Global Market Quick Take: Europe – 24 October 2024

Key points:

• Equities: Equities lower, but Tesla shares rose ireports blowout quarter
• Currencies: JPY decline yesterday partially corralled overnight
• Commodities: Gold corrects after surge; Soy and corn in demand ahead of election
• Fixed Income: European bonds rise on ECB cut bets, US Treasury yields hit highs
• Economic data today: Eurozone, UK preliminary Oct. PMI, US Weekly Jobless Claims, US Sep. New Home Sales

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

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Macro:

• The Bank of Canada cut rates by 50bps to 3.75% with Governor Tiff Macklem emphasized that core inflation is easing as expected. He noted that further rate cuts are likely if the economy evolves as expected, with a focus on inflation and growth data moving forward. He also mentioned that the BOC is focused on ensuring a smooth economic transition, or "sticking the landing", as they navigate the post-inflationary environment.
• US Fed’s Beige Book reinforced expectations of further rate cuts. Several Fed officials, including Chair Powell, referenced the Beige Book as a key reason for the 50 bps rate cut in September. The report highlighted downbeat picture on economic activity across nearly all districts, contrasting with August's report, which showed growth in three districts.
• Several ECB speakers were on the wires, with a range of views. Notably, dove Centeno said downside risks to growth are accumulating and a 50bps cut is on the table as the ECB is behind the curve. Panetta echoed these comments, even saying that can’t exclude that the rate needs to ge below neutral. Villeroy of France sees “full optionality” for December meeting, Nagel said “maintaining rate flexibility in every direction” in an interview with CNBC; while hawk Holzmann said that not cut is also a possibility at the December meeting and fellow hawk Knot noted that, while confident inflation will hit 2% in 2025, that a large economic deterioration is needed for bigger cuts.

Macro events (times in GMT):  Preliminary Oct. PMI’s today: France (0715), Germany (0730), Eurozone (0800), UK (0830), US (1345), US Weekly Initial Jobless Claim (1230), Fed’s Hammack (Voter 1245), UK BoE’s Mann (1300),  EIA’s Weekly Natural Gas Storage Change (1430), UK BoE Governor Bailey (1945), UK Oct. GfK Consumer Confidence (2391), Japan Oct. Tokyo CPI (2330)

Earnings events: Today’s earnings calendar is weak but there will be focus on UPS due to its importance in the global supply chain. The company is expected to report Q3 revenue growth of 5.2% YoY as the global logistics market is beginning to recover after two years of sluggish growth rates.

• Thursday: S&P Global, Union Pacific, KKR, Northrop Grumman, Honeywell, UPS, Verisign, Hermes International and Danone.

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

Equities: US markets fell yesterday, with the Nasdaq 100 down 1.6% and the S&P 500 declining 0.9%, driven by selloffs in Arm (-6.6%) and Nvidia (-2.8%). However, Tesla surged 12% in post-market trading after a 9% YoY profit growth and positive projections for deliveries in 2025. The company also announced that it has reached profitability on Cybertruck production. In Asia, Japan’s Nikkei 225 dropped 0.8% as investors remained cautious ahead of Japan's general election, with concerns over a potential loss for the ruling Liberal Democratic Party. Notably, Tokyo Metro surged 45% on its IPO debut, Japan's largest in six years. Meanwhile, Hong Kong’s Hang Seng Index rose 1.3% on tech and financial gains, supported by optimism around a CNY 2 trillion stabilization fund. In Europe, Danone's Q3 sales rose 4.2% on a like-for-like basis, beating estimates of 3.9%, though total sales slightly missed expectations at EUR 6.83 billion. The company maintained its 2024 outlook. L’Oréal fell 2.5% due to weak Chinese demand, while Deutsche Boerse declined 2%, leading financial losses.

Volatility: Volatility rose with the VIX increasing 5.71% to 19.24 as U.S. markets reacted to the tech sector selloff and investor caution ahead of key earnings. Despite this, VIX futures saw a slight decline, down 1.68% as markets anticipate stabilizing factors, including earnings from major companies like Tesla. Short-term volatility remains heightened, with the VIX1D surging 34.23% as options pricing indicates a higher-than-usual level of risk perception. Today’s options pricing suggests an expected move for the S&P 500 of 0.54% and the Nasdaq 100 of 0.81%, signaling potential significant market movement up or down based on earnings outcomes and economic data releases.

Fixed Income: European short-dated bonds rallied as traders increased bets on a potential half-point interest rate cut by the European Central Bank in December, with the German two-year yield falling by 7 basis points to 2.11%. Meanwhile, the 10-year German yield remained steady at 2.32%, and Italian and French yields saw slight declines. U.S. Treasury yields rose yesterday, with most maturities hitting their highest levels since July. The yield curve flattened as long-term bonds outperformed, while expectations for future Fed rate cuts diminished. The 10-year yield climbed about 3 basis points to 4.24%. The 20-year bond auction was weak resulting in a tail despite pricing with a yield of 4.59%, the highest since May.

Commodities: Gold and silver found a fresh bid overnight after an overdue correction quickly lost steam, despite the headwinds from continued USD and yield strength. The US election outcome is too close to call, and markets, including safe-haven precious metals, will continue to trade nervously ahead of 4 November. Silver’s 3.3% setback, which was partly due to industrial metal weakness did not take it near key support at USD 32.50. Chicago corn and soybean futures have both traded up around 2.5% this week on strong export demand, as traders race to ship out a record US harvest ahead of the US election, amid fears of renewed trade tensions. The latest polls, turning a bit more friendly towards Haris, are also soothing a few sanctions-related nerves. Crude oil has settled into a nervous wait-and-see mode, with major two-sided risks keeping prices rangebound for now.

Currencies: Yesterday, a fresh rise in U.S. Treasury yields across the curve lifted the US dollar to fresh highs almost across the board, while the JPY was pushed sharply lower to fresh local lows against all other major currencies. The USD/JPY exchange rate rose above 153 at one point yesterday before regaining ground in the wake of the weak Fed Beige Book release, which pushed US treasury yield back lower. EUR/USD dropped below 1.08 on more dovish than hawkish ECB comments and a German growth downgrade – focus today on France, German and Eurozone October flash PMI. USD/CAD was little changed despite the Bank of Canada decision to go with the large 0.50% rate cut, which was expected, and its dovish guidance for further policy easing.

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