Global Market Quick Take: Europe – 21 June 2024

Key points:

• Equities: Flat equity futures after mixed US economic data. Today’s focus is PMI figures.
• Currencies: USDJPY back at 159 as Japan added to US monitoring list for currency manipulation
• Commodities: Precious metals, crude and gasoline tops the table this week while wheat tumbles
• Fixed Income: US 10-year yields near three-month low on soft US data
• Economic data: EU, UK and US PMIs

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

In the news: Bank of England keeps rates at 5.25% in ‘finely balanced’ decision; traders lift bets for August cut (CNBC), US Adds Japan to Currency Watchlist as Trade Partners Struggle With Stronger Dollar (Bloomberg), Accenture says strong AI demand to power 2024 revenue growth (Yahoo), A marathon, not a sprint: Apple’s AI push faces big challenges in China (CNBC), Oil companies flare more natural gas, defying effort to eliminate practice (Reuters), Guzman Y Gomez surges 37% in hottest Australian IPO in three years (Reuters)

Equities: Hong Kong equities are down 1.3% erasing the gains from Wednesday underscoring the lack of sentiment and momentum in China as PBOC boosts Yuan fixing at the strongest levels since April. Futures are pointing to a flat open in Europe and the US. Yesterday’s US economic data was on balance to the weaker side than expected, but high-frequency indicators are still suggesting robust growth for now. Today’s key events are preliminary June PMI figures for the Eurozone, UK, and US.

Macro: US jobless claims came in at 238k for the latest week, slightly lower from the previous 243k (revised higher) a sign the job market is loosening momentum but not at a rapid pace. Philly Fed also disappointed with headline falling to 1.3 from 4.5, its lowest reading since January, while the inflationary gauge of prices paid and prices received, rose to 22.5 (prev. 18.7) and 13.7 (prev. 7.7), respectively. Higher-for-longer interest rates continues to sap the US housing industry’s momentum from earlier this year after housing starts decreased 5.5% to a 1.28 million annualized rate last month while Building permits, which point to future construction, fell 3.8% to a 1.39 million annual rate, both the weakest since June 2020. The declines in starts and permits were broad across multifamily and single-family units.  Fed’s Kashkari said that it will probably take a year or two to get inflation back to 2%, noting wage growth might still be a bit too high to get back to 2% right now. The Swiss National Bank delivered a second consecutive, and surprise, rate cut – taking its policy rate to 1.25%. Concerns over the strength of the Swiss franc likely underpinned, and the SNB policy rate is now very close to neutral. The Bank of England held its benchmark rate at 5.25% with a 7-2 vote split again. However, there was no sense of concern from the persistently high services inflation, and it was stated that the MPC’s decision to hold rates was finely balanced, hinting at readiness for future cuts. The market has priced in 62% odds of an August rate cut. Japan’s inflation for May picked up but remained below expectations. Headline CPI was out at 2.8% YoY from 2.5% previously while core inflation nudged higher to 2.5% from 2.2%. While the report is a mixed bag, it does not rule out the case for policy normalization from the Bank of Japan at the July meeting especially with yen under further downward pressure and intervention flexibility being evaded by the US putting Japan on the “monitoring list” for currency manipulation.

Macro events (times in GMT):  UK May Retail Sales (0600), Euro-area PMI’s (June) exp. 52.5 vs 52.2 prior (0800), UK PMI’s (June) exp 53 vs 53 prior (0830), US PMI (June) exp. 53.5 vs 54.5 prior (1345), Leading Index (May) exp –0.3% vs –0.6% prior (1400), US Existing Home Sales (May) exp 4.1m vs 4.14m prior (1400), EIA Natural Gas Storage Change, exp. 74 bcf vs 70 bcf prior (1430)

Earnings events: Both FactSet and CarMax report earnings before the US market opens. Analysts expect a troubled quarterly result from CarMax with revenue down 6% YoY and EPS down 33% YoY.

• Today: FactSet, CarMax

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

Fixed income: The yield on the US 10-year Treasury notes trades close to flat on the week but still near a three-month low after settling into a relatively tight range between 4.2% and 4.3%, and despites Thursday’s broad US data softness. Overall, the short-term interest rates market remains reluctant to price in much more than the one cut being signalled by the FOMC, despite data such as weak housing starts and completions suggesting that the current high level of US interest rates is starting to take its toll on consumers.

Commodities: The sector is heading for a second weekly gain with all sectors except grains rising led by recovering metals, both precious and industrials, and continued strength across the energy sector. A technical rebound in copper following its recent and relatively deep correction and fresh demand for gold amid US economic data weakness both supported silver’s jump back above USD 30 to record a 4% gain on the week. Crude oil reached a seven-week high after a US report showed declines in crude and fuel stocks, as the expected summer deficits amid strong demand is starting to show. US implied demand for gasoline reached last year’s level while jetfuel demand has reached a five-year high. Chicago wheat trades down 6% on the week amid beneficial rain in the US and especially Russia, leading to an upward revision to this year's crop estimate.

FX: The Bloomberg Dollar Index trades close to flat on the week following four weeks of gains with gains in AUD, MXN and CAD being offset by weakness in JPY, CNH and GBP. The greenback strengthened a bit on Thursday, supported by higher Treasury yields, in contrast to the dovish outcomes from the Swiss National Bank and the Bank of England meetings. The Swiss franc (CHF) underperformed as the SNB unexpectedly cut rates. The CHF also saw significant declines against the Norwegian krone (NOK) due to the Norges Bank's hawkish stance. Sterling faced downside pressure, slipping towards one-month lows against the US dollar, and next up will be GBPUSD testing the 100-day moving average at 1.2640. The Japanese yen also weakened to its lowest levels since the intervention in early May, with USDJPY at the 159-level, as the US Treasury added Japan to its monitoring list for currency manipulators, indicating limited potential for intervention.