Global Market Quick Take: Europe – 12 September 2024

Key points:

• Equities: Nvidia sees great demand
• Currencies: Japanese yen reversed its early gains as US dollar pushed higher post-CPI
• Commodities: Crude steadies after slump; gold stuck in narrowing range
• Fixed Income: U.S. treasuries fall after CPI data, European bonds rally ahead of ECB meeting
• Economic data: ECB Rate Decision

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

In the news: Wall Street closes up on tech boost; inflation data dents hopes for big Fed rate cut (Reuters), Aggressive Fed rate cut next week could backfire, putting big tech in crosshairs (Investing), Bank of England to hold Bank Rate this month but cut in Nov, economists say: Reuters poll (Investing), Global EV sales up 20% in August despite 19-month low in Europe, Rho Motion says (Yahoo), ECB to cut interest rates as growth dwindles, outlook unclear (Reuters), Oil hasn't been this cheap for years. You can thank China (Quartz), Hurricane Francine disrupts Louisiana energy hubs, crop exports (Reuters)

Macro:

• US CPI was as expected on the headline figures but a notch above expectations for the core which rose 0.3% MoM vs. 0.2% expected amid upward surprises in shelter and transport services. This has prompted markets to reduce the odds of a 50bps Fed rate cut next week, however the market still expects 100bps of rate cuts for this year. The fundamental story of sustained disinflation remains unaltered by this inflation report, as the pick-up in the core index was driven by components that have a much smaller weight in the core PCE deflator, the Fed’s preferred inflation gauge, or which are sourced from the PPI.
• UK’s monthly GDP stagnated for a second month in a row in July, coming in below expectations of 0.2% MoM. GDP on a three-month basis at 0.5% was also below the estimate of 0.6%. Industrial and manufacturing production fell and missed forecasts. While the BOE is not expected to cut rates next year, but expectations for a November rate cut are rising.
• Japan’s PPI slowed for the first time in eight months as the cost of energy-related items fell. In August it fell 0.2% to record a year over year gain of 2.5%, below expectations of a 2.8% gain.

Macro events (times in GMT): ECB Policy Announcement – preview here (1215), US Jobless Claims (w/e 7th Sep) exp 227k vs 227k prior (1230), US PPI Final Demand (Aug) exp 1.7% YoY vs 2.2% prior (1230), IEA’s Sept Oil Market Report, EIA’s Weekly Natural Gas Storage Change (1430), USDA’s World Agricultural Supply and Demand Report (1600)

Earnings events: Today’s key earnings event is Adobe reporting FY24 Q3 earnings (ending 31 August) after the US market close. Analysts expect 10% YoY revenue growth with the outlook for Q4, the company’s most important quarter, being key for sentiment and the stock price reaction. The market has muted expectations going into this earnings release, so the downside risk is naturally if customers are scaling back, and the upside case is if buying habits are showing increased appetite for AI features.

• Today: Kroger, Baloise, Adobe, RH
• Friday: Darktrace

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

Equities: S&P 500 rose 1.2% yesterday driven by an 8% gain in Nvidia shares as the CEO talked about demand being so great for the new Blackwell chips that it is creating tensions with certain customers that want fast delivery of GPUs for their AI projects. Japanese equity futures are up 3% today as US inflation data yesterday eased concerns that the Fed would go with 50 bps and hike aggressively towards year-end. Futures are indicating a strong open in Europe up 1.4% and a positive open in the US with S&P 500 futures indicated 0.2% higher. DSV is expected to be in focus today as the logistics company has reached a deal for acquiring DB Schenker as soon as this week conditioned on Deutsche Bahn’s supervisory board approving the deal. The deal will solidify DSV leading position in Europe on logistics and marks the company’s largest acquisition in its history. Commerzbank and UniCredit are also likely to be heavy traded again today after UniCredit announced yesterday its bid for acquiring Commerzbank which have taken German policymakers by surprise.

Fixed income: U.S. Treasuries ended the day cheaper after a volatile session, with the yield curve flattening notably. The initial selloff was triggered by August's CPI data, which showed a higher-than-expected increase in the core index and stronger real earnings growth. This led markets to lower expectations for a 50bps rate cut in September, instead favoring a quarter-point cut. Demand was strong for the $39 billion auction of 10-year notes, which yielded 3.648%, the lowest since May 2023. Throughout the day, a temporary recovery occurred as crude oil and U.S. stocks initially fell but then rebounded, with the S&P 500 up nearly 0.8% and oil closing 2.3% higher. Ten-year yields closed roughly 1bp higher at 3.65%, while 2-year yields rose 5bps to 3.64%. In Europe, bonds outperformed their U.S. counterparts as inflation data from the U.S. showed a modest rise. German and UK yields fell by about 2bps and 6bps, respectively, with gilts rallying on UK economic stagnation, prompting increased bets on Bank of England rate cuts. The focus now shifts to tomorrow's ECB meeting, where markets expect a 25bps rate cut. For a preview click here.

Commodities: Brent crude trades back above USD 71 after finding support near USD 69 in the prior two sessions, supported by Hurricane Francine, which is temporarily impacting crude-production regions in the Gulf of Mexico. Whether a low has been established following heavy losses earlier this month amid technical selling and recession fears is too early to say, while the physical market continues to signal sluggish demand and ample supply. Focus is on IEA’s monthly report, which will offer insights into the current and 2025 demand outlook. Gold dropped back on Wednesday after US inflation data dimmed the prospects for a 50-basis-point cut next week, but underlying strength prevails, with daily higher lows signalling continued appetite from investors. Copper and aluminium trade higher for a second day, with falling inventories in China seen as signs that demand is recovering. Grain markets trade steadily ahead of a monthly supply and demand report from the US government, which will shed further light on the production outlook for key crops.

FX: The US dollar was initially weighed by yen’s strength on Wednesday and the somewhat better performance for Harris in the presidential debate questioning the ‘Trump Trades’ that are usually seen to be USD-positive. However, the hotter-than-expected US CPI report pushed the US dollar higher as odds of a 50bps rate cut from the Fed next week were wound down. The Japanese yen, that had earlier printed a YTD high of 140.72 against the US dollar in the Asian session on BoJ's Nakagawa hawkish comments, also retreated again. We discussed yen’s upside in this article, and continue to expect a move below 140 to come if US recession concerns deepen. Activity currencies such as Australian dollar and Canadian dollar outperformed while the Swiss franc underperformed as recession odds retreated. The euro is heading lower amid the USD strength and the pivotal ECB meeting coming up where a rate cut is expected but forward guidance gets more weight.

Volatility: Yesterday was a volatile session, with the VIX initially spiking before reversing to close down 7.29% at 17.69. Short-term volatility, represented by the VIX1D, also dropped 21.90% to 14.98. Despite less favorable CPI data, the Nasdaq surged 2.17%, driven largely by Nvidia, which rallied 8.15% after its CEO highlighted continued strong demand for their high-end AI chips. Overnight, both VIX futures (+0.76%) and S&P and Nasdaq futures (+0.16% and +0.20%) moved up, which may indicate some underlying market caution, as the VIX typically moves inversely to stock indices. This combination suggests that while markets are poised for a positive start, traders are hedging against potential volatility. Today’s focus will be on the PPI report, which could trigger volatility, especially for the Russell 2000 and MidCap stocks. Expected moves based on options pricing are up or down 38 points (~0.68%) for the S&P 500 and up or down 184 points (~0.96%) for the Nasdaq 100. On the earnings front, Adobe reports today, and as part of the broader AI theme, its AI initiatives are expected to be a key driver for future growth. No other major earnings are expected to significantly influence market volatility. Yesterday’s most active stock options were Nvidia, Tesla, Apple, Amazon, AMD, GameStop, Palantir, Broadcom, Intel, and Alphabet.

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