Key points:

  • Equities: Volatile Tuesday session ends in stalemate 
  • Currencies: Doller firms following three-day decline ahead of key risk events
  • Commodities: Gold hits fresh record with silver in catch-up mode
  • Fixed Income: Treasuries rally on weak employment data and dovish Canadian inflation.
  • Economic data: FOMC Minutes

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

In the news: Gold Ascends to New Record High (Barron’s), JD.com shares slump on report Walmart plans to sell $3.7 bln stake (Yahoo), Netflix stock secures record close as company touts ad sales ahead of NFL, WWE debuts (Yahoo), The world’s largest steel industry is going through a ‘winter’ amid a supply glut and weak demand (CNBC), Bond Traders Amassing Historic Level of Risk on Rate-Cut Bets (Bloomberg),

Macro:

  • Canada’s July inflation slowed to 2.5% YoY as expected from 2.7% in June, and BOC’s preferred trimmed mean measures eased to 2.7% from 2.8% previously. Core and other measures also cooled, signalling that the Bank of Canada can stay on the rate cutting path, and market expects another three rate cuts this year, one at each of the meetings.
  • Sweden’s central bank, the Riksbank, cut policy rate by 25bps, following up from its first rate cut of this cycle in May. The central bank also adopted a dovish posture signalling two-to-three more rate cuts for this year.
  • The RBA minutes of the august meeting showed the board discussed further tightening but the case to leave the cash rate unchanged at 4.35% was stronger. However, there was consensus around holding interest rate high for an extended period to ensure that inflation returns to target band next year. Market, however, continues to expect a rate cut from the RBA by the end of the year.

Macro events (times in GMT): US Democratic National Convention (Aug 19-22), Fed's Jackson Hole Economic Policy Symposium (Aug 22- 24), EIA’s Weekly Crude and Fuel Stock Report (1430), FOMC Meeting Minutes (1800)

Earnings events:

  • Wednesday: Analog Devices, TJX, Synopsys, Snowflake, Agilent Technologies, Target, ASR Nederland, Aegon, Zoom Video,
  • Thursday: Toronto-Dominion Bank, Ross Stores, Intuit, Workday, Swiss Re
  • Friday: Dollar Tree, Williams-Sonoma

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

Equities: U.S. and European equity futures trades firmer after a volatile session on Tuesday saw Wall Street trade slightly lower as investors looked for signals from the Federal Reserve about future interest rate cuts. Volatility heightened ahead of the Jackson Hole symposium and the release of the Fed's latest meeting minutes, which could provide insights into the expected September rate cut. Energy and material stocks were among the biggest decliners, while health and consumer staples saw the most gains. In corporate news, Lowe's fell 1.2% after missing revenue expectations and lowering its profit outlook, despite surpassing Q2 profit estimates. Boeing declined 4.2% after grounding its 777x test fleet due to structural cracks. On the other hand, Palo Alto Networks surged 7.1% on strong Q4 results and positive guidance, and Eli Lilly gained 3% following favorable results for its weight-loss drug tirzepatide.

Fixed income: Treasuries closed higher on Tuesday, driven initially by a significant drop in the Philadelphia Fed’s non-manufacturing full-time employment reading—the second-largest decline since COVID. The rally gained further momentum following softer-than-expected inflation data from Canada, which heightened expectations for potential rate cuts by the Bank of Canada. This dovish sentiment extended to the U.S. market, leading investors to anticipate additional rate cuts from the Federal Reserve. As a result, yields on U.S. Treasuries fell, with the 10-year yield ending around 3.81% and the 2-year yield dipping below 4%. In European sovereign markets, Bunds rose across the curve but underperformed U.S. Treasuries. Money markets continued to price in three ECB rate cuts this year, with further reductions expected through 2025. Germany conducted bond sales with 2033 and 2050 Bunds yielding 2.16% and 2.42%, respectively, with stronger demand for the 2033 bonds. Attention now shifts to today's German 2034 bond sale and the upcoming 20-year U.S. Treasury auction, alongside the release of the FOMC minutes.

Commodities: Gold hit a fresh record high at USD 2531 on Tuesday, as it continues to find demand from investors worried about global debt levels, central banks refurbishing their foreign exchange reserves towards gold, recent dollar weakness, and, not least, the prospect of a September start of a US rate-cutting cycle. Silver, meanwhile, is the star performer this week as it enjoys the added tailwind from a recovering industrial metal sector, with copper holding above USD 4.2 after bouncing from a four-month low. Crude continues lower on demand concerns after China’s apparent oil demand fell 8.8% y/y in July, while raised hopes for a Gaza ceasefire also weigh on sentiment. EU gas prices fell sharply, weighed down by ample supplies into the colder months and softer demand in Asia lowering the level of competition for seaborne LNG. A sharp rebound in iron ore prices continues after China rolled out further measures to support the real estate sector.

FX: The dollar trades a tad higher following a three-day decline that took the Greenback to a low for the year, with markets settling down ahead of the key events at the end of the week (PMIs and Powell at Jackson Hole). The Swedish krona gained despite a dovish cut from the Riksbank because market has fully priced in the extent of easing from Sweden’s central bank. The JPY, a recent driver of dollar weakness traded lower in Asia despite a Bank of Japan paper that signaled more rate hikes remain on the table. Softer Canadian inflation continued to put CAD on the backfoot among the major currencies, while softer equities also pushed Australian dollar lower while the British pound rose past the big 1.30 level against the US dollar, rising to its highest levels in a year. The Euro also went past and currently holds above 1.11 against the US dollar.

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