Key points:

  • Equities: Big surge in Chinese equities and surprisingly strong outlook from Micron
  • Currencies: Yen weakens to 145 against the dollar
  • Commodities: Crude drops on increased supply risks
  • Fixed Income: Bonds decline amid heavy supply and rate cuts reconsideration
  • Economic data: SNB policy decision, US jobless claims and Q2 GDP (final)

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

In the news:  Micron stock jumps as Q1 revenue forecast tops analyst estimates (Yahoo), Meta Connect: CEO Touts AI Chatbot Growth, Launches New Headset (IBD), US and allies call for 21-day ceasefire along Israel-Lebanon border after UN talks (Reuters), China Weighs $142 Billion Capital Injection Into Top Banks (Bloomberg), China Gives Rare Handouts to Boost Sentiment Before Long Holiday (Bloomberg), Not just China, Trump 2.0 could spell trouble for U.S. allies as he doubles down on tariff talk (CNBC)


Macro:

  • US new home sales fell 4.7% in August to 716k from 739k, but above the expected 700k, whereby new home supply was 7.8 months' worth (prev. 7.3 months' worth).
  • Sweden’s central bank, the Riksbank, maintained a dovish tilt at the September meeting, cutting rates for a third time by another 25bps to 3.25% and guiding for further rate cuts at the two remaining meetings this year to reach 2.75% by year-end. Next up today will be the Swiss National Bank, which is also expected to cut rates, but key will be to watch the language on FX as the central bank may not be too welcoming of the franc strength now that disinflation has returned.
  • Chinese equity markets have regained nearly USD 500 billion in market cap this week as a blitz of economic supportive initiative continues to be unveiled. The latest being under consideration, according to Bloomberg, is the injection of up to 1 trillion yuan (USD 142 billion) of capital into its biggest state banks to increase their capacity to support the struggling economy.

Macro events (times in GMT): US Durable Goods (Aug) exp –2.7% vs 9.8% prior (1230), GDP Final (Q2) exp 2.9% vs 3% prior (1230), Initial Jobless Claims exp 223k vs 219k prior (1230), EIAs Natural Gas Storage Change exp. 52bcf vs 58bcf prior (1430)

Earnings events: Micron Technology shares jumped 15% yesterday as the US memory chipmaker beat earnings expectations and issued a better-than-expected outlook for the current quarter on earnings and gross margin. The strong results and outlook are driven by the boom in AI computing. Today’s key earnings event is Costco reporting after the US market close.

  • Wednesday: Vantage Towers, Oracle Japan, Micron Technology, Jefferies Financial, Cintas
  • Thursday: Costco Wholesale, Accenture, H&M, Jabil, CarMax, TD Synnex

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

Equities: Chinese equities rallied 5% today as euphoria over government stimulus action including support for stocks kicks in. Whether this move has longevity time will tell as a balance sheet recession is a difficult structural economic problem to solve. European equities are up 1.4% with ASML and LVMH driving the gains. ASML is up due to the strong outlook from Micron Technology yesterday that also saw its shares gain 15% in extended trading hours. LVMH is responding to the positive reaction in Chinese equities. US futures are indicating a 0.7% higher open.

Fixed Income: European sovereign bonds fell across maturities, with long-term yields rising faster than short-term ones, resulting in a bear steepening of yield curves. Gilts and the periphery led the selloff as money markets scaled back expectations for interest rate cuts, trimming 8 basis points from next year's forecasts. Currently, markets are pricing in a 50% probability of an ECB rate cut in October. French bonds weakened further after the budget minister warned that the deficit could exceed 6% of GDP this year. Spanish 10-year yields nearly reached parity with French debt for the first time since 2008. Ten-year Bund yields climbed 4 basis points to 2.19%. Germany’s two-to-10-year yield curve turned positive this week, to learn about risks and opportunities within this macroeconomic environment, click here. U.S. Treasuries ended the day cheaper across the curve as markets absorbed a $70 billion 5-year note auction and a wave of corporate bond issuance, including Oracle's $64 bn multi-part offering. Yields rose by 4 to 5 basis points, with the 10-year yield closing around 3.77%. Despite a solid 5-year auction, which saw strong direct bidder participation, there was little price improvement. Today the Treasury is selling 7-year notes, for a auction preview click here.

Commodities:  Crude trades sharply lower for a second day on reports Saudi Arabia is ready to abandon its unofficial price target of USD 100 as it prepares to increase production to regain market share while factions in Libya have reached a deal that could see production recover. Having struggled above USD 75 earlier in the week Brent slumped to near USD 71.50 with WTI solidly back below USD 70. Spot gold holds near record levels despite headwinds from a recovering dollar while silver remains stuck below key resistance. Indian gold demand is expected to be strong due to a reduction in import tax and an anticipated robust festival and wedding season. Base metals remain supported by a slew of Chinese stimulus package raising the prospect for demand in the world's largest metals consumer.

FX: The US dollar traded higher on Wednesday, and overnight in Asia supported by short covering against several currencies triggered by post-FOMC selling fatigue and renewed safe-haven appeal after significant Middle Eastern escalations. Focus returns to the Fed today as Chair Powell and NY Fed’s Williams take to the wires along with many other committee members. Labor market focus also makes it key to watch the weekly US jobless claims print that will be out today. Activity currencies led the losses against the US dollar, with kiwi dollar plunging back below 63 cents and Aussie dollar back below 0.6850. Japanese yen and Swiss franc were also in red despite being safe-havens with the former reaching three-week lows against the US dollar. The Euro meanwhile traded lower after once again finding formidable resistance around 1.12 against the dollar.

Volatility: Volatility remains stable, with the VIX holding at 15.41 (+0.13%). U.S. equity futures are showing modest gains this morning as markets await Fed Chair Powell's comments later today. Investors are looking for insights on potential future rate adjustments. Key economic data, including Durable Goods Orders and GDP growth figures, will be released this afternoon, which could impact market sentiment. Forecasts stand at -2.8% for Durable Goods Orders and 3.0% for Q2 GDP growth. The Hang Seng index added over 3% overnight, boosting global market sentiment. S&P 500 futures are up 0.58%, and Nasdaq 100 futures have gained 1.03%. Expected moves, based on options pricing, suggest the S&P 500 could shift around 25 points (~0.44%) up or down, while the Nasdaq 100 might swing approximately 148 points (~0.74%) today. In the options market, Nvidia, Tesla, and Apple continue to dominate, joined by Intel, Micron Technology, and Meta Platforms. Tesla’s IV Rank remains high at 95.20, reflecting strong anticipation of price swings. Keep an eye on Powell’s speech and economic data releases today, as they could set the tone for market volatility and direction in the coming days.

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