The Monday Report – 29 July 2024

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World Overnight
SPI Overnight	7938.00	+ 60.00	0.76%
S&P ASX 200	7921.30	+ 60.10	0.76%
S&P500	5459.10	+ 59.88	1.11%
Nasdaq Comp	17357.88	+ 176.16	1.03%
DJIA	40589.34	+ 654.27	1.64%
S&P500 VIX	16.39	– 2.07	– 11.21%
US 10-year yield	4.20	– 0.06	– 1.32%
USD Index	104.32	– 0.07	– 0.07%
FTSE100	8285.71	+ 99.36	1.21%
DAX30	18417.55	+ 118.83	0.65%

By Chris Weston, Head of Research, Pepperstone

Good morning.

It’s a huge week ahead by way of event risk for traders to navigate positions over traders, therefore, need to be aware of key timings and consider the possibility for volatility and if there is a skew in the directional risk when the market learns of the outcome. That is typically a function of reviewing expectations and the outcome relative to what is priced in’, market positioning and liquidity.

US earnings the marquee risk this week

I would argue that for single stock and equity index traders US earnings will likely prove to be the most influential factor, with 40% of the S&P500 market cap due to report this week, where we get 4 of the 6 biggest market cap names in the NAS100 reporting.

With some sizeable moves implied by the options market for the individual names on the day of reporting, movement at a stock level could resonate across other plays within their sector and potentially promote wide-index volatility.

Nvidia and Apple aside, company earnings don’t come much bigger than Microsoft, where the options market implies a move (higher or lower) of 4.7% – the after-market session on Tuesday (when MSFT report) could get lively.

US nonfarm payrolls will offer meaningful insights for macro heads

US nonfarm payrolls are the next most meaningful event risk. From a playbook/risk perspective, if the payrolls print comes out around 200k, with an unchanged unemployment rate then making a call on the USD, NAS100 and gold is a tough exercise as the macro argument doesn’t really evolve.

It is easier clearly to consider the path of the USD if we see a payrolls print below 170k, concurrently with a higher unemployment (U/E) rate, and a further moderation in average earnings. In fact, if we see a U/E rate above 4.1% then one could argue the US swaps pricing may even price a small probability of a -50bp cut in the September FOMC meeting a factor which should suggest buying USDs because there is little chance that will play out.

A lower U/E rate, and above 200k payrolls would make the macro somewhat messy as it challenges the strong consensus position for a cut in September.

The FOMC meeting to open the door to cuts

The Fed meeting statement and Powell’s presser is really an exercise in assessing what’s priced into the US swaps/rates curve and whether the tone sufficiently meets these expectations for easing.

The door needs to be opened for a cut or US 2yr Treausry yields will spike higher, and the USD will rally hard, taking US equity lower. The options market implies a -/+1% move in the S&P500 on FOMC day, which is above the typical -/+0.8% move we’ve seen in recent meetings – so the market is priced for increased movement, and that needs to be accounted for in our risk and position sizing.

The BoJ meeting will get good airtime, and while the JPY has undergone a huge rally of late, let’s not forget that the BoJ also have a strong history of disappointing those calling for hawkish policy action.

I am somewhat sceptical that BoJ action will have much of an effect on the JPY anyhow, as the move we’ve seen has been more about a position unwind, with JPY-funded carry positions unwound, with cross-asset volatility and expected Fed policy changes the greater driver. Still, it’s a risk that could promote vol and needs to be considered.

The Australian CPI print will be closely watched by AUD and ASX200 traders, as it could put the 6 August RBA meeting as a truly live’ event, while a weaker-than-expected outcome could take any chance of a rate hike off the table much to the relief of the local equity market.

We also see increased two-way risks to the GBP with the BoE meeting a lineball call as to whether the BoE cut bank rate. While the EU and Swiss CPI reports could also move the dial on the EUR and CHF.

Elsewhere, I will be watching crude oil and gold in the wake of rising geopolitical news flow between Israel and Hezbollah. 

The event risk playbook

US Earnings next week It’s a busy week on the US corporate reporting calendar. 40% of the S&P500 market cap report numbers, but the names that should get the greatest attention from clients include:

AMD (the options market implies a -/+7.7% move on the day of reporting), Boeing (-/+4.2%), Microsoft (-/+4.7%), Meta (-/+8.7%), Qualcomm (QCOM -/+7.6%), Coinbase (-/+9.8%), Apple (-/+3.8%), Amazon (-/+7.2%) and Intel (-/+7.4%).

The ASX200 full-year earnings season commences with Rio Tinto starting proceedings on Wednesday.

Central bank meetings due this week:

BoJ Meeting (Wednesday no set time) The majority of economists see the BoJ keeping rates unchanged at 0.1%, although the distribution of these estimates range includes a 10bp, 15bp and even 25bp hike.

Japan Swaps market price a 10bp hike at a 50% probability. There will also be a focus on any changes to the monthly pace of BoJ bond buying, where the central view is we see the monthly pace taken from Y6t p/m to Y4.5t. With the trade-weighted JPY rallying 2.6% last week, a number of traders have covered JPY shorts into the meeting, and positioning is far less extreme.

Fed Reserve meeting and Chair Powell Press conference (Thursday 04:00) the Fed will leave rates on hold, but the tone of the FOMC statement should evolve to show the Fed has greater confidence in the inflation outlook and to lay the groundwork for a cut in the September FOMC meeting. 

With a -25bp cut in September now fully priced, and -67bp (or 2.7 -25bp cuts) priced by December, the move in the USD, gold and US equity will come in the tone of the FOMC statement and chair Powell’s press conference relative to this pricing. Will the statement meet these expectations sufficiently?

BoE Meeting (Thursday 21:00 AEST / 12:00 UK) Eyeing UK swaps pricing, a -25bp cut is priced at a 50% probability, so market participants see a cut as finely balanced. Economists, however, see a greater probability of easing, with 24 of 32 polled by Bloomberg calling for a -25bp cut to pull bank rate to 5%. The split in the MPC votes for a hold/cut may also be closely followed.

Marquee economic data & consensus expectations:

US nonfarm payrolls (Friday 22:30 AEST) the consensus is for payrolls to come in at 178k (economists’ estimates range from 225k to 70k), with the unemployment rate unchanged at 4.1%, and average hourly earnings at 3.7% (from 3.9%). There may be disruptions that impact the nonfarm payrolls print, notably from Hurricane Beryl, so forecasting the jobs report is typically a huge challenge.

An unemployment print that ticks up to 4.2%, with an NFP print below 170k would be a surprise, but it could feasibly bring a -50bp cut onto the table in September, at least in swaps/rates pricing.

Other notable US economic data points this week that could move markets include Consumer confidence (Wed) and ISM Manufacturing (Thursday).

Australia Q2 CPI (Wed 11:30 AEST) Headline CPI is expected at 1% Q/Q / 3.8% y/y, with trimmed-mean CPI at 1% q/q / 4% y/y (the economist estimates range from 4.1% to 3.8%).

EU CPI (Wed 19:00 AEST) Headline CPI is eyed at 2.5% y/y (unchanged), with core CPI at 2.8% y/y (from 2.9%). The market already sees a cut from the ECB in the September meeting, but

China manufacturing & services PMIs (Wed 11:30 AEST) Manufacturing PMI is expected to come in a little worse than the prior month at 49.4 (from 49.5), with services PMI expected at 50.2 (50.5).

Switzerland CPI (Friday 16:30 AEST) Headline CPI expected at 1.3% y/y (unchanged) with core CPI also unchanged at 1.1% y/y. 

On the calendar today:

-Credit Corp ((CCP)) earnings report

-Champion Iron ((CIA)) 1Q25 Earnings

-IGO Ltd ((IGO)) Quarter report

-Pinnacle Investment Management ((PNI)) earnings report

-Perseus Mining ((PRU)) Quarter Report

-TechOne ((TNE)) investor briefing

-Australia: Building approvals

-Eurozone 2Q GDP

-US July consumer confidence

Corporate news in Australia:

-ASX ((ASX)) to commence with environmental futures contracts this week

-South Africa’s Super Group plans to sell its 53% stake in SG Fleet ((SGF)), valued at $572m

Spot Metals,Minerals & Energy Futures
Gold (oz)	2433.55	+ 69.75	2.95%
Silver (oz)	28.07	+ 0.08	0.29%
Copper (lb)	4.11	– 0.01	– 0.17%
Aluminium (lb)	1.03	+ 0.00	0.18%
Nickel (lb)	7.17	+ 0.05	0.70%
Zinc (lb)	1.20	– 0.01	– 0.97%
West Texas Crude	76.44	– 1.87	– 2.39%
Brent Crude	80.28	– 1.14	– 1.40%
Iron Ore (t)	106.86	– 0.28	– 0.26%

The Australian share market over the past thirty days

Index	26 Jul 2024	Week To Date	Month To Date (Jul)	Quarter To Date (Jul-Sep)	Year To Date (2024)
S&P ASX 200 (ex-div)	7921.30	-0.63%	1.98%	1.98%	4.35%

BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS
ANN	Ansell	Downgrade to Lighten from Hold	Ord Minnett
C79	Chrysos	Downgrade to Hold from Buy	Bell Potter
CRN	Coronado Global Resources	Upgrade to Accumulate from Hold	Ord Minnett
EDV	Endeavour Group	Downgrade to Neutral from Outperform	Macquarie
GMD	Genesis Minerals	Downgrade to Hold from Accumulate	Ord Minnett
PNR	Pantoro	Upgrade to Buy from Hold	Bell Potter
PPT	Perpetual	Upgrade to Buy from Neutral	UBS
SFR	Sandfire Resources	Upgrade to Accumulate from Hold	Ord Minnett
TNE	TechnologyOne	Upgrade to Buy from Neutral	UBS
WOW	Woolworths Group	Downgrade to Neutral from Outperform	Macquarie

For more detail go to FNArena’s Australian Broker Call Report, which is updated each morning, Mon-Fri.

All overnight and intraday prices, average prices, currency conversions and charts for stock indices, currencies, commodities, bonds, VIX and more available on the FNArena website.  Click here. (Subscribers can access prices on the website.)

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