Saxo's Global Market Quick Take: Europe – 20 December 2024

 Note: The Quick Take will be on a break until 6 January 2025

Key points

Equities: Dow recovers, S&P/Nasdaq mixed, Micron -16%, Nike earnings reversal, PCE inflation focus

Volatility: VIX -12.78%, triple witching, S&P 500/Nasdaq moves normalize, PCE report risk

Digital Assets: Bitcoin <$97K, Ethereum -7.5%, Solana -6.4%, Fed hawkish, Powell rejects Bitcoin Reserve

Currencies: JPY makes modest comeback after post-BoJ pounding, GBP weak post-BoE

Commodities: Gold holds steady, while silver drops to new local lows

Fixed Income: US yield curve at its steepest since early 2022 as long treasury yields rise further

Macro events: US Fed’s Daly, US Fed’s Williams, Canada Oct. Retail Sales, US Nov. PCE Inflation, US Final University of Michigan Sentiment

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

Macro data and headlines

UK Nov. Retail Sales out this morning were weaker than expected, posting a +0.3% reading ex Auto Fuel M/M versus +0.5% expected and a +0.1% Y/Y vs. +0.9% expected.

The Bank of England waxed dovish, with three dissenting dovish votes calling for a rate cut as the bank decided to hold rates at a G10 high of 4.75% yesterday. BoE Governor Bailey said that the it’s right for the bank to remain on its “gradual approach to future interest-rate cuts”, and the BoE policymakers said they would look through the recent strong wage data and stay on course.

US government shutdown risk: US President-elect Trump and the DOGE committee (Musk and Ramaswamy) pushed House Republicans to vote against the Continuing Resolution (CR) bill due to excessive spending. The Republicans rejected a three-month stop-gap funding extension with negotiations for a new bill ongoing. Reports suggested that Republicans are eyeing a funding plan B that excludes a debt ceiling increase and are instead working on a commitment to raise the borrowing limit twice next year under reconciliation. According to NBC Trump would support abolishing the debt ceiling.

US initial jobless claims fell to 220k (prev. 242k) beneath the expected 230k, with the 4wk average ticking higher to 225k from 224.25. Continued claims fell to 1.874mln (exp. 1.890mln) from the revised lower 1.879mln and came in marginally below the bottom end of the consensus range.

US Philadelphia Fed Business Survey posted a very negative December reading of -16.4 versus +2.8 expected and -5.5, which will lower the expectations for the December ISM Manufacturing report, out in early January.

Macro events (times in GMT)

US Fed’s Daly (1230), US Fed’s Williams (1330), Canada Oct. Retail Sales (1330), US Nov. PCE Inflation (1330), US Final University of Michigan Sentiment (1500)

Earnings events

Today: Carnival

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

Equities

US: US stocks closed mixed on Thursday, with the Dow recovering 15 points (+0.04%) after its longest losing streak since 1974. The S&P 500 fell marginally by 0.09%, while the Nasdaq 100 dropped 0.47%, driven by continued weakness in tech names like Nvidia (-1.2%). Micron shares plunged 16% in after-hours trading due to weaker-than-expected revenue guidance. Nike reported earnings after the market close as new CEO Elliot Hill outlined his turnaround plan and issued cautious comments about near-term challenges. Shares initially surged over 10% before reversing gains and closing lower. Investors remain cautious ahead of today’s PCE inflation data, a critical measure for Fed policy expectations.

Europe: European markets fell sharply, with the STOXX 600 dropping 1.51% and the Euro STOXX 50 losing 1.58%, marking the steepest decline in over a month. Tech and real estate led the losses, with ASML (-3.69%) and Infineon (-5.39%) under pressure after weak guidance from Micron. Sweden's central bank cut rates, while the Bank of England held steady but with dovish signals. Volatility rose, with the Eurozone’s V2TX index hitting three-week highs. Market focus now shifts to US inflation data and global rate expectations.

Asia: Asian stocks traded mixed on Friday as investors digested hawkish Fed signals. The Hang Seng Index in Hong Kong rose slightly (+0.08%) as Chinese tech and banking shares provided support. However, the broader region struggled, with South Korea’s KOSPI falling 1.3% amid political uncertainty and chipmaker losses. Japan’s Nikkei edged up 0.2%, buoyed by a weaker yen after the Bank of Japan maintained steady rates. Chinese markets saw modest gains, led by tech shares, as optimism grows over Beijing’s fiscal stimulus plans for 2025.

Volatility

Volatility receded on Thursday, with the VIX dropping 12.78% to 24.09, though it remains elevated following Wednesday’s Fed-driven spike. Expected moves for the S&P 500 and Nasdaq 100 have normalized but remain above average ahead of the PCE inflation report, which could act as a fresh volatility catalyst. A record $6.6 trillion in options expiring during today’s “triple witching” event adds to the potential for market swings.

Digital Assets

Bitcoin slipped 3.7% to $97,002, marking its third straight day of losses as hawkish Fed projections weighed on risk assets. Altcoins saw sharper declines, with Ethereum (-7.5%) and Solana (-6.4%) underperforming. Market sentiment remains cautious, further dampened by Fed Chair Powell’s dismissal of a Strategic Bitcoin Reserve initiative. However, Bitcoin found support near the $97,000 mark, signaling strong interest at these levels despite the macro headwinds.

Fixed Income

The US treasury yield curve steepened yesterday as the 2-year treasury benchmark eased lower and the 10-year benchmark rose a couple of basis points, trading 4.55% this morning. This took the yield curve to its steepest for the cycle, with the 2-10 at 25 basis points this morning, the steepest since early 2022.

The UK 10-year Gilt traded briefly to new highs since 2023 and above the November high of 4.59%, posting a high of 4.65% before Gilts rallied and the yield dropped back to close at 4.58% yesterday

Japanese government bond yields dropped another couple of basis points all along the curve after the very dovish Bank of Japan meeting yesterday.

Commodities

Gold tried to rally yesterday, erasing much of the reaction to the jump in US treasury yields on the back of the FOMC meeting at one point, but the rally faded back to below 2,600, with the price action just above that level this morning. 2,537 is the next major chart point of note there. Silver, meanwhile, slipped lower trading below USD 29 per ounce before finding support, with copper’s weakness (not far from the critical USD 4/lb. level) weighing.

Crude oil continues to trade in a narrow range – awaiting developments above 71.5 or below 66.5.

Currencies

The Japanese yen suffered a massive sell-off in the wake of a very dovish Bank of Japan meeting, trading nearly to 158.00 in the Asian session, and thus more than 2% higher than before the Thursday BoJ, before easing back near 157.00 and belowin late Asian session trading today. That saw it clearing the November high of 156.75, with US long treasury yields likely a coincident indicator for prospects of whether USDJPY will mount a charge on the 160+ top.

Sterling sold off on the dovish read of the Bank of England (see wrap at top of this article),, with EURGBP making the recent 0.8220 area lows more emphatic after a revisit of that area ahead of the BoE decision and a rally to 0.8300+ in its wake. GBPUSD challenged below the multi-month 1.2487 low for November in the Asian session overnight – next level the 2024 low of 1.2300.

Divergent action in the Scandies, as NOK weakened as the Norges Bank touted a likely rate reduction in March (not much of a reaction in rates, however), while SEK firmed sharply on the Riksbank making a hawkish cut as it forecast that it “may” only add one additional cut in the first half of next year, raising its core inflation forecast for next year to 2.0% from 1.6% previously. The Swedish 2-year rate jumped about 10 basis points.