Global Market Quick Take: Europe – 15 August 2024

Key points:

• Equities: Futures pointing to a higher open. Focus on Orsted after mixed earnings.
• Currencies: Dollar downside after softer US July CPI
• Commodities: Gold finding resistance, Iranian focus supports crude
• Fixed Income: US yield curve twist flattens on the back of CPI data
• Economic data: US retail sales and jobless claims

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

In the news: SoftBank discussed AI chips tie-up with Intel to rival Nvidia (http://FT), China's factory output disappoints, dashing speedy recovery hopes (Reuters), Apple Pushes Ahead With Tabletop Robot in Search of New Revenue (Bloomberg)

Macro:

• US CPI was in-line with expectations, keeping market on track for a September Fed rate cut. Headline CPI rose 2.9% YoY, a touch below the 3.0% forecast and prior. The core CPI YoY rose by 3.2%, in line with expectations and a touch below the prior 3.3%. Shelter inflation, however, remained a key red flag rising 0.4% MoM vs. 0.2% MoM in June and being the largest contributor in the CPI basket. Still, this CPI print doesn’t resolve the debate around whether the Fed will cut 25bps or 50bps in September. Watch retail sales and jobless claims today for more input on the US economy’s growth and labour market trajectory.
•  The UK inflation data for July came in below expectations. Headline CPI rose from 2% in June to 2.2% but was below the 2.3% expected. Meanwhile, services CPI – a bigger watch for the BOE – eased to 5.2% from 5.7% in June and BoE's expectation of 5.6%. The breadth of cooling in the services inflation components is also very encouraging. Markets will likely move towards pricing in another BOE rate cut in September if signals on the Fed to start easing in September continue to build. Read here for our analysis on the UK inflation data.
•  The Reserve Bank of New Zealand started its easing cycle by cutting the Official Cash Rate (OCR) by 25 basis points to 5.25%, a move that was not anticipated by the consensus. The central bank also hinted at more rate cuts with economic pressures escalating. We discussed the decision in this article.
• China’s industrial output and retail sales broadly in line with forecast as a prolonged housing slump remains a drag on consumer spending. Fixed-asset investment meanwhile unexpectedly slowed to 3.6% from 3.9% expected in the first seven months of the year, highlighting an economy that continues to operate at two-speeds with manufacturing driving growth. Capital spending by state-owned enterprises slowed to 6.3% in the first seven months from 6.8% in the first half, while that of private firms stagnated from a year ago

Macro events (times in GMT):  UK 2Q GDP, June Industrial Production (0600), Norway rate decision exp. unchanged at 4.5% (0800), US July Retail Sales exp (1230), Empire Manufacturing (Aug) exp –6 vs –6.6 prior, Phili Fed Business outlook (Aug) exp 5.2 vs 13.9 prior, US initial jobless claims (Week to Aug 10) exp 235k vs 233k (All US data at 1230)

Earnings events: Orsted is reporting Q2 results this morning in Europe, which are a mixed bag with revenue missing estimates and EBIT also missing estimates. The offshore wind turbine developer is also recording a DKK 3.9bn impairment on one of its prestige projects. Yesterday, Tencent delivered Q2 results that were in line with revenue estimates, but a bit below operating profit estimate. The results failed to excite investors despite revenue growth increasing to 8% YoY. The overall negative sentiment around the Chinese economy is likely a key constraint in lifting valuations for Chinese stocks. Cisco shares rose more than 6% in extended trading as the company provided an upbeat revenue outlook for FY25 and investors applauded its cost reduction initiatives which include cutting the global workforce by 7%.

• Today: 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: Another positive session in Japan with Japanese equities only missing 1.8% of gains before having recouped all the losses from the unwind of the JPY carry trade. Futures are pointing to a higher open in Europe and US. In the European session there will most likely be a focus on Orsted which has reported mixed results in the pre-market session. Later today earnings from Walmart and Deere will be in focus with both reporting ahead of the US market open. The most traded US stocks relative to recent volume yesterday were Ferrari (+4.9%), Nu Holdings (+5.3%, Nubank), and Starbucks (-2.1%). Ferrari gained before the luxury carmaker raised its fiscal year guidance. The most traded European stocks yesterday were Carlsberg (-4%) and UBS (+5.3%) with Carlsberg seeing higher profits on cost cutting measures as demand remains subdued. UBS showed impressive traction on its merger integration of Credit Suisse – read our take on European banks here.

Fixed income: On Wednesday, short-term U.S. Treasury yields rose slightly, while long-term yields fell following the release of July CPI data, which met expectations. This data led the market to anticipate a 25 basis point rate cut in September rather than a 50 basis point move. The long end of the yield curve saw increased demand, pushing 30-year yields down by 3 basis points to 4.12%, resulting in a flattening of the curve. By the end of the day, bond futures reflected a slightly more hawkish outlook, as traders unwound previous bets on larger rate cuts. European sovereign bonds closed mixed on Wednesday. UK gilts rose following lower-than-expected July inflation data, prompting increased bets on Bank of England rate cuts. German Bunds also edged higher, with a slight flattening of the yield curve, as traders maintained expectations for ECB rate cuts.

Commodities: Gold continues to find resistance in the USD 2475-80 area with traders increasingly looking for the rate cut cycle to start before potentially adding more exposure. Currently the market is torn between whether a 25 or a 50-basis point will be delivered by FOMC next month. Silver gaining some ground on gold, supported by rising copper prices amid fears to supply from strike action at the world’s biggest mine in Chile. This despite Chinese economic data pointing to an uneven recovery. Iron ore extended recent losses to near USD 90 per ton as the world’s biggest steel producer, China Baowu Steel Group, warned China’s steel industry is facing a worse downturn than 2008 and 2015. Crude’s two-day drop has helped trigger fresh demand as nervousness over a potential Iranian attack helped offset the first rise in US crude stocks in seven weeks.

FX: The US dollar saw some downside after the soft US inflation report but ended the day unchanged as markets found little new information in the report. The New Zealand dollar led the decline after rising to four-week highs against the US dollar as the central bank of New Zealand surprised markets with a dovish rate cut. The Australian dollar also followed suit and will be watching the labor data out in today Asian session. The Japanese yen was volatile after reports of Japan PM Kishida stepping down from the party leadership in September, and focus remains on US data with retail sales and jobless claims on watch today.