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Daily Macro markets update 16/10/2024

Market Report:

📈 Eurozone industrial output rose 1.8% in August, beating expectations and easing recession fears, though annual growth was still weak. German industrial output increased over 3%. However, structural issues like high energy costs and Chinese demand weakness continue to weigh on eurozone and German industry long-term. The ECB is almost certain to cut rates again this week and signal more easing ahead as inflation nears its 2% target. Lower rates are boosting both corporate and household loan demand, though investments had little impact on firms.

📉 Inflation in France falls to negative levels in September. The French inflation rate for September was -1.3% against the expected -1.2%. We suspect that this may be due to a drop in general economic activity.

💴 BOJ policymaker Seiji Adachi warned that further yen rises and slowing global demand could weigh on Japan’s inflation and wage growth. Adachi signaled the BOJ will want to scrutinize risks like the US elections and slowing China/US demand before its next rate hike. Japan may need wages to rise in 2025 at a similar pace to this year (around 3%) for increases to be deemed “sufficient” by the BOJ. But it should avoid premature tightening and maintain accommodative policy until inflation sustainably hits 2%, he added.

💶 Italy’s PM Meloni’s cabinet will tap banks and insurers to help finance €3.5B needed to deliver on election promises through postponing tax deductions on lenders. Most of the funds will come from delaying tax breaks on banks’ losses and other items, which analysts say won’t significantly impact profits. The financial sector measures will work by freezing tax asset deductions and extending their recovery period starting in 2027. League party chief Salvini hailed the move as a “victory” while banks say it’s a liquidity measure and not an extra profits tax as previously proposed.

⚠️ European Energy Commissioner Kadri Simson warned gas companies that a new agreement to maintain Russian gas transit through Ukraine would be a ‘dangerous’ option. The current transit agreement between Russia and Ukraine expires on 31 December and negotiations continue, although no agreement appears to be close with less than three months to go. Both Kiev and Moscow would be willing to find a solution that could include Azerbaijan, although there are fears that Russian supplies could get mixed up. Simson said the EU is prepared for a zero transit scenario thanks to alternative routes and storage, and can live without Russian gas.

🛢️ Prices for Brent and West Texas Intermediate futures dropped more than 4% after Israel allegedly informed the United States that it has no plans to attack Iran’s oil infrastructure. OPEC lowered its 2024 oil demand growth prediction earlier this week from 2 million barrels per day to 1.9 million barrels per day. It decreased expectations for the third time in a row this year.

🏦 Citigroup, Bank of America, and Goldman Sachs all exceeded third-quarter sales and earnings projections. The best-performing company was Goldman, whose earnings increased by 45% over the previous year. Bank of America had a 12% decline in net income year over year, while Citigroup saw an 8.6% decline.

📉 Semiconductor equipment maker ASML saw its shares plunge 16% after unexpectedly publishing weaker-than-expected financial results and sales forecasts. ASML’s market cap dropped nearly $53 billion as its share price fell, dragging other chip stocks lower as well. The Dutch company forecast 2025 sales between $32.6-38.1 billion, lower than its previous guidance range. Tougher business conditions in China due to US export restrictions are expected to reduce ASML’s revenue percentage from China to around 20% next year. ASML blamed a technical error for prematurely publishing its financials, pulling its share price down sharply.

✈️ Air France-KLM is lobbying the French government to cap the number of flights Chinese carriers can operate to Europe, aiming to curb unfair competition. European airlines disagree on whether national governments or the EU should address the rising number of cheaper, shorter flights from China over Russian airspace. Chinese carriers have gained an advantage during the pandemic as Europe has not flown over Russia due to self-imposed sanctions by the european commission, which are once again harming european companies. By year-end, Chinese airlines will comprise 75% or more of seat capacity on flights between China and countries like Germany, France, Italy and the UK.

Market View:

📉 Markets take a slight scare and pull back from previous highs. Falls in the technology sector, with fears of a sharp correction in one of the most influential companies, ASML, as well as falls in the healthcare sector, dragged down by the giant United Health, have weighed on the market. But the good results of the financial sector have mitigated the declines.

📉 Mini S&P 500 futures retreated from above 5900 points and now stand at 5865 points. The Nasdaq 100 is down about 250 points after reaching 20,500 points, close to its all-time high.

💵 The dollar index slows after approaching 103.50, currently trading at 103.30 points. The EUR/USD loses 1.09 and the US 2-year bond remains above the 3.90% yield.

📉 In Europe, the DAX 40 retreated from a high of 19,600 points and is now trading at 19,450. The falls of the Dutch ASML weigh on the Eurostoxx 50, which once again loses 5000 points.

🛢️ Brent crude oil continues to cool and is trading near 73.50 $. Gold, meanwhile, is challenging the highs and is close to $2700 per ounce. Bitcoin breaks through resistance again and quickly reaches $68,000.

Geopolitics:

🌍 EU foreign policy chief Josep Borrell has said that strengthening trade ties between the EU and Israel will be put on the agenda during a meeting with Israeli officials next month. Borrell will visit Israel in November to hold talks with senior government representatives on bilateral relations and regional issues. The EU and Israel already have an Association Agreement establishing a free trade area for industrial and some agricultural products. Topics will include cooperation on migration, the two-state solution to the Israeli-Palestinian conflict and Iran’s nuclear program.

🗺️ The EU is holding its first summit with the six Gulf Cooperation Council states of Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the UAE. Topics of discussion will include trade, investment, renewable energy, regional security, and citizen issues like visas. While the EU wants GCC support on Ukraine, it does not expect them to fully adopt its position in blaming Russia. There is likely closer alignment between the blocs on the Middle East, with the EU calling for ceasefires in Gaza and de-escalation. Negotiations on an EU-GCC free trade agreement have been suspended since 2008 over public procurement and oil products.

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