Key points:

  • Equities: S&P notching up another record high, Chinese stocks rebound
  • Currencies: US Dollar Index Extends Winning Streak to Eight Sessions
  • Commodities: Gold holds support; Additional China measures in focus
  • Fixed Income: Sluggish 10-year auction weighs ahead of CPI
  • Economic data: US CPI

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

Saxo’s Q4 Outlook – published on 2 October 2024

  • Macro: The US rate cut cycle has begun
  • Equities: Will lower rates lift all boats in equities?
  • Fixed Income: Bonds hit reset. A new equilibrium emerges
  • Forex: USD in limbo amid political and policy jitters
  • Commodities: Gold and silver continue to shine bright

Macro

  • The Reserve Bank of New Zealand cut its official cash rate by 50 basis points to 4.75% in October 2024, aligning with market expectations. Annual inflation fell to 3.3% in Q2 2024, the lowest since Q2 2021 and near target range of 1-3%.
  • FOMC Meeting Minutes: The Fed clarified that the September 50bps should not be seen as a sign of a worsening economic outlook or a faster pace of policy easing. Most members were confident that inflation was moving toward the 2% target. The Fed reduced the fed funds rate by 50bps to 4.75%-5%, the first cut since March 2020, and projected a total of 100bps of easing by year-end.
  • Japan's producer prices rose by 2.8% YoY in September, up from 2.6% in August and above the expected 2.3%. This marked the 43rd consecutive month of producer inflation. Key contributors included transport equipment, beverages & foods, chemicals, electrical machinery, and non-ferrous metals. Prices for petroleum & coal and iron & steel rebounded. Monthly, producer prices were flat, beating expectations of a 0.3% decline after a 0.2% drop in August.
  • Germany's exports rose by 1.3% to EUR 131.9 billion in August, beating expectations of a 1.0% decline. This marked the second consecutive month of growth. EU exports increased by 0.8%, and exports to third countries grew by 1.9%, with notable increases to the US, China, and the UK, but a decline to Russia. Year-to-date, exports fell by 0.9% to EUR 1,061.4 billion compared to the same period in 2023.

Macro events (times in GMT):  US CPI (Sep) exp 0.1% & 2.3% vs 02% & 2.5% prior with ex. Food and Energy unchanged at 3.2% YoY (1230), US Weekly Initial Jobless Claims exp 230k vs 225k prior, EIAs Weekly Natural Gas Storage Change exp. 72bcf vs 55 bcf prior (1430)

Earnings events: Delta Air Lines reports Q3 earnings today before the US markets open with analysts expecting revenue growth of -5.4% YoY as airline companies are hit by higher capacity and weakening demand. Fuel costs are lower but offset by higher wages putting pressure on margins. For Delta Air Lines, the CrowdStrike outrage impacted the business negatively.

  • Today: Seven & i, Fast Retailing, Domino’s Pizza, Delta Air Lines
  • Friday: Tryg, Bank of New York Mellon, JPMorgan Chase, Wells Fargo, Fastenal, BlackRock

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

Equities: Volatility in Chinese equities continues at excessive levels with Hang Seng up 4% today ahead of a planned government briefing on fiscal measures expected this weekend. Futures are pointing to a flat open in Europe and the US. Deutsche Telekom is announcing this morning a planned €2bn share buyback programme in 2025. Fast Retailing (parent company of the Uniqlo brand) reports better than expected fiscal Q4 result issuing a positive outlook for the new fiscal year and raising dividends above estimates; shares gained 11% in Japanese trading. Alphabet (Google) shares are also in focus as the US government is planning steps that will fundamentally change Google’s grip on search, however, previous antitrust cases take a long time and have in past shown to do little to change large technology companies. Key event today is the US September inflation report.

Volatility: Volatility decreased slightly as markets remain cautious ahead of today’s inflation report. The VIX dropped 2.61% to 20.86, signaling reduced near-term anxiety, while the VIX9D dipped more sharply by 8.83% as shorter-term fears ease. However, VIX futures are relatively stable, with the VX1! inching up 0.63% to 19.47. Options pricing suggests a slightly elevated expected move for today, with a projected shift of 41 points (~0.68%) for the S&P 500 and around 180 points (~0.88%) for the Nasdaq. This reflects caution around CPI data, which could set the tone for the rest of the trading week.

Fixed Income: Treasury yields continue to rise ahead of today’s CPI print as expectations for the pace of Federal Reserve policy easing fade. Since last Friday’s stronger jobs report, US 10-year yields have risen by 22 basis points to 4.07%, while the 2-year yield has climbed 31 basis points to 4.01%, flattening the curve as traders adjust to reduced expectations for Fed easing. This is influenced by Michael de Pass, head of rates trading at Citadel Securities, who predicted only one 25 basis point rate cut by the end of the year. Yesterday’s highest yield points were reached following a lackluster 10-year note auction, with a 30-year bond sale scheduled for today.

Commodities: Gold prices fell for a sixth day after reduced rate cut expectations helped trigger a correction, which for now remains relatively shallow with support emerging ahead of USD 2,600. Crude traders’ focus remains torn between the risk of a price spike, should Israel strike Iran’s energy infrastructure, and a sluggish demand outlook, highlighted by the EIA’s latest monthly report, which downgraded their global demand outlook for 2025 to 1.2 million barrels per day. Note, the IEA and OPEC will publish their reports next week. Copper has stabilised following a two-day slump, with all eyes on a weekend briefing from China's Finance Minister, where hopes have been raised that additional stimulus measures will be announced to support the ailing economy. Wheat jumped the most in a week, as weather disruptions for major growers, especially Russia, drive delays in winter crop plantings, risking future supplies.

FX: The dollar maintained its gains after the latest Federal Reserve meeting minutes, with traders now looking ahead to today’s US inflation report. The yen weakened toward the key 150 per USD level, while the New Zealand dollar was the worst performer, dropping to its lowest level since 19 August. The Bloomberg Dollar Spot Index trades near a two-month high, following the longest winning streak since April 2022, which has seen gains against all major currencies, except the Mexican peso. Hardest hit, besides the JPY, are the activity currencies dependent on Chinese demand, as well as the Scandies.

For a global look at markets – go to Inspiration.