Global Market Quick Take: Europe – 18 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: Schumer, Pelosi increase pressure on Biden to step aside, US media reports (Reuters), Biden tests positive for Covid, cancels speech in Las Vegas (CNBC), Global chip stocks from Nvidia to ASML fall on geopolitics, Trump comments (CNBC), ECB Preview: Conflicting Narratives – Rate Cuts vs. Data Dependency (Saxo).

Equities: Banks and Consumer staples lifted Dow Jones to a new all-time high close, above 41,000. Semiconductors got hammered 7% dragging Nasdaq 100 down 2.77% to back below 18K due to concerns over US export curbs on China and Donald Trump's comments on Taiwan. Small cap Russell 200 ended down a modest 1%. Johnson & Johnson gained 3.7% after Q2 earnings beat estimates. Danish hearing aid company Demant ended Wednesday down 14.8% after profit warning

Macro: Fed Governor Christopher Waller stated that the economy is nearing a point where the central bank could reduce borrowing costs, but he wants to see more evidence that inflation is consistently decreasing. He joins other officials hinting at potential rate cuts. However, most, including Chair Jerome Powell, have not provided specific timing for when these cuts might occur. In the UK, headline jobs data this morning were in line with expectations and flat from May, but payrolls data for June show the softest wage growth since the pandemic and jobless claims rose above expectations in June, opening up for an imminent BOE rate cut.

Macro events (times in GMT): ECB rate decision (12:15), UK Job data (06:00), Initial Jobless Claims, Philadelphia Fed Business Outlook (12:30), Leading Index (14:00), Fed’s Goolsbee and Logan speak, ten-year TIPS auction (17:00).

Earnings events: Johnson & Johnson Q2 beat on sales and profit expectations EPS 2.82 vs 271 expected. Taiwan Semiconductor Manufacturing Co. reported a 2Q net income of NT$247.8 billion, up 36% year-over-year, surpassing the estimated NT$235 billion. The gross margin was 53.2%, exceeding the expected 52.6%. Nokia reported net loss of EUR 146 mio. vs analyst expected profit of 183. Nokia cut sales guidance. Novartis reported 40% growth in profit in Q2 and raised guidance. EPS 1.60 vs 1.09 Q2 last year

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

Fixed income: At the start of Wednesday, UK inflation data reduced expectations of monetary easing by the Bank of England, causing UK 2-year yields to rise, weighing on global peers. Later in the day, the U.S. Treasury yield curve twist-flattened, with long-term yields dropping, supported by positive results from the 20-year bond auction. Indirect bidders received 77.2% of the auction, slightly down from last month but still one of the highest on record. The bid-to-cover ratio fell slightly to 2.68, but overall demand remained strong. The 10-year Treasury yield closed the day below support at 4.18% and if it continues to drop, it will find support next around 3.75-3.78%. Investors are now focused on today's ECB meeting, looking for indications of a possible rate cut in September. With the eurozone economy rebounding and inflation remaining high, a September ECB rate cut seems uncertain. For a complete preview to the ECB meeting, click here.

Commodities: Gold prices retreated from a record high of $2,483.73 an ounce as traders reconsidered expectations for Federal Reserve rate cuts amid US political uncertainty. After reaching an all-time high on Wednesday, gold erased its gains. The previous day, gold had surged above its May record, driven by bets on earlier and deeper Fed rate cuts due to signs of cooling inflation. Oil rejected support at $80.66 and bounced as a government report showed another decline in US crude stockpiles.

FX: The Japanese yen saw sharp strengthening yesterday, jumping to its highest levels in six weeks against the US dollar as markets are pricing in the Fed to start cutting rates in September. Risks of yen carry trade – the practice of borrowing low yielding currencies to invest in high yielding currencies – unwinding are building up as yield gap narrows. Recent comments from Trump have also hinted at concerns about the US dollar strength, and Trump Trade could continue to see traction with Biden reportedly facing fresh health issues. Australia’s employment data surprised on the upside, and kept the rate hike chatter alive, a sharp contrast to New Zealand where Q2 CPI came in below expectations yesterday. The euro has also gained ahead of the ECB announcement today, and the British pound extended its rally after a sticky inflation report yesterday and as-expected labour data today.

Volatility: The VIX climbed significantly to $14.48 (+1.29 | +9.78%), marking the first time since May 30th that it surpassed the 14 level. The VIX1D spiked to $13.20 (+3.59 | +37.36%) and the VIX9D increased to $13.16 (+1.36 | +11.53%). VVIX rose to 88.28 (+5.88 | +7.14%), while the SKEW index dropped to 146.39 (-5.14 | -3.39%). VIX futures declined slightly to $14.70 (-0.11 | -0.73%) this morning. Expected moves for today, derived from options pricing, show the S&P 500 with an expected move of plus or minus 33.97 points (+/- 0.61%) and the Nasdaq 100 plus or minus 193.1 points (+/- 0.96%). S&P 500 and Nasdaq 100 futures display modest recovery after their nightly session, with S&P 500 futures at 5,648.50 (+9.50 | +0.17%) and Nasdaq 100 futures at 20,050.50 (+53.00 | +0.27%). Today's key economic events include the Initial Jobless Claims report at 14:30, with a forecast of 229K (vs previous 222K), and the Philadelphia Fed Manufacturing Index at 14:30, with a forecast of 2.7 (vs previous 1.3). Notable earnings today include Netflix (NFLX) with an EPS forecast of 4.74 and revenue forecast of $9.53B. Yesterday's top 10 most traded stock options were Nvidia, Tesla, Apple, Amazon, Advanced Micro Devices, Meta Platforms, Intel, Sofi Technologies, Broadcom, and Taiwan Semiconductor ADR.

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