Auto sector weighs down Europe – ECB pause absorbed

EU mid-market update: Auto sector weighs down Europe; ECB pause absorbed; Tariff deadline looms as Trump tees off in Scotland.

Notes/observations

- Mostly red across European bourses as autos and luxury drag; Volkswagen, Traton and Valeo issued weaker outlooks tied to prospective US tariffs, Puma sank on loss warning.

- FX is mixed, with GBPUSD (cable) down -0.3% after weak UK retail sales for Jun. Some focus of weak sterling being attributed to diverging economic outlook with EU.

- Bond yields across the block are higher by mid-single digit bps, as market digest ECB decision yesterday, largely uneventful but painted a picture that rate cuts look unlikely in near term. Desks pushed first additional cut expectations into Q4.

- On the trade front, sentiment suggests an imminent trade deal between US and EU. Focus is on Trump’s 15-50% tariff plan and Aug 1st deadline, plus next-week Fed and BOJ meetings; Light summer liquidity heightens headline risk.

- Trump about to head off to Scotland between July 25-29th, for a four-day private trip.

- Key EU earnings: VW Q2 was big miss, cuts outlook due to demand and ongoing product offensive; Remy Cointreau was strong, organic rev beat, raised guidance; Natwest also strong, above estimates, declares £750B share buyback, raises guidance; LVMH results were mixed, plans to streamline drinks division.

- Asia closed mixed with Hang Seng underperforming -1.1%. EU indices -0.6% to +0.2%. US futures -0.1% to +0.1%. Gold -0.7%, DXY +0.2%; Commodity: Brent +0.4%, WTI +0.4%; Crypto: BTC -2.9%, ETH +0.4%.

Asia

- Japan July Tokyo CPI Y/Y: 2.9% v 3.0%e; CPI (ex-fresh food) Y/Y: 2.9% v 3.0%e.

- Japan Jun PPI Services Y/Y: 3.2% v 3.2%e.

Europe

- UK July GfK Consumer Confidence: -19 v -20e.

Americas

- Pres Trump: Regarding firing Powell, would be a big move, it's not necessary; Maybe three names in mind for next Fed Chair; No pressure on Powell to resign; Reiterated would love interest rates to be lower; We would see how (FOMC) rules on rates.

- Treasury Sec Bessent: Fed's footprint has gotten too big and it should get back to basics; The Fed has undue influence on the economy. Would like to see the Fed cure itself internally.

Energy

- White House said to approve Chevron resumption of Venezuelan oil production.

Speakers/fixed income/FX/commodities/erratum

Market focal points/key themes: European indices open generally lower and remained under pressure through the early part of the session; disappointing earnings seen weighing on risk appetite; among less negative sectors are utilities and materials; sectors leading to the downside include industrials and telecom; industrials sector weighed following Volkswagen, Traton earnings; apparel subsector dragged following disappointing results from Puma; focus on US durable goods orders coming out later in day; earnings expected in the upcoming US session include AON, Booz Allen Hamilton, AutoNation and Charter Communications.

Equities

- Consumer discretionary: LVMH [MC.FR] +4.5% (earnings), Puma [PUM.DE] -15% (sharp outlook cut; plans price increases), Adidas [ADS.DE] -1.0% (in sympathy with Puma), Remy Cointreau [RCO.FR] +5.0% (earnings) - Consumer staples: Carrefour [CA.FR] +6.0% (earnings; Italy unit) - Energy: Eni [ENI.IT] -0.5% (earnings).

- Financials: NatWest [NWG.UK] +2.0% (earnings; buyback).

- Industrials: Traton [8TRA.DE] -5.5% (earnings; outlook cut), Volkswagen [VOW3.DE] +2.5% (earnings; outlook cut), Signify [LIGHT.NL] -12.5% (earnings).

Speakers

- ECB Survey of Professional Forecasters cut 2025 HICP (EU Harmonized CPI) from 2.2% to 2.0% and cut 2026 HICP (EU Harmonized CPI) from 2.0% to 1.8% (below ECB target of 2%). Survey raised the 2025 GDP growth from 0.9% to 1.1% (**Note: ECB Jun Staff forecast is 0.9%) while cutting the 2026 GDP growth from 1.2% to 1.1%.

- ECB's Kazaks (Latvia) stated that had no urgent need to move rates and saw value in keeping policy steady. Prior easing was still working through the economy. Added that had some untapped potential in economy. EUR currency remained around historical average but monitoring.

- ECB's Simkus (Lithuania) stated that inflation was expected to stay at the 2% level in the medium term.

- German IFO Economists commented that the upturn in the German economy remained anemic.

- India Central Bank (RBI) Gov Malhotra stated that had won the battle against inflation, but the war continued.

- BOJ said to see rate hike environment in 2025 and would have enough data by year-end to consider hike.

Currencies/fixed income

- USD put in a mixed performance as rising bond yields remain in focus.

- EUR/USD drifted higher above 1.1750 area. Goldman Sachs analyst believed ECB cutting cycle was finished and noted that it would likely to skip a rates reduction in September. German IFO survey highlighted that the German economy remained anemic.

- GBP/USD moved lower as UK data continued to disappoint. Pair at 1.3475 as UK retail sales missed consensus.

- USD/JPY saw little reaction to reports that BOJ saw rate hike environment in 2025 and would have enough data by year-end to consider another hike. Markets were already pricing about 80-85% chance now for a hike by Dec 2025.

- 10-year German Bund yield at 2.76% and 10-year Gilt yield at 4.65%. 10-year Treasury yield: 4.41%.

Economic data

- (UK) Jun Retail Sales (ex-auto/Fuel) M/M: 0.6% v 1.2%e; Y/Y: 1.9% v 1.8%e.

- (UK) Jun Retail Sales M/M: 1.2% v 1.2%e; Y/Y: 1.7% v 1.8%e v -1.3% prior.

- (SE) Sweden Jun PPI M/M: -0.6% v -0.5% prior; Y/Y: -3.1% v -2.8% prior.

- (SE) Sweden Jun Unemployment Rate: 9.4% v 9.7% prior; Unemployment Rate (seasonally adj): 8.3% v 8.8%e; Trend Unemployment Rate: 8.7% v 8.7% prior.

- (SE) Sweden Jun Household Lending Y/Y: 2.4% v 2.4% prior.

- (HU) Hungary Jun Unemployment Rate: 4.3% v 4.3%e.

- (FR) France July Consumer Confidence: 89 v 88e.

- (TR) Turkey July Real Sector (Manufacturing) Confidence : 98.9 v 98.4 prior; Real Sector Confidence (unadj): 100.2 v 100.3 prior; Capacity Utilization: 74.2% v 74.6% prior.

- (CN) Weekly Shanghai Copper Inventories (SHFE): 73.4K v 84.6K tons prior.

- (TH) Thailand May Foreign Reserves w/e July 18th: $361.8B v $261.5B prior.

- (DE) Germany July IFO Business Climate: 88.6 v 89.0e; Current Assessment: 86.5 v 86.7e; Expectations Survey: 90.7 v 91.1e.

- (EU) ECB Survey of Professional Forecasters.

- (EU) Euro Zone Jun M3 Money Supply Y/Y: 3.3% v 3.7%e.

- (IT) Italy July Consumer Confidence: 97.2 v 95.9e; Manufacturing Confidence: 87.8 v 87.5e; Economic Sentiment: 93.6 v 93.9 prior.

- (RU) Russia Narrow Money Supply w/e July 18th (RUB):18.53 T v 18.48T prior.

Fixed income issuance

- (IN) India sold total INR360B vs. INR360B indicated in 2028 and 2035 bonds.

Looking ahead

- 05:25 (EU) Daily ECB Liquidity Stats.

- 05:30 (ZA) South Africa to sell combined ZAR1.0B in I/L 2033, 2043 and 2050 Bonds.

- 06:00 (UK) DMO to sell £4.0B in 1-month, 3-month and 6-month bills (£0.5B, £1.5B and £2.0B respectively).

- 06:30 (RU) Russia Central Bank (CBR) Interest Rate Decision: Expected to cut Key-1-Week Auction Rate by 200bps to 18.00%.

- 07:00 (BR) Brazil July FGV Consumer Confidence: No est v 85.9 prior.

- 07:30 (BR) Brazil Jun Current Account Balance: -$4.6Be v -$2.9B prior; Foreign Direct Investment (FDI): $4.5Be v $3.7B prior.

- 07:30 (IN) India Forex Reserve w/e July 18th: No est v $696.7B prior.

- 08:00 (BR) Brazil Mid-July IBGE Inflation IPCA-15 M/M: 0.3%e v 0.3% prior; Y/Y: 5.3%e v 5.3% prior.

- 08:00 (UK) Daily Baltic Dry Bulk Index.

- 08:00 (RU Russia Central Bank (CBR) Gov Nabiullina post rate decision press conference.

- 08:00 (IN) India announces upcoming bill issuance (held on Wed).

- 08:30 (US) Jun Preliminary Durable Goods Orders: -10.5%e v +16.4% prior; Durables (ex-transportation): 0.1%e v 0.5% prior; Capital Goods Orders (non-defense/ex-aircraft): 0.1%e v 1.7% prior; Capital Goods Shipments (non-defense/ex-aircraft): 0.2%e v 0.4% prior.

- 09:00 (BE) Belgium July Business Confidence: No est v -10.1 prior.

- 11:00 (US) July Kansas City Fed Services Activity: No est v 3 prior.

- 12:00 (EU) Potential sovereign ratings after European close.

- 13:00 (US) Weekly Baker Hughes Rig Count data.

Sat

- 21:30 (CN) China Jun Industrial Profits Y/Y: No est v -9.1% prior; Industrial Profits YTD Y/Y: No est v -1.1% prior.