Global Market Quick Take: Europe – 18 October 2024

Key points:

• Equities: Main US indices close almost flat after opening higher. Netflix +5% after earnings.
• Currencies: USD firmed on strong data yesterday, JPY edges stronger post-CPI
• Commodities: Gold’s record-breaking run continues; energy sector suffers weekly loss
• Fixed Income: US data strength drives US bond yields up
• Economic data today: US housing starts and building permits

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

Macro:

• UK reported stronger than expected Sep. Retail Sales this morning, up +0.3% MoM and +4.0% YoY ex Auto Fuel versus -0.3%/+3.1% expected, respectively.
• Japan’s Sep. National CPI came in at 2.5% YoY as expected and versus 3.0% in August, though the core Ex Fresh Food and Energy measure was slightly highe than expected at 2.1% vs. 2.0% expected and 2.0% previously.
• After GDP figures were released overnight in China, the People’s Bank of China revealed more details of measures aimed at supporting capital markets, including real estate and the stock market.
• China’s Q3 GDP beat estimates after rising 4.6% from a year earlier, and up from 4.7% in the second quarter. Factory output and retail sales also beat the year-over-year estimates, while new home prices fell in September
• US September retail sales increased by 0.4% in September 2024, surpassing expectations. Growth was strong in miscellaneous retailers (4%) and clothing (1.5%), while sales dropped in electronics (-3.3%) and gasoline stations (-1.6%).
• US industrial production fell by 0.3% in September, more than expected. Strikes and hurricanes reduced growth, with manufacturing output down 0.4% and capacity utilization at 77.5%. Capacity utilization dropped to 77.5%, below its long-term average. For the third quarter, industrial production declined at an annual rate of 0.6%.
• US unemployment claims fell by 19,000 to 241,000, below expectations, though claims remain higher than earlier this year, impacted in recent weeks by the two hurricanes that struck the US in Florida, Georgia and elsewhere.
• The ECB cut interest rates by 25 bps in October 2024 – the third in a row - citing disinflation and aiming to meet its medium-term inflation goal. This move follows improved disinflation, with Eurozone inflation dropping below the 2% target for the first time in over three years. The ECB aims to keep rates restrictive to meet its medium-term inflation goal, using a flexible, data-driven approach.

Macro events (times in GMT):  US Sep Housing Starts at 1230, exp. 1350k vs 1356k prior and Building Permits exp. 1460k vs 1475k prior, Fed speakers: Bostic (Voter) at 1330 & 1630, Kashkari at 1400, Waller (Voter) at 1610

Earnings events:

• Today: Volvo (reported weak earnings this morning), American Express, Schlumberger, Procter & Gamble

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

Equities: Mainland Chinese shares rose more than 2% by early European trading on the moves by the PBOC overnight announcing further details on its support for markets there. Yesterday, U.S. stocks opened higher buoyed by strength in the semiconductor sector following robust corporate and economic news, but the S&P 500 and Nasdaq 100 closed toward the lows of the session and ended almost flat. The Dow Jones added over 100 points, and closed at an all-time high of 43,239.

In specific stock news, Nvidia surged 3% to a new record high after its key supplier, Taiwan Semiconductor (TSMC), reported a 54% year-over-year earnings growth and raised its revenue outlook. TSMC’s shares jumped 11%, lifting other chipmakers such as Broadcom (+2.6%) and Micron (+2.57%).

After the market close, Netflix reported earnings that beat top and bottom line estimates, and the addition of over 5 million new subscribers, surpassing expectations of 4 million. The stock rose 5% in after-hours trading.

Volatility: Volatility remained subdued on Thursday, with the VIX declining 2.4% to 19.11 as markets digested positive earnings and economic data. However, futures on the VIX ticked slightly higher to 18.80, suggesting some caution ahead of today’s options expiration, which could bring added market fluctuations. The VVIX also dipped by 5.13%, indicating a reduction in demand for volatility protection. In the options market, aside from the usual activity in Nvidia and Tesla, significant volume was observed in Taiwan Semiconductor (TSMC) and Super Micro Computer (SMCI) following strong semiconductor earnings. The S&P 500 implied volatility points to a 0.47% expected move, while the Nasdaq 100 indicates a 0.45% range. No major economic releases are expected today, and with next week's calendar light, market focus may start shifting toward the upcoming U.S. elections.

Fixed Income: Treasuries traded steady overnight, having fallen on Thursday after stronger-than-expected US economic data, including retail sales and lower than expected weekly initial jobless claims, led traders to trim expectations for rate cuts. The 10-year yield climbed 7 basis points to 4.09% while the front-end and belly yields increased by 3 to 7 basis points.

Commodities: The sector is heading for a weekly loss of almost 2%, with heavy losses across the energy sector, led by slumping crude, diesel, and natural gas prices, as well as weakness across industrial metals and grains, being only partly offset by gains among the precious metals. Gold extended its record-breaking run, trading above USD 2,700, supported by multiple factors, including geopolitical tensions and uncertainties surrounding the US presidential election. The rally this past week has occurred despite dollar strength and traders trimming US rate cut expectations. Crude is heading for a weekly loss, despite Middle East tensions and the EIA reporting another weekly drop in US crude stockpiles. Instead, the prospect of a sizable surplus next year and concerns over China demand continue to weigh. Copper has stabilised near support after China’s Q3 GDP beat estimates.

FX: The US dollar rose sharply again yesterday on strong retail sales data and as initial jobless claims came in better than expected despite the recent hurricanes hitting the US. The greenback’s strength has receded since peaking quickly post-data yesterday. The euro was broadly weak post-ECB, in part as the vote to cut rates was unanimous. The Japanese yen edged slightly higher on stronger than expected core inflation overnight, while this morning saw sterling jumping higher on strong UK retail sales.

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