Global Market Quick Take: Europe – 8 August 2024

Key points:

• Equities: Futures are indicating a lower open in Europe. Focus on semiconductors today.
• Currencies: Dollar slips on fresh yen and AUD strength
• Commodities: EU gas jumps to 2024 high
• Fixed Income: U.S. Treasuries and European bonds decline amid high corporate issuance and easing market panic.
• Economic data: US jobless claims

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

In the news: EU Gas prices jump to 2024 high after Ukraine attack (Telegraph), Fast-Money Quants Are Hammered After ‘Everything Went Wrong’ (Bloomberg), Warner Bros. Discovery reports wider Q2 loss on $9.1B hit to networks unit (Investing), Novo Nordisk posts rare miss on sales of obesity drug Wegovy (Reuters), Jamie Dimon says he still sees a recession on the horizon (CNBC).

Macro: Bank of Japan Deputy Governor Shinichi Uchida conveyed a strong dovish stance in the first public statement from the central bank since the rate hike on July 31. He asserted that the BOJ would avoid raising interest rates while the markets remain unstable, after the central bank has been under the radar for its hawkish moves, which sent ripples across the Japanese and global equity markets. Uchida suggested that the bank will carefully consider the state of financial markets in future decisions on rate policy. He said that authorities in Japan can afford to wait for the markets to calm before making any decisions. Read this article to know more about the BOJ’s U-turn and what it means for Japanese equities and the yen. Summary of opinions from the BOJ meeting emphasised that the rate hike from last week will not have tightening effect and easing stance will remain while also showing one member identifying the neutral rate at 1%. Bank of Canada’s July meeting minutes signaled policymakers are worried that a weaker jobs market will delay the recovery in consumer spending, and this encouraged them to cut rates last month. Tone was dovish with central bank not worried about risks of inflation getting re-ignited but focused more on the impact of high interest rates on economic growth. 

Macro events (times in GMT): US weekly jobless claims, exp. 240k vs 249k prior (1230), EIA’s Natural Gas Storage Change, exp. 25bcf vs 18 bcf prior (1430)

Earnings events: Rheinmetall has reported a significant beat this morning on its Q2 results, but is maintaining its FY24 outlook. Siemens has reported mixed results this morning, but on a good note orders are coming in higher than estimated. Novo Nordisk was the big earnings event yesterday as its weight drug revenue for Q2 disappointed on pricing pressure in the US and because Novo lowered its outlook a bit with shares declining 6%. Maersk lifted its FY outlook due to higher freight prices as the Red Sea disruption is still impacting global logistics. Maersk’s CEO said that he does not see any signs of a recession in the economy. Shopify beat expectations and raised its outlook with shares rising almost 15%. Walt Disney shares declined 5% despite results beating expectations as weak Park revenue spooked investors.

• Today: Kweichow Moutai, China Mobile, China Telecom, Zurich Insurance, Siemens, Allianz, Recruit, Tokyo Electron, Brookfield, Gilead Sciences, Eli Lilly, Deutsche Telekom, Parker-Hannifin, Genmab, Rheinmetall, Datadog
• Friday: Constellation Software, Generali

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

Equities: Volatility remains higher than average in markets and it is still unclear to what degree investors and traders need to change their portfolios. To get the next jolt in markets we need a big negative surprise on the economy and the initial jobless claims today could be exactly that macro report. Asia’s equity session was mixed with Japanese equities declining while other markets including China were up. Futures are indicating a lower open in Europe and flat open in the US. Super Micro Computer was down 20% yesterday so we expect a lot of focus on semiconductor stocks and especially Nvidia.

Fixed income: On Wednesday, U.S. Treasuries fell due to a record level of corporate bond issuance and weak demand for a 10-year note auction. This resulted in a bear-steepening move, with long-term yields rising more than short-term yields. The 10-year Treasury yield ended at around 3.96%, up 6 basis points. The 2-year yield rose by 3 basis points to 3.98%, widening the 2-year and 10-year spread by 4 basis points. European government bonds fell alongside U.S. Treasuries as the panic that had previously gripped global markets began to subside. The German yield curve steepened, with the 10-year yield rising for the third consecutive day by 7 basis points to 2.28%, and the two-year yield increasing by 3 basis points to 2.42%. European Central Bank Governing Council member Olli Rehn described the recent global stock market turbulence as an overreaction. Consequently, money markets reduced bets on ECB interest rate cuts, pricing in 69 basis points through December, 2 basis points less than the previous close. The BTP-Bund spread tightened by 2 basis points to 143 basis points. Today the focus is on the U.S. Jobless claims, Fed Barkin speech and the 30-year U.S. Treasury auction.

Commodities: EU gas closed at an eight-month high at €38.45/MWh ($12.34/MMBtu) following a report that Ukrainian troops seized a key gas-transit point near the border in Russia. Oil extended its weekly gain on concerns about Middle East disruptions as traders await an Iran retaliation attack against Israel, a halt in Libya’s largest field output as well as a sixth consecutive draw in US crude stocks. The WTI contract trades back above $75 after a 2.8% rise on Wednesday, with Brent above $78 and back to safer grounds after once again finding support in the $75-area. .old steadied after a five-day decline — the longest in nearly six months — influenced by broader market cues and weak equities. Copper’s current stockpile problem continues after LME monitored stocks saw the biggest daily inflow in four years, with material flooding into South Korean and Taiwanese warehouses highlighting weak demand in Asia.

FX: The US dollar reversed lower in Asia after sustaining its gains on Wednesday. Comments from Bank of Japan’s Deputy Governor Uchida to calm the markets helped put a lid on strength in the Japanese yen. However, the impact was short-lived as the yen weakened again overnight amid lower Treasury yields and safe-haven play as Mideast tensions escalated. Swiss franc, another haven, was also higher in the Asian morning. Risk currencies like kiwi dollar, Norwegian krone and British pound were on the backfoot while the Aussie dollar trades higher after RBA’s Bullock said the bank would not hesitate to raise rates further to combat inflation. The euro was range-bound following a failed attempt earlier in the week to break above 1.10, and Germany’s final July inflation print will be on the radar on Friday. 

Volatility: The VIX ended Wednesday at $27.85 (+0.14 | +0.51%). The VIX1D increased significantly to $28.71 (+2.10 | +7.89%), indicating that immediate term volatility is still very much present. The VVIX, a measure of volatility in VIX options, climbed back to 151.24 (+1.15 | +0.77%), which is still a historically very high number, and indicates that volatility is persistently on edge. VIX futures are at $24.750 (-0.325 | -1.30%). Expected moves for today, derived from options pricing, show the S&P 500 with an expected move of plus or minus 74.39 points (+/- 1.43%) and the Nasdaq 100 plus or minus 321.91 points (+/- 1.80%), back up from yesterday pointing to more very short-term volatility. S&P 500 and Nasdaq 100 futures show minimal movement, with S&P 500 futures at 5,222.25 (-5.25 | -0.10%) and Nasdaq 100 futures at 17,975.00 (+8.50 | +0.05%). Today's key economic events include the Initial Jobless Claims report at 14:30, with a forecast of 241K (vs previous 249K), and the 30-Year Bond Auction at 19:01, with a previous yield of 4.405%. Notable earnings releases today are from Eli Lilly (EPS forecast: 2.75, Revenue forecast: 10B) and Gilead (EPS forecast: 1.6, Revenue forecast: 6.72B). Yesterday's top 10 most traded stock options were Nvidia, Apple, Tesla, Palantir Technologies, Amazon, Advanced Micro Devices, Lumen Technologies, Intel, Upstart Holdings, and Super Micro Computer.

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