Key points:

  • Equities: Quiet session after Nvidia earnings. Dell earnings were strong.
  • Currencies: First weekly dollar gain in five, led by EUR and MXN weakness
  • Commodities: Grains top the table, crude rangebound, gold finding resistance
  • Fixed Income: European and U.S. bond markets softer after upward U.S. GDP revision
  • Economic data: US PCE Inflation

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


In the news: Dell raises annual forecasts on strong AI server demand (Investing), Lululemon shares fall in afterhours trade on weak results, guidance (Yahoo), Chipmaker Marvell Tech beats quarterly revenue estimates amid AI surge (Reuters), Harris Edges Trump in Key States, With Sun Belt Now Up for Grabs (Bloomberg), Republicans worry Donald Trump’s campaign strategy against Kamala Harris is failing (FT),

Macro:

  • The 2nd estimate of US Q2 GDP was revised higher to 3.0% from 2.8%, beating expectations of it being left unchanged. Consumer Spending was also revised up to 2.9% from 2.3%, while the GDP deflator was revised up to 2.5% from 2.3%, above the expected 2.3%. Core PCE was revised down to 2.8% for Q2 from the 2.9% prior. This data, however, has limited implication for what the Fed does at the September meeting given it is backward-looking.
  • US initial jobless claims rose 231k in the week to 24 August, slightly shy of the expected, 232k, and the prior, 233k, but continues to hover around the 230k mark and highlight that the labour market is not seeing any further weakness or notable softening, which suggests the Fed will likely go with a 25bps cut in September. However, the August non-farm payrolls data will have a bigger sway in Fed’s policy decision.
  • Germany’s August CPI saw a sharp drop to the 2% target from 2.6% in July, supporting the case for an ECB rate cut in September. Euro-area inflation figures are due today and consensus expects headline inflation to fall to 2.1% YoY in August from 2.6% in July but core falling more slowly to 2.8% from 2.9% previously.
  • Japan’s Tokyo CPI came in higher-than-expected for August, supporting the case for further rate hikes from Bank of Japan. Headline Tokyo CPI rose to 2.6% YoY from 2.2% in July and 2.3% expected. Core CPI also higher at 2.4% YoY in August from 2.2% prior and expected and the core-core measure rose to 1.6% YoY from 1.5%.
  • US PCE Preview: Focus today will be on the core PCE print and personal income and spending numbers for July. Consensus for core PCE stands unchanged at 0.2% MoM but slightly higher on YoY basis at 2.7% from 2.6% in June. However, with the Fed having hinted rate cuts clearly, a print close to 0.4% MoM may be needed in the core measure to derail that. The PCE is also unlikely to prompt the market to price in a larger rate cut for September in case of softening, so bigger focus still remains on labor market indicators.

Macro events (times in GMT): German unemployment change (Aug) exp 16k vs 18k prior (0755), UK Mortgage Approvals (Jul) exp 60.5k vs 60k prior (0830), Eurozone CPI (Aug) exp. 2.2% YoY vs 2.6% prior (0900), Eurozone Core CPI (Aug) exp 2.8% YoY vs 2.9% prior (0900), US Personal Income and Spending (Jul) exp 0.2% vs 0.2% and 0.5% vs 0.3% (1230), US PCE Price Index (Jul) exp. 2.6% YoY vs 2.5% prior, and Core exp 2.7% YoY vs 2.6% prior (1230)

Earnings events: Lululemon shares were up 4% in extended trading yesterday despite the sports and lifestyle retailer lowering its fiscal year guidance. Positive factors were international sales up 22% excluding currency effects and gross margin exceeding expectations by almost 2%-points. Marvell Technology was up 7% in extended trading after reporting Q3 revenue outlook that was better than consensus estimates. Dell Technologies, which has been one of the winning stocks over the past year, beat expectations on both revenue and earnings. The company also said it expects margins to improve over the coming two quarters.

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

Equities: US equities rebounded yesterday after a weak opening as Nvidia shares declined 6% on the back of its earnings release Wednesday after the close. The positive price reactions related to earnings from Dell Technologies and Marvell Technology helped sentiment to improve. Futures are pointing to a 0.3% higher open in the US equity market. Hong Kong stocks are up 2% today extending recent momentum. Later today the market will be watching the Fed’s preferred measure of inflation, also called the PCE deflator, because further proof of inflation coming down will bolster the direction and speed of interest rate cuts over the next year. Otherwise, we expect a quiet session going into the weekend.

Fixed income: Yesterday, European sovereign markets opened positively, supported by slowing inflation in Germany and Spain. However, market sentiment shifted in the afternoon as an upward revision to U.S. 2Q GDP prompted a steepening in the German yield curve. This led money markets to slightly increase their expectations for ECB rate cuts next year, pricing in a 161bps reduction, up from 158bps the previous day. Consequently, 10-year Bund yields rose by 2 basis points to 2.28%, while 2-year Schatz yields fell by 3bps to 2.34% Across the Atlantic, U.S. Treasuries faced downward pressure after unexpected upward revisions to U.S. 2Q GDP and personal consumption data, which caused a notable drop in Treasury futures. The 7-year note auction further exacerbated the situation with weak demand, as direct bidders fell to their lowest level since 2020. By the end of the day, U.S. Treasury yields had risen by 3 to 3.5 basis points across the curve, with 10-year yields closing at 3.87% and 2-year yields at 3.89%, underperforming relative to German Bunds. Today the focus is on the Eurozone CPI data for August, which is expected to come at 2.2% at the headline level and at 2.8% at the core level.

Commodities: The sector is heading for a weekly (+0.9%) and a monthly (+1.2%) gain, with the grains sector being a rare winner this past week. Led by wheat, the grains sector trades up 3% on the week, supported by hot weather concerns and strong exports leading to short covering. Both precious and industrial metals trade lower on the week amid a stronger dollar and lower prospects for a 50-basis-point USD rate cut next month. Crude oil trades close to unchanged following a roller coaster week that saw the focus torn between weak refinery margins pointing to soft demand and support from US economic data strength and Libya supply disruptions. Focus now turns to OPEC+ and whether the group confirms its commitment to an October production increase. Gold looks increasingly boxed in between resistance above USD 2525 and a rising trendline at USD 2507, this ahead of a month which, for the past seven years, has yielded a negative return for gold averaging around 3.1%.

FX: The broad-focused Bloomberg Dollar index is heading for its first weekly gain in five, thereby recovering slightly from a seven-month low, with strength this past week being most notable against the MXN, EUR, and GBP. Yesterday, US GDP strength and jobless claims fuelled gains as expectations for a 50-basis-point rate cut in September were questioned. Still, market pricing has not changed much, and August jobs data next week and US PCE inflation today will provide further clues about the size of the incoming rate cut. The Swiss franc weakened the most among the major currencies, although the Japanese yen pared some of its weakness. The euro was on the backfoot, falling back below 1.11 against the US dollar and testing 0.84 against the British pound as weaker German inflation data supported the case for an ECB rate cut in September. Meanwhile, commodity currencies erased their earlier strength as equities came under pressure.

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