Key points:

  • Equities: Adobe delivers another disappointing outlook, DSV becomes world’s largest logistic company
  • Currencies: USD trades weaker after PPI and ECB rate cut
  • Commodities: Gold surges to a fresh record
  • Fixed Income: Lower US yields with a 50-basis point cut back on the tablE
  • Economic data: U. Michigan Consumer Sentiment

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

 

In the news:

  • Strong case for 50 bp Fed cut, says former NY Fed chief Dudley (Reuters)
  • Dollar droops, gold at record high as bets for big Fed cut ramp up (Reuters)
  • ECB dents traders' hopes for October rate cut (Reuters)
  • Bank of England to pause rate cuts, focus shifts to bond sales (Investing)
  • Stocks Pull Off Another Rally. S&P 500, Nasdaq Notch 4-Day Winning Streaks. (Barron’s)
  • Oracle shares rise further to record high on bumper AI-fueled forecast (Investing)
  • Adobe weaker guidance offsets better-than-expected Q3 results; shares plunge 10% (Investing)
  • US says new Apple AirPods can be hearing aids (Investing)
  • Warner Bros. Discovery Shares Jump 10% After Adding Max To Charter Cable Bundle (Forbes)

Macro:

  • The Producer Price Index (PPI) for August rose by 0.2% month-over-month, exceeding the estimated 0.1% increase and matching the prior month's 0.1% rise. Year-over-year, the PPI for August increased by 1.7%, slightly below the estimated 1.8% and down from the previous 2.2%. The Core PPI, which excludes food and energy, rose by 0.3% month-over-month, surpassing the estimated 0.2% and up from 0% in the prior month. Year-over-year, the Core PPI for August increased by 2.4%, in line with the prior month's figure but slightly below the estimated 2.5%.
  • Weekly jobless claims rose to 230,000 from 228,000 the previous week, aligning with consensus estimates. The 4-week moving average increased to 230,750 from 230,250 the prior week. Continued claims also climbed to 1.850 million from 1.845 million the previous week, in line with consensus estimates. The US insured unemployment rate remained unchanged at 1.2%.
  • The ECB, as expected, cut rates for the second time this cycle, reducing its key deposit rate to 3.5%, but it reiterated that services inflation remains high, and it would keep rates sufficiently restrictive for as long as necessary. Traders paired back bets on a back-to-back cut with another 33 bps now expected before yearend, down from 36 bps prior to Thursday’s cut.

Macro events (times in GMT): Eurozone Industrial Production (Jul) exp –0.3% MoM vs –0.1% prior (0900), U. Michigan Consumer Sentiment (Sep) exp 68.5 vs 67.9 prior (1400)

Earnings events: Adobe shares fell 9% in extended trading hours as the creative software maker beat against estimates for Q3 revenue and EPS, but disappointed slightly on its Q4 outlook for revenue at $5.5bn to $5.55bn vs est. $5.6bn. Another quarter of disappointment highlights the difficulties Adobe has in generating additional revenue from its AI features, but management made it clear that in the beginning of its AI journey the company focuses on adoption rather than monetization.

  • Friday: Darktrace

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

Equities: Mixed session in Asia with Hong Kong stocks up 1% while Japanese equities traded 0.9% lower. Futures are pointing to a 0.3% higher open in Europe and a flat open in the US. There will likely be a focus on AI-related stock today with OpenAI announcing yesterday their newest reasoning model called o1 which can solve harder problems than previous models. DSV will also be in focus as the Danish logistic company has signed a deal to take over Schenker for an enterprise value of €14.3bn making DSV the largest logistic company in the world. ECB delivered an expected rate cut yesterday, but ECB President Lagarde’s forward-looking statement indicated that the ECB is still seeing a slow pace in cuts going forward as wage growth dynamics are still too high.

Fixed income: US Treasury yields rose on Thursday, impacted by weaker bund prices after ECB President Christine Lagarde said interest rates would stay sufficiently restrictive following an anticipated quarter-point cut to 3.5%. Losses continued through the US afternoon session, including the 30-year bond auction, which tailed by 1.4bp. The September Fed-OIS sold off slightly, increasing the chances of a half-point rate cut after Wall Street Journal and FT reports indicated policymakers were debating between a 25bp or 50bp cut. Overnight, a fresh bid returned with the 10-year yield trading lower to around 3.64% while the important 2-year yield is lower by 5 basis points, hovering just above 3.55%, the 2023 low.

Commodities: The Bloomberg Commodity Index is heading for a strong weekly rebound, up around 2.5% with all sectors showing gains, led by softs and precious metals. Gold reached a fresh record high around USD 2,570 in Asia today as it continued to build on yesterday’s breakout above USD 2,530, a level that finally gave way after the ECB cut rates and after The Wall Street Journal and Financial Times reported a 50-basis point cut next week was back on the table. ETF investors, net sellers since 2022, have increased holdings for the past five weeks, returning to the metal amid the prospect of lower funding costs. Silver has yet to break resistance above $30 but with copper finding a bid and the dollar trading lower, we may see a fresh challenge soon. Crude prices continued a rebound from a three-year low, despite the IEA warning that global oil demand growth is slowing sharply due to China’s cooling economy. A general supportive risk-on sentiment, combined with hurricane disruptions in the US both supporting a fresh round of short covering with $75 the key level to watch in Brent.

FX: The broad-focused Bloomberg Dollar Index is heading for a second, albeit small, weekly loss of around 0.4%, primarily driven by MXN, JPY, and AUD strength. The EURUSD trades flat on the week as traders digest the ECB's decision to lower borrowing costs, with inflation data aligning with expectations, and core inflation projected higher for 2024 and 2025. The ECB plans to keep restrictive policy rates and follow a data-dependent approach, with traders anticipating one or two more rate cuts this year. GBPUSD is trading above USD 1.3 amid mixed economic data, including stalled GDP growth, lower wage growth, and a slight drop in unemployment. The Bank of England is expected to cut rates in November and possibly December. The Japanese yen eased to around 142.5 per USD as the US dollar strengthened on mixed inflation data but remained near its highest levels this year, with BOJ officials indicating plans to steadily hike rates to achieve a 2% inflation target.

Volatility: Markets are showing some stability this morning as attention shifts to next week’s anticipated rate cut by the Federal Reserve. With no major economic data or earnings releases scheduled for today, traders are focusing on the overall market direction leading into next week’s decision. The VIX, a key measure of market volatility, dipped 3.50% to 17.07, while short-term volatility tracked by the VIX1D fell 13.28% to 12.99, signaling reduced immediate-term fear in the market. However, VIX futures edged up 0.23%, reflecting cautious optimism heading into the weekend. S&P 500 and Nasdaq futures both gained overnight, up 0.16%, suggesting a positive start for the day. Expected moves, derived from options pricing, are up or down 32 points (~0.57%) for the S&P 500 and up or down 166 points (~0.86%) for the Nasdaq 100. Yesterday’s most active stock options were Nvidia, Tesla, Apple, Broadcom, Amazon, Intel, Palantir, Meta Platforms, AMD, and Alphabet.

For a global look at markets – go to Inspiration.