Corporate Earnings News
Global market indices
Currencies
Cryptocurrencies
Fixed Income
Commodity sector news
Key data to move markets
Global macro updates
Corporate Earnings News
Corporate earnings calendar 22nd August - 28th August 2024
Thursday: Intuit,Baidu, Ross Stores, Toronto Dominion Bank, Dollar Tree, Burlington Stores, Williams-Sonoma, Workday
Friday: Ubiquiti, Hafnia
Monday: BHP Group
Tuesday: Heico
Wednesday: CrowdStrike Holdings, HPQ, NVIDIA, Salesforce
Global market indices
US Stock Indices Price Performance
Nasdaq 100 +1.85% MTD +17.20% YTD
Dow Jones Industrial Average -0.02% MTD +8.35% YTD
NYSE +0.93% MTD +12.05% YTD
S&P 500 +1.58% MTD +17.60% YTD
The S&P 500 is +2.83% over the past week, with 7 of the 11 sectors up MTD. The Equally Weighted version of the S&P 500 posted a weekly gain of +2.54%; its performance is +0.42% MTD and +9.10% YTD.
The S&P 500 Consumer Staples is the leading sector so far this month, up +4.64% MTD +14.53% YTD, while Energy is the weakest at -4.91% MTD +5.84% YTD.
This week Consumer Discretionary outperformed within the S&P 500 with a +5.77% gain, followed by Information Technology and Materials at +4.09% and +2.79%, respectively. Conversely, Energy underperformed at -1.44%, followed by Real Estate and Utilities, +0.54% and +1.33% respectively.
The S&P 500 experienced a modest uptick following the release of July inflation data, which solidified investor confidence in an impending interest rate cut by the Fed next month.
On Wednesday, the S&P 500 was +0.4%, marking its fifth consecutive day of gains - the longest winning streak in over a month. It is +14% YTD and The majority of its major sectors experienced growth, led by Financials, Energy, and Information Technology. The Dow Jones Industrial Average was +0.6%, or approximately 240 points. The Nasdaq Composite achieved a slight gain.
However, trading volume was notably low, with fewer than 10 billion shares changing hands on US exchanges – the slowest trading in six weeks.
After the minutes and jobs report revision, traders increased their bets on the size of the Fed’s rate cut in September. According to CME data, traders in interest-rate futures are now assigning a 61% probability to a quarter-point cut in September, with expectations for a larger half-point cut at 39%, up from a 29% probability on Tuesday.
Traders are eagerly anticipating speeches from the Jackson Hole economic symposium, which begins today, with Fed Chair Powell scheduled to deliver a speech on Friday morning. The S&P 500 is currently on track to enter this event with the second-strongest year-to-date performance since the year 2000.
Earnings reports from major retailers offered additional insights into the state of the US consumer. Positive results from discount-focused retailers like Target and the owner of T.J. Maxx indicated that consumers, while resilient, are actively seeking bargains. Target and TJX (owner of T.J. Maxx) shares rose following both retailers' upward revisions of their profit forecasts. However, Macy's stock fell after the company reported another quarter of declining sales.
In corporate news, Toronto-Dominion Bank is allocating a provision of $2.6 billion for anticipated fines related to failures in its money-laundering controls. The bank has also sold a portion of its stake in Charles Schwab to finance this provision.
Ford Motor is making adjustments to its electrification strategy once again, cancelling plans for a fully electric sport utility vehicle. This shift is estimated to cost the automaker around $1.9 billion.
Walmart has raised approximately $3.6 billion through the sale of its stake in Chinese e-commerce firm JD.com. This move marks the conclusion of an eight-year partnership that appears to have been yielding diminishing returns, particularly within the challenging landscape currently faced by Chinese tech giants.
US stocks
Mega caps: A positive week for the ‘Magnificent Seven’ due to a recovery in investor sentiment and subdued trading volume. Alphabet +3.31%, Amazon +5.96%, Apple +1.97%, Meta Platforms +1.18%, Microsoft +1.62%, Nvidia +8.55%, and Tesla +10.45%.
Energy stocks had a negative week, as the Energy sector itself was -1.44%, with the sector’s YTD performance is +5.84%.Halliburton +1.15%, Chevron +0.37%, and ConocoPhillips +0.01%, while Baker Hughes -0.83%, Occidental Petroleum -1.78%, Apa Corp (US) -2.37%, Phillips 66 -2.82%, Shell -3.15%, Marathon Petroleum -3.92%, and ExxonMobil -3.98%.
Occidental Petroleum announces continued progress on debt reduction and divestiture initiatives. On 19th August, Occidental Petroleumannounced it had successfully reduced its principal debt by $3 billion during its Q3 of 2024. This was made possible through robust organic cash flow generated from operations, coupled with proceeds from strategic divestitures.
Once the Barilla Draw divestment is completed, expected by the end of Q3, Occidental intends to utilise the $818 million proceeds to further reduce its debt. This will raise the total YTD debt redemptions to over $3.8 billion, approximately 85% of the company's near-term debt reduction commitment of $4.5 billion.
Furthermore, the recent sale of 19.5 million common units representing limited partner interests in Western Midstream Partners, LP (WES) generated $700 million. With this transaction, Occidental has now realised approximately $1.7 billion in completed or announced divestitures for the year 2024.
Occidental had previously committed to achieving at least $4.5 billion in debt reduction within 12 months of closing the acquisition of Anadarko Petroleum Corporation.
APA working on potential sale of certain Permian assets worth $1 billion. On 19th August, Reuters reported that APA is exploring the sale of its Permian assets. The Permian-based properties currently produce an aggregate of over 22 thousand barrels of oil equivalent per day (Mboe/d), with approximately 60% of that production being oil, as stated in the report. Additionally, the report indicates that APA is collaborating with Truist and RBC on the potential divestment of these properties.
Record dealmaking in the energy sector signals a strategic shift. Dealmaking activity within the oil and gas sector surged 57% in 2023, driven by heightened development spending from energy companies. This increase was fueled by higher cash flows resulting from profits generated in earlier years, according to a 20th August report from Ernst & Young.
According to the report, leading energy firms allocated $49.2 billion towards mergers and acquisitions in 2023, a notable rise from the $31.4 billion spent in 2022. This upswing was primarily attributed to major transactions among integrated oil and gas companies.
Projections suggest that M&A activity will persist throughout this year and into 2025, propelled by further substantial deals. Concurrently, expenditures on oil and gas exploration and development saw a 28% increase last year, reaching $93.1 billion.
This notable rise in spending on both dealmaking and reserve expansion signifies a strategic shift, departing from the years-long emphasis on shareholder returns over growth. This prior strategy was adopted by many firms in an effort to attract investors who had previously withdrawn from the sector.
In the previous year, oil and gas companies reduced their spending on dividends and share repurchases by half, allocating $28.9 billion compared to the record $57.7 billion in 2022.
Industry-wide consolidation played a key role in stimulating M&A activity, driving companies' overall expenditures to $142.3 billion, a 36% increase from 2022. Bruce On, a partner at EY's strategy and energy transactions group, highlighted a strategic shift towards investing in core operations, noting that companies with ample cash reserves were prioritising efficiency gains through scale and leveraging existing operations.
Despite this, profits within the sector declined by 55% in 2023, reaching $83.9 billion. This decrease was primarily attributed to lower WTI crude oil spot prices, as per the report.
Chevron emerged as the leading acquirer of properties in 2023, with total property acquisition costs amounting to $10.6 billion. This was largely due to its $6.3 billion acquisition of Denver-based oil exploration and production company PDC Energy.
Furthermore,ExxonMobilfinalised its $60 billion acquisition of Pioneer Natural Resources in May of this year. Additionally, Chevron announced an agreement to acquire oil producer Hess for $53 billion in October. However, this deal is currently delayed until at least mid-2025 due to ongoing legal proceedings.
Materials and Mining stocks had a positive week, as the materials sector was +2.79%, bringing the sector’s YTD performance to +6.94%. Albemarle +20.97%, Sibanye Stillwater +10.03%, Newmont Corporation +5.56%,Freeport-McMoRan +4.63%, Mosaic +1.18%, Nucor +4.04%, and Yara International +0.83%, while CF Industries -0.10%.
Sibanye-Stillwater refinances and upsizes its Rand Revolving Credit Facility and concludes a gold prepay arrangement. On 21st August, Sibanye-Stillwater announced the successful refinancing and upsizing of its Rand Revolving Credit Facility (Rand RCF). The facility has been increased from ZAR 5.5 billion to ZAR 6 billion, with the maturity date extended to August 2027. In addition, the company has concluded a ZAR 1.8 billion gold prepayment arrangement. These strategic financial transactions serve to strengthen Sibanye-Stillwater's balance sheet and enhance its overall financial flexibility.
Sibanye-Stillwater updates on plans for the Sandouville refinery and its pCAM project. The company stated that successful completion of definitive feasibility studies will pave the way for a final investment decision regarding the repurposing of the Sandouville refinery for pCAM production (the GalliCam project).
The outlook for the GalliCam project remains positive, with notable advancements made since Q1 2024. These include the successful laboratory-scale production of pCAM at the Sandouville plant and the filing of a patent application for the innovative pCAM process in July 2024.
To address the Sandouville refinery's projected losses and prepare it for potential pCAM production, Sibanye-Stillwater has reached an agreement to terminate a key commercial supply contract, with supply concluding on or before 31st December, 2024. The agreed cost for this termination is approximately $37 million, and refining of inventory and sales will continue into the first quarter of 2025. Negotiations are also underway to terminate other related contracts.
Additionally, the construction of a pilot plant representing a small-scale pCAM precipitation process is in progress at the Sandouville refinery site, with testing expected to commence by the end of Q3 2024. The Sandouville refinery's production guidance for 2024 will remain unchanged.
European Stock Indices Price Performance
Stoxx 600 -0.82% MTD +7.30% YTD
DAX -0.32% MTD +10.13% YTD
CAC 40 -0.09% MTD -0.24% YTD
IBEX 35 +0.45% MTD +10.03% YTD
FTSE MIB -2.04% MTD +8.97% YTD
FTSE 100 -1.01% MTD +7.11% YTD
This week, the pan-European Stoxx Europe 600 index was +1.95%, closing at 513.95.
The STOXX Europe 600 Retail is the leading sector so far this month, up +2.78% MTD +10.56% YTD, while Banks is the weakest at -4.88% MTD +15.69% YTD.
This week Retail outperformed within the STOXX Europe 600 with a +5.04% gain, followed by Autos & Parts and Technology at +4.91% and +3.80%, respectively. Conversely, Oil & Gas underperformed at -0.66%, followed by Telecom and Food & Beverages, +0.19% and +0.48% respectively.
Germany's DAX index was +3.15% and closed at 18,448.95. France's CAC 40 index was +2.61%, closing at 7,524.72.
The UK's FTSE 100 index rose to 8,283.43, +0.03% for the week.
In Wednesday’s trading session, Basic Resources emerged as the standout gainer, propelled by the sustained strength in commodity prices. Shanghai aluminium futures reached a five-week high overnight, buoyed by tight raw materials supply. Iron ore prices continued their upward trajectory for the third consecutive day this week, rebounding from last week's 9% decline, amid speculation that China will introduce further measures to bolster its struggling property market.
Autos & Parts also posted significant gains as attention centred on the EU's proposal to impose final duties of up to 36.3% on Chinese electric vehicles (EVs) and its initiation of investigations into Chinese subsidies and imports. Additionally, the announcement of a 9% tariff on Tesla vehicles contributed to the sector's performance.
The Chemicals sector outperformed, driven by Tessenderlo Group's H1 net income of €61.4 million, a decrease of 26% compared to the year-ago figure of €83.4 million. However, the company lowered its full-year adjusted EBITDA guidance.
The Construction & Materials sector also outperformed, with Heavy Construction/Building stocks rising on the back of strong H1 earnings from Implenia and Q2 earnings from Multiconsult.
In contrast, Oil & Gas was the biggest decliner as oil prices retreated. The Telecom sector also experienced a significant decline. The Health Care sector underperformed following disappointing Q2 results from Nykode Therapeutics, BerGenBio, and Ultimovacs.
Other Global Stock Indices Price Performance
MSCI World Index +1.24% MTD +14.09% YTD
Hang Seng +0.27% MTD+2.02% YTD
This week, the Hang Seng Index was +1.62%, while the MSCI World Index was +2.65%. The MSCI World Index is now trading near its all-time record close on 16th July.
Currencies
EUR +3.03% MTD +1.05% YTD to $1.1148
GBP +1.83% MTD +2.83% YTD to $1.3092
The euro was +1.28% against the USD over the past week, while the British Pound was +2.07% due to the market’s virtual certainty of the Fed’s monetary easing path starting in September. The Dollar Index was -1.44% this week, -2.89% MTD, and -0.24% YTD.
The US dollar fell to a more than one-year low against the euro and Sterling on Wednesday after revised data showed employers added 818,000 fewer jobs in the year to March 2024 than previously thought. Traders are now back to pricing 100 basis points of easing this year after these revisions and the Fed minutes reinforced the case for lower rates.
The US Dollar Index was last down -0.16% at 101.22. The euro rose +0.17% against the US dollar to $1.1148.
Sterling strengthened +0.46% to $1.3092, the highest since July of 2023 on Wednesday then rose +0.2% to $1.3122 earlier today after data showed UK manufacturing and services activity grew more than expected in August with the S&P Global Flash Composite PMI reaching 53.4, the highest reading in four months. This brings total gains against the dollar MTD to about 2%.
The pound was steady against the euro on Wednesday, at 85.37 pence. Traders are pricing in a 31% probability of a quarter-point interest rate cut by the BoE in September.
The yen increased slightly +0.03% on Wednesday and was trading at ¥145.17 against the US dollar. BoJ Governor Ueda is expected to speak in a special session of the Japanese parliament on Friday to explain the BoJ's decision to unexpectedly raise rates at the end of last month.
Cryptocurrencies
Bitcoin -5.65% MTD +45.27% YTD to $61,253.00
Ethereum -18.41% MTD +14.75% YTD to $2,637.70
It was a mixed week for the two major cryptocurrencies. Bitcoin rose +3.82%, over the week while Ethereum posted a -1.06% loss. US Spot Bitcoin ETFs saw its fifth day of net inflows, while Ether ETFs saw their fifth daily net outflows according to SoSoValue data. However, those inflows into Bitcoin ETFs remain relatively muted, at only $39.42 million on Wednesday. This may indicate a lack of new demand among professional investors during August’s traditional thin trading period and may be a temporary phenomenon. Bitcoin has risen in response to an increasing likelihood that the Fed will cut rates at its Septmember meeting.
Note: As of 5:00 pm EDT 21 August 2024
Fixed Income
US 10-year yield -23.0 bps MTD -7.6 bps YTD to 3.805%.
German 10-year yield -11.1 bps MTD +18.5 bps YTD to 2.194%.
UK 10-year yield -7.7bps MTD +35.4 bps YTD to 3.893%.
US Treasury 10-year bond yields are -3.5 basis points (bps) down this week.
US Treasury yields experienced a decline on Wednesday as revisions to jobs data and minutes from the Fed's July meeting reinforced expectations of an interest rate cut in September. Yields across various maturities, ranging from two to thirty years, all reached two-week lows.
In afternoon trading, the benchmark 10-year yield decreased by -0.5 bps to 3.805%, having previously touched a two-week low of 3.761%. Similarly, US 20-year and 30-year yields also fell to their lowest levels in two weeks, settling at 4.166% and 4.065%, respectively.
On the shorter end of the yield curve, the two-year note yield, which is typically sensitive to interest rate expectations, experienced a more pronounced drop of -7.2 bps to 3.928%. Earlier in the day, it had reached a two-week low of 3.893%.
In addition, the US Treasury conducted an auction of $16 billion in 20-year bonds on Wednesday. The results were slightly better than anticipated, with the high yield reaching 4.16%, marginally lower than the expected rate at the bid deadline. The auction attracted $40.7 billion in bids, resulting in a bid-to-cover ratio of 2.54x. This was a decrease from the 2.68x ratio observed in the July reopening, which involved $13 billion in bonds.
CME Group's FedWatch Tool indicates a 31% probability of a 50 basis point cut, and a 70% chance of a 25 basis point reduction.
Investors will be looking closely at today’s jobless claims and remarks by Fed Chair Jerome Powell at the annual Jackson Hole Economic Policy Symposium on Friday for further insights into the pace and extent of future rate adjustments.
The German 10-year yield was +0.9 bps this week, while the UK 10-year yield was +6.5 bps this week. The spread between US 10-year Treasuries and German Bunds currently stands at 161.1 bps, -4.4 bps from last week.
Eurozone bond yields were on Wednesday. Germany's 10-year bond yield declined during Wednesday’s trading session, the 10-year Bund yield was -2.5 bps to 2.194%.
Current market expectations indicate that the ECB may implement rate cuts totaling 65 bps by the end of the year.
Italian bond yields, a benchmark for the eurozone periphery, were +0.2 bps this week to 3.568%. Consequently, the spread between Italian and German 10-year yields narrowed slightly by -0.7 bps to 137.4 bps from 138.1 bps last week.
Commodities
Gold spot +3.49% MTD +21.77% YTD to $2,511.95 per ounce.
Silver spot +2.34% MTD +22.96% YTD to $29.56 per ounce.
West Texas Intermediate crude -7.77% MTD +1.81% YTD to $71.94 a barrel.
Brent crude -5.73% MTD -1.08% YTD to $76.11 a barrel.
Spot gold prices are up +2.95% this week.
Gold prices declined slightly on Wednesday after hitting a record high of $2,531.60 on Tuesday, as the US dollar eased and Treasury yields fell to two-week lows. Spot gold prices were -0.07% to $2,511.95 per ounce.
Gold has been supported by growing expectations of US interest rate cuts in September, central bank purchases, and escalating geopolitical tensions in the Middle East.
Gold's multifaceted rally. Bullish gold positions on the Chicago Mercantile Exchange's (CME) Comex market, the primary futures benchmark for gold utilised by Western investors, have reached a new post-Covid peak. Data from the US CFTC reveals an increase of over 100 tons in the week ending 13th August. The futures market is predominantly utilised by hedge funds and speculative traders, whereas ETFs are favoured in North America and Europe by institutional and retail investors seeking exposure to gold.
Gold has been on an upward trajectory since the end of 2022, supported by emerging market central banks diversifying their reserves away from the US dollar, as well as substantial demand from Chinese investors. The metal's recent rally from around $2,300 per troy ounce in June to new highs of over $2,500 appears to be driven by US and European buyers anticipating central bank rate cuts. Lower interest rates tend to enhance the appeal of gold compared to assets such as bonds.
Undisclosed purchases on the over-the-counter market, particularly by family offices concerned about a potential devaluation of the dollar, have also contributed to the rise in gold prices. Additionally, retail and investor demand from India has also escalated, driven by traditional buying for the Diwali festival and a reduction in import duties implemented last month.
Both WTI and Brent are in negative territory this week by -6.73% and -4.45%, respectively, driven by concerns over the prospect of economic weakness in China weighing on the country's crude demand. China's economic challenges have contributed to weak processing margins and low fuel demand that has curbed operations at state-run and independent refineries.
WTI was -1.69% on Wednesday, while Brent was -1.37%.
EIA report: demand and exports drive sharp decline in US oil and fuel stocks. The Energy Information Administration (EIA) reported on Wednesday that US crude stocks, gasoline, and distillate inventories all experienced declines exceeding expectations in the week ending 16th August. This decrease was attributed to increased demand and exports.
Crude inventories fell by 4.6 million barrels to 426 million barrels during the specified week, surpassing forecasts of a 2.7 million-barrel draw. Crude stocks at the Cushing, Oklahoma, delivery hub also decreased by 560,000 barrels.
Furthermore, the EIA indicated that net US crude imports increased by 78,000 barrels per day (bpd) last week, while exports rose by 289,000 barrels per day to 4.05 million barrels per day.
Refinery crude runs also saw an increase of 222,000 bpd in the week ending 16th August, accompanied by a 0.8 percentage point rise in utilisation rates to 92.3%.
US gasoline stocks decreased by 1.6 million barrels in the week, reaching 220.6 million barrels. This surpassed analysts' expectations of a 933,000 barrel draw. Product supplied for gasoline, indicative of demand, rose by 148,000 bpd week-over-week to 9.19 million bpd. It's worth noting that gasoline stocks on the US Gulf Coast are now at their lowest seasonal level since 2019.
Finally, distillate stockpiles, encompassing diesel and heating oil, fell by 3.3 million barrels in the week to 122.8 million barrels, significantly exceeding expectations for a 215,000 barrel drop, as per the EIA data.
Note: As of 5:00 pm EDT 21 August 2024
Key data to move markets
EUROPE
Thursday: French HCOB Composite, Manufacturing and Services PMIs, German HCOB Composite, Manufacturing and Services PMIs, eurozone Composite, Manufacturing and Services PMIs, ECB Monetary Policy Meeting Accounts and eurozone Consumer Confidence.
Saturday: A speech by ECB Chief Economist Philip Lane.
Sunday: A speech by ECB executive board member Piero Cippolone.
Monday: German IFO Business Climate, Current Assessment and Expectations Surveys.
Tuesday: German GfK Consumer Confidence Survey and GDP.
Thursday: Eurogroup Meeting, Spanish CPI and Harmonized Index of Consumer Prices, Eurozone Business Climate, Consumer Confidence, and Economic Sentiment Indicator.
UK
Thursday: S&P Global/CIPS Composite, Manufacturing and Services PMIs.
Friday: A speech by BoE Governor Andrew Bailey.
US
Thursday: Initial and Continuing Jobless Claims, S&P Global Composite, Manufacturing and Services PMIs, and the Jackson Hole Symposium.
Friday: A speech by Federal Reserve Chair Jerome Powell at the Jackson Hole Symposium and New Home Sales.
Saturday: Jackson Hole Symposium.
Monday: Durable Goods Orders and Nondefense Capital Goods Orders.
Tuesday: Housing Price Index and Consumer Confidence.
Wednesday: A speech by Atlanta Fed President Raphael Bostic.
Thursday: GDP, Core Personal Consumption Expenditures, Initial and Continuing Jobless Claims, Pending Home Sales and a speech by Atlanta Fed President Raphael Bostic.
JAPAN
Thursday: National CPI and Core CPI.
Friday: A speech by BoJ Governor Ueda.
Global Macro Updates
Traders focused on September Fed move. The FOMC minutes released on Wednesday showed that several policymakers thought that the recent progress on inflation and increases in the unemployment rate had provided a plausible case for reducing the target range 25 basis points at the July meeting or that they could have supported such a decision. The minutes noted that “The vast majority observed that, if the data continued to come in about as expected, it would likely be appropriate to ease policy at the next meeting.” The FOMC left its benchmark interest rate unchanged in the 5.25%-5.50% range on 31 July. “A majority of participants remarked that the risks to the employment goal had increased, and many participants noted that the risks to the inflation goal had decreased,” the minutes said. “Some participants noted the risk that a further gradual easing in labour market conditions could transition to a more serious deterioration.” The labour market appears weaker than originally reported and this may be enough to tilt the balance of risks that the Fed has been worried about.
Further support for a rate cut was handed to markets by the first of two “benchmark” annual revisions by the Labor Department. This first round of revisions indicated that total payroll employment for the period from April 2023 to March 2024 was 818,000 less than previously reported. If the tally holds through the final revision in February, it would be the largest downward revision since the 902,000 reduction to employment in March 2009. The downward revision of 0.5% was significantly larger than the average 0.1% adjustment over the past 10 years. The majority of these downward revisions were concentrated in cyclical industries, notably professional and business services (-358,000) and leisure and hospitality (-150,000).
This revision also precedes Federal Reserve Chair Powell's Jackson Hole speech on Friday. Previews indicate that Powell was already expected to emphasise the Fed's shift in focus toward the weakening labour market and away from inflation concerns. He is also likely to signal that conditions are in place for a near-term policy easing, though the ultimate decision will be guided by incoming data, including the August payrolls report due on 6th September.
Beyond the highs: analysing the headwinds facing the EUR/USD. The EUR/USD currency pair is currently trading near its 2024 highs, primarily driven by recent US dollar weakness. Having broken above the symbolic $1.10 level , the euro's more than 2.5% gain MTD sets it up for its best month since November. As noted by Reuters, it is now the second best performing major currency versus the dollar this year after Sterling, and is at its highest in trade-weighted terms on record, though that is also down to weakness in emerging market currencies. However, technical indicators reveal that the EUR/USD may be overextended on both daily and weekly timeframes.
Market expectations for a dovish Fed policy this year might be excessively optimistic. Current pricing suggests almost 100 bps in cuts. Should incoming US economic data prove more resilient than anticipated, these expectations could be tempered, leading to a widening of the interest rate differential between the euro and the US dollar, a factor that could weigh on the EUR/USD.
In terms of rate differentials and the impact that may have on the pairing, the path of the ECB may not be as clear cut as previously thought following its June rate cut and concerns around sticky service-sector inflation. Despite an unexpected rise in July eurozone inflation, a resilient labour market and strong service sector activity with the August HCOB Flash Services PMI surging to 53.3 from 51.9 in July, ECB policymakers may be more cautious. Even though there are roughly 50 basis points of cuts forecast by traders, the ECB still has to contend with the weakness in manufacturing, with the August HCOB Flash Manufacturing PMI dipping to an eight-month low of 45.6 from July's 45.8 and the implications of this for eurozone growth. Furthermore, political and fiscal risks within the eurozone could resurface in Q4 2024. This could potentially result in a widening of peripheral yield spreads to German Bunds. The challenging fiscal situations in France and Italy, in particular, may face increased scrutiny as their 2025 budget processes commence, possibly triggering outflows from euro-denominated assets.
Finally, the upcoming US presidential and general elections introduce an additional layer of uncertainty. A potential resurgence in Donald Trump's polling numbers could reignite market volatility and concerns regarding potential US trade tariffs. Such a scenario could bolster the US dollar against the currencies of major trading partners, including the euro. A Trump victory would also likely mean lower taxes which would likely cause higher inflation, meaning tighter Fed policy and a stronger dollar. However, a Harris victory, with her plans on raising taxation, and a likely slowing economy, could keep the euro above the $1.10 mark
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