior). this further affirms that the RBA will have to delay rate cuts. However, the April inflation print is unlikely to bring rate hikes back to the table because the RBA focuses on quarterly inflation prints, and there are signals that Australia’s labor market is softening. To know more, read our FX article on AUD.

In the news: US 10-year yield tops 4.6% for the first time in nearly a month (CNBC), US stock futures drop after bruising session with more rate cuts on tap (Investing), Salesforce shares plunge 16% on first revenue miss since 2006 (CNBC), Yen hits 4-week low, dollar up ahead of key inflation data (Investing), Pentagon awards $480 million deal to Palantir for 'Maven' prototype (Reuters), Bulk of gold smuggled from Africa exported to UAE, says report (FT)

Macro events: Spanish Flash CPI (May) exp 3.7% vs 3.3% prior (0700), Swiss GDP (Q1) exp. 0.7% YoY vs 0.6% prior (0700), EZ Consumer Sentiment Survey (May Final), US Q1 GDP 2nd Estimate exp 1.3% vs 1.6% prior (1230), US Initial Jobless Claims, exp 217k vs 215k prior (1230), US Pending Home Sales (Apr) exp –1% vs 3.4% prior (1400), US Natural Gas Storage Change, exp. 77 bcf vs 78 bcf prior (1430), EIA’s (delayed by a day) weekly crude and fuel stock report (1500). Central bank speakers: Williams, Logan (Fed); Hunter (RBA); Bailey (BOE); Jordan (SNB); Breeden (BOE)

Earnings events: Today’s key earnings focus is Costco (aft-mkt) and Dell Technologies (aft-mkt) with the highest expectations being around earnings from Dell Technologies as the strong rally over the past year based on expectations that the AI boom will lift growth must be realized in higher expectations from management.

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