Global Market Quick Take: Europe – 23 October 2024

Key points:

• Equities: US mostly flat, Asia mixed, Starbucks and McDonald's down post-market, SAP up on earnings.
• Currencies: USD/JPY above 151, EUR/USD below 1.08, USD/CAD above 1.38 ahead of BOC decision.
• Commodities: Fresh record and cycle highs in gold and silver
• Fixed Income: Bond market divided between ECB rate cut bets and rising oil prices
• Economic data today: Bank of Canada, Euro-area consumer confidence

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

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Macro:

• A host of ECB speakers were on the wires, including President Lagarde herself. There was a consistent theme of caution and a broader expectation that inflation target will be hit, but disappointing growth emphasis took the traders’ attention and market pricing for a 50bops rate cut in December picked up.
• Bank of Canada is expected to cut rates by 50bps to 3.75%. With a jumbo cut decision largely priced in, focus will be on whether there is any indication about the pace of rate cuts from here and if more jumbo rate cuts can be expected. Also watch for the BOC’s updated economic forecasts.
• The IMF lowered its global growth forecast for next year to 3.2% and warned of accelerating risks from wars to protectionism. It left its 2024 projection unchanged and expects inflation to slow to 4.3% in 2025 from 5.8% this year. US growth forecast for 2024 and 2025 were raised while China’s growth forecast for 2024 was downgraded.

Macro events (times in GMT): Bank of Canada Rate Decision exp. -0.5% to 3.75% (1345), US Existing Home Sales (Sep) exp. 3.88m vs 3.86m prior (1400), Euro-area Consumer Confidence (Oct) exp –12.5 vs –12.9 prior (1400), EIA’s Weekly Crude and Fuel Stock Report (1430), Fed’s Beige Book (1800),

Earnings events: Today, Tesla, Coca-Cola, IBM, ServiceNow, Boeing, Michelin, and Air Liquide report earnings, with Honeywell, UPS, Verisign, Hermes International, and Danone set to report tomorrow.

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

Equities: U.S. indices closed mostly flat on Tuesday, with the S&P 500 down 0.05% and the Dow losing just 0.02%, as concerns over rising 10-year yields and uncertainty around Fed rate cuts kept investors cautious. The Nasdaq 100 edged up 0.11%, supported by gains in tech stocks. In after-hours trading, Starbucks dropped 4.15% after reporting a 7% decline in same-store sales and withdrawing its 2025 guidance. McDonald's fell 5.8% following news of a health investigation linked to an E-coli outbreak tied to its Quarter Pounders.

In Asia, markets were mixed; Japan’s Nikkei 225 fell 1.39% to a three-week low due to concerns about U.S. yields and upcoming elections. Hong Kong’s Hang Seng Index gained 2.08%, led by auto stocks like Geely Auto (+7%) and Li Auto (+5.1%) following strong local IPO activity. European markets showed mixed results, with the DAX extending losses despite SAP's 2.4% gain on strong earnings. Today’s key earnings include Tesla, Coca-Cola, IBM, and ServiceNow, which are expected to impact market sentiment.

Volatility: Volatility remained relatively stable, with the VIX rising 1.89% to 18.37 as markets prepared for major earnings, including Tesla and Coca-Cola. While VIX futures edged up, concerns over rising U.S. Treasury yields and the upcoming U.S. election keep volatility levels elevated. Notable options activity was observed in Tesla and DJT, reflecting heightened interest as election day approaches. Based on today’s options pricing, the S&P 500 has an expected move of 0.37%, while the Nasdaq 100 shows a 0.58% range, indicating potential intraday swings up or down.

Fixed Income: German short-term bond yields dropped as markets increased bets on faster European Central Bank rate cuts, as Lagarde says that the direction of rate cutting cycle is clear and she wouldn't exclude large cuts. Traders now expect a potential 32bps cut in December and 58bps by January. The two-year German yield fell slightly to 2.17%, while the 10-year Bund yield rose by 3 basis points to 2.32%. US Treasury yields ended Tuesday mixed, with short- and intermediate-term yields slightly higher, while longer-term yields saw minor declines. The 10-year yield remained stable around 4.20%. Rising oil prices and European rates pushed yields upward. Bearish sentiment in Treasury options persisted, with bets targeting a 4.75% yield in the coming month.

Commodities: Crude oil remains in a wait-and-see mode, with Brent holding above USD 75 after gaining 4% in two days, supported by a continued focus on how an Israeli attack on Iran may impact supply and stability, while at the same time being held back by a stronger dollar. Focus is on the EIA’s weekly inventory report after the API reported a 1.6 million barrel stock build. Fresh record and cycle highs for gold and silver, as the two metals continue to see demand from investors concerned about the Middle East conflict and the impact on debt levels following US elections that, for now, point to a potential ‘Red Sweep’. Cocoa trades down 8% in the past week as the Ivory Coast harvest gets underway, thereby easing a tight supply situation, which has underpinned prices for months.

Currencies: Rising U.S. Treasury yields pushed USD/JPY above 151, its highest since July, testing the 200-day moving average. EUR/USD dropped below 1.08 on dovish ECB comments and a German growth downgrade. Commodity currencies strengthened with oil gains; AUD/USD approached 0.67. USD/CAD traded above 1.38 ahead of the Bank of Canada decision, with potential to reach 1.3890 on dovish guidance.

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