Global Market Quick Take: Europe – 25 October 2024

Key points:

• Equities: Tesla surges 22%, IBM drops 6%, European stocks rise slightly, Hong Kong's HSI falls 1.3%.
• Currencies: Japanese yen pulls higher on stronger than expected Tokyo CPI and lower US treasury yields.
• Commodities: Energy and grains on top in positive week for sector
• Fixed Income: Sovereign bonds rise on ECB cut bets, gilt yields climb before UK budget.
• Economic data today: Germany Oct. IFO Survey

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

The US Election is the biggest event risk of the year. Join our webinar: Trading the US election

Macro:

• US Flash S&P PMIs came in slightly above expectations, even though manufacturing remained in contraction at 47.8 in October while services was in expansion at 55.3. UK’s October PMIs however came in below expectations at 50.3 for manufacturing and 51.8 for services, signalling Q4 growth slowdown. Meanwhile, Eurozone was mixed as French metrics were soft, followed by slightly more encouraging German figures. German IFO numbers will be on tap today for further insights.
• US jobless claims for the week ending 19th October fell to 227k from 242k, suggesting little concerns still of a sharp cooling in the labour market.
• Japan’s Tokyo CPI for October came in above expectations on the core, particularly the core-core measure at 1.8% YoY from 1.6% previously and expected. This adds to the case for further BOJ tightening, but the immediate focus shifts to LDP election over the weekend. Polling suggests that there are risks that the LDP may lose the majority which could weaken the ruling party’s governing capacity and this could mean questions on the BOJ’s normalization stance and push for further fiscal measures.
• The ECB’s Wunsch said it is too early to consider 50 basis point rate cuts while ECB chief Economist Lane was out saying that services inflation will moderate in coming months as idiosyncratic factors fade out of the data. The market prices the odds of a 50-basis point cut at about 34%.

Macro events (times in GMT):  Germany Oct. IFO Survey (0800), US Sep. Durable Goods Orders (1239), Canada Aug. Retail Sales (1230), US Fed’s Collins, non-voter, to speak (1500)

Earnings events:

• Today: HCA Healthcare, Colgate-Palmolive, Aon, Centene
• Next week: Apple, Microsoft, Alphabet, Amazon, Meta, Eli Lilly, Visa, Exxon Mobil, Mastercard, AMD, McDonalds, Caterpillar, Uber

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

Equities: US stocks saw mixed performance yesterday. Tesla surged 22%, marking its largest rally since 2013 after posting stronger-than-expected earnings and improved margins, lifting its market cap to $836 billion. In contrast, IBM dropped 6% following disappointing sales figures in its consulting and infrastructure divisions. European markets edged higher, with the Stoxx 50 gaining 0.3%, buoyed by luxury stocks like Hermes and LVMH. In Asia, Hong Kong’s Hang Seng Index declined by 1.3%, weighed down by a 2% drop in Semiconductor Manufacturing International Corporation (SMIC) amid concerns that TSMC chips may violate US sanctions with Huawei.

Volatility: Volatility remains elevated as the VIX rose to 19.08 (+1.89%), with market activity reflecting a mixed sentiment. While VIX futures remained stable at 18.95, other indices like the VIX1D saw significant declines, dropping 7.48%. Despite Tesla's earnings boost, uncertainty persists around broader tech performance, particularly with IBM's slump. Implied volatility in Tesla and Nvidia remains at elevated levels above 50%, signaling potential large price moves ahead.

Fixed Income: European bonds rallied, led by Bunds, as markets increased bets on a potential half-point ECB rate cut in December. This shift followed weak business activity data from France and Germany. In the UK, gilt yields remained higher as Chancellor Rachel Reeves signaled to change fiscal rules to get more borrowing for investment, causing traders to trim expectations of aggressive Bank of England rate cuts. U.S. Treasuries gained on Thursday, supported by a drop in oil prices and strength in euro-zone bonds. The 10-year yield dropped to around 4.20%. The day saw a bull-flattening curve, with the 5s30s spread narrowing further.

Commodities: The BCOM index is heading for a weekly gain of 1.5%, led by strong gains in energy led by natural gas ahead of winter and in Europe amid supply concerns. Crude oil trades up on the week, but is being capped by sluggish demand, MidEast peace talks and rising inventories. Corn and soybeans are seeing strong export demand, potentially due to the frontrunning of orders ahead of the US election. Gold and silver continue to consolidate after reaching fresh record and cycle highs. Cocoa slumps as the Ivory Coast harvest picks up pace.

Currencies: The JPY rose overnight as US treasury yields eased back lower in yesterday’s session and on the firmer than expected Tokyo CPI data. The 200-day moving average in the USDJPY exchange rate near 151.50 is in focus ahead of this weekend’s election in Japan and the Bank of Japan meeting next week. Elsewhere, the US dollar was on its back foot after a long run of strength.

For a global look at markets – go to Inspiration.