All eyes on US Payrolls

EU mid-market update: All eyes on US payrolls; Experts say Iran-US framework looks more aspirational than actionable.

Notes/observations

- Treading water ahead of US July nonfarm payrolls at 08:30 ET, with Asian equities and European indices opening modestly higher in cautious trade. Consensus looks for a modestly healthy print, but the risk skew matters: any upside blow-out would pile further pressure on rates and the Fed, with markets pricing roughly a 56% chance of a 25bp hike in September and a move fully priced by December. The hawkish drumbeat is buildin, Fed's Musalem overnight said it is "crucial to put meaningful restraint on underlying inflation," flagged that risks are tilted toward higher price pressures, and revealed he favored hiking at the last FOMC. With more members turning hawkish, attention will increasingly rotate toward the Jackson Hole symposium in late August, notably Chair Warsh's first, and the September FOMC as the next major policy catalysts.

- Middle East remains the key macro overhang and is feeding directly into the rates and inflation picture. Iran and Oman are reportedly in the final stages of a Strait of Hormuz management framework (a 5-7% cargo-value transit fee, with Chinese vessels exempt), but maximalist Iranian demands, including banning US and Israeli ships and demanding war compensation, have raised doubts about US acceptance, and the shipping industry says the proposed routing is unworkable under sanctions. Trump said he thinks the Iran war "will end pretty soon" and that Hormuz progress is "moving along good." Logistics strain is tangible: ~8% blank-sailing cancellation rates on East-West trades, Hormuz transits running ~10 vessels a day versus a normal ~88, and a fresh Saudi-targeted Red Sea blockade layered on top of existing Cape diversions. Separately, Turkey, Saudi Arabia and Pakistan are set to sign a joint defence agreement today.

- ByteDance is in the early pre-training phase of a frontier-scale foundation model targeting up to 10 trillion parameters—roughly three times Moonshot’s 2.8T Kimi K3 and potentially matching or exceeding industry estimates for Anthropic’s restricted Mythos 5—while deliberately rejecting distillation of rival systems in favor of fully independent development, a stance reportedly enforced by founder Zhang Yiming for over a year. The multi-month pre-training window typical for models of this magnitude implies that any fine-tuned release would most likely arrive between late 2026 and early 2027, positioning the effort as ByteDance’s clearest bid to close the remaining performance gap with leading U.S. labs. This push coincides with strong recent benchmark showings from Moonshot and Alibaba that already trail only Anthropic’s Fable 5 in selected domains, underscoring a broader Chinese acceleration at the extreme scale. Although ByteDance already fields world-class video generation via Seedance, the 10T run signals a strategic expansion beyond specialized multimodal products into general-purpose models whose ultimate competitiveness will hinge less on raw parameter count than on training efficiency, data quality, and post-training refinement.

- Same time, Alibaba reportedly plans to introduce revenue-sharing arrangements for the next iteration of its open-source Qwen model family, marking a deliberate shift from pure accessibility toward sustainable commercialization after years of aggressive price undercutting across China’s frontier labs. This move aligns with a broader industry pivot already visible at DeepSeek, which is preparing a significant near-term across-the-board API price increase while simultaneously expanding production access via its V4-Flash model at $0.14 per million input tokens and $0.28 per million output tokens, layered atop an existing 2x peak-hour surcharge. Zhipu AI’s GLM series had already executed two successive API rate hikes earlier in 2026, underscoring that even the most cost-aggressive Chinese providers are now prioritizing unit economics over pure volume growth. Concurrently, Alibaba’s recent release of the 2.4-trillion-parameter Qwen 3.8-Max—and the forthcoming open-weight release of a Max-class model for the first time—positions the company to capture both developer mindshare and future commercial upside through the planned revenue-sharing mechanism.

- A potential super extreme El Niño scientists talk about would not deliver a single planetary catastrophe but a cascade of geographically staggered emergencies whose local price spikes, policy responses and balance-sheet hits begin to correlate in ways modern markets have never fully stress-tested. The scientifically unverifiable claim of a “500–1,000-year” event is beside the point; what matters is the redistribution of heat into a world already near 1.5 °C of warming, eight billion people, just-in-time supply chains and financial contracts written against the assumption that weather risks remain diversified. California’s probable atmospheric-river sequence, Australia’s drought-to-livestock liquidation cycle, Peru’s collapsing anchovy fishery, India’s uneven monsoon pockets and Africa’s dual drought-and-flood food insecurity would each be manageable in isolation—yet together they convert Pacific sea-surface anomalies into simultaneous pressure on insurance, sovereign credit, feed costs and export bans.

- Asia closed mixed with Shanghai outperforming +1.0%. EU indices -0.3% to +0.5%. US futures -0.1% to +0.5%. Gold +1.5%, DXY 0.0%; Commodity: Brent +0.4%, WTI +0.4%; Crypto: BTC 0.0%, ETH +0.3%.

Asia

- China July Trade Balance: $112.5B v $107.0Be; Exports Y/Y: 23.9% v 23.0%e; Imports Y/Y: 27.5% v 29.5%e Imports Y/Y.

- Japan Jun Household Spending Y/Y: -3.3% v +0.9%e (7th straight decline).

Global conflict/tensions

- Iran accused President Trump of exaggerating progress toward a deal over the Strait of Hormuz as tensions continued to rise across the region.

- Iran said to seek to block US and Israeli vessels from using the Strait of Hormuz and impose conditions on other shipping as part of an emerging agreement with Oman.

- President Trump said he believed the conflict with Iran will end soon, while acknowledging that supplies of some US munitions have become tighter after months of fighting.

- Saudi Arabia says intelligence indicates Iraqi militias, coordinating with the Houthis under Iran's Revolutionary Guard Corps, are preparing imminent attacks on energy infrastructure, ports and airports, with drones and missiles repositioning.

Europe

- ECB said to only be aware of US selling Euros to buy Yen after the trade. US sold euros from the Exchange Stabilization Fund to buy yen late last week without telling the ECB until after execution. Senior ECB officials were treating the use of euros as an unprecedented breach of western central bank convention.

Americas

- Fed's Musalem (non-voter): Crucial to put meaningful restraint on underlying inflation; Inflation is too high and balance of risks is toward higher price pressures.

- Mexico Central Bank (Banxico) left the Overnight Rate unchanged at 6.50% (as expected) for its 2nd straight pause under the current phase of its easing cycle. Decision to keep policy steady was unanimous. Appropriate to keep rate at current level and pledged to keep policy steady going forward. Saw inflation converging to target in Q4 2027.

Energy

- US official stated that the Strait of Hormuz was an international waterway carrying no approvals, permissions, tolls or charges on temporary routes.

Speakers/fixed income/FX/commodities/erratum

Equities

Indices [FTSE +0.19% at 10,888.17, DAX +0.57% at 26,313.98, CAC-40 +0.14% at 8,711.85, IBEX-35 -0.30% at 20,120.79, FTSE MIB +0.14% at 53,759.00, SMI +0.36% at 14,570.40, S&P 500 Futures +0.16%].

Market focal points/key themes: European markets stabilised a bit on Friday, with German government bonds delivering their strongest weekly performance since late June as the two-year and 10-year Bund yields held firm, snapping a five-week streak of rising borrowing costs that had earlier pushed 10-year yields up roughly 30 basis points toward 15-year highs near 3.21%. The rebound was helped by retreating energy costs, Eurozone services PMI data showing broad stabilisation across Germany, Spain and Italy, and June producer-price figures confirming further cooling in wholesale inflation, allowing desks to unwind policy-risk premiums. Equity moves were more mixed: Genmab surged 9.5% after a Q2 beat and raised full-year revenue guidance, Goodwin jumped 10.5% on confirmation of a strategic review that could lead to a sale of its defence and mechanical-engineering assets, while Daimler Truck dropped 4.5% on halved EPS and weak order intake, Lanxess fell 5% amid stalled demand recovery, Eutelsat slid 8% on disappointing FY27 margin guidance, and Austrian Post declined 4% as mail losses outweighed parcel growth. Natural-gas contracts edged higher on the day yet remained on course for a second consecutive weekly loss of about 2.5%, underscoring that the broader European complex is still navigating constrained LNG flows and below-average storage even as Middle East supply anxieties continue to ease.

Equities

- Consumer discretionary: Austrian Post [POST.AT] -4.0% (H1 profit fell sharply as mail decline and financial losses outweighed parcel growth).

- Financials: Allianz [ALV.DE] -1.0% (Q2 operating profit beat; net income missed expectations).

- Healthcare: Genmab [GMAB.DK] +9.5% (Q2 beat and full-year revenue guidance raised).

- Industrials: Daimler Truck [DTG.DE] -4.5% (final Q2: EPS nearly halved; order intake weighed), Porsche Automobil Holding [PAH3.DE] -1.5% (H1 swung to €2.2B loss after VW and Porsche impairments).

- Materials: Lanxess [LXS.DE] -5.0% (Q2 EBITDA barely grew; CEO flagged no sustained demand recovery).

-Telecom: Eutelsat [ETL.PA] -8.0% (FY27 EBITDA-margin guidance disappointed despite stronger revenue).

Speakers

- Pres Trump commented ina press interview that it was up to Warsh a little bit on a rate hike, but not completely due to Fed's board; won't be criticizing him.

Currencies

- FX price action remained listless as market continued to await news on a potential US-Iran deal. Markets also awaiting the US jobs report set for release later today. Dealers noted that once again participation was very much in sort of watch and wait mode. Oil prices continued to drift higher over the past 48 hours.

- EUR/USD at 1.1520 area with the green back a touch firmer as no confirmation has yet to emerge on a US-Iran-Oman agreement on Strait of Hormuz.

- USD/JPY at 158.40 area as the yen tried to hold onto last week FX intervention gains. Report circulated that ECB was only made aware of US selling Euros to buy Yen after the intervention trade.

- The 10-year German Bund yield last at 3.15%, France 10-year Oat at 3.94% and 10-year Gilt yield at 4.94%; 10-year Treasury yield: 4.67%; 10-year JGB: 2.77%.

Economic data

- (SE) Sweden July Maklarstatistik Housing Prices: 3.4% v 2.9% prior.

- (FR) France Q2 ILO Unemployment Rate: 8.3% v 8.2%e.

- (DE) Germany Jun Trade Balance: €15.4B v €17.2Be; Exports M/M: 0.9% v 0.5%e; Imports M/M: 4.4% v 2.0%e.

- (DE) Germany Jun Industrial Production M/M: 0.2% v 0.2%e; Y/Y: -0.1% v +0.1%e.

- (SE) Sweden July Budget Balance (SEK): -9.2B v -58.4B prior.

- (NO) Norway Jun Industrial Production M/M: +7.6% v -0.9% prior; Y/Y: 9.1% v 0.5% prior.

- (NO) Norway Jun Manufacturing Production M/M: -1.0% v +0.8% prior; Y/Y: 0.7% v 2.1% prior.

- (FI) Finland Jun Preliminary Trade Balance: +€1.9B v -€0.9B prior.

- (DK) Denmark Jun Industrial Production M/M: +6.4% v -3.5% prior.

- (ZA) South Africa July Net Reserves: $71.8B v $71.3B prior; Gross Reserves: $73.5B v $74.1B prior.

- (HU) Hungary July CPI M/M: -0.1% v +0.2%e; Y/Y: 1.2% v 1.6%e.

- (FR) France Jun Trade Balance: -€5.9B v -€7.7B prior; Current Account Balance: -€1.4B v -€1.2B prior.

- (MY) Malaysia Foreign Reserves end-July: $132.1B v $131.8B prior.

- (ES) Spain Jun Home sales Y/Y: +1.6% v -7.3% prior.

- (CH) Swiss July SECO Consumer Confidence: -34.8 v -34.0e.

- (CH) Swiss July Foreign Currency Reserves (CHF): 768.3B v 758.9B prior.

- (CN) Weekly Shanghai Deliverable Copper Inventories (SHFE): 70.1K v 69.3K tons prior.

- Thailand May Foreign Reserves w/e July 31st: $275.4B v $272.6B prior.

- (UN) July FAO World Food Price Index: 131.1 v 130.3 prior (3-year high).

- (CZ) Czech July International Reserves: $181.0B v $180.6B prior.

- (RU) Russia Narrow Money Supply w/e July 31st (RUB): 22.03T v 22.00T prior.

- (TW) Taiwan July Trade Balance: $17.2B v $15.7Be; Exports Y/Y: 32.9% v 40.6%e; Imports Y/Y: 37.4% v 50.1%e.

- (HK) Hong Kong July Foreign Reserves: $447.8B v $445.9B prior.

- (SG) Singapore July Foreign Reserves: $427.9B v $426.3B prior.

- (GR) Greece July CPI Y/Y: 3.4% v 4.4% prior; CPI EU Harmonized Y/Y: 2.7% v 3.9% prior.

Fixed income issuance

- (IN) India sold total INR320B vs. INR320B indicated in 2031 and 2066 bonds.

Looking ahead

- (UR) Ukraine July Official Reserve Assets: No est v $51.3B prior.

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

- 05:30 (ZA) South Africa to sell combined ZAR1.0B in I/L 2038, 2043 and 2046 Bonds.

- 06:00 (PT) Portugal Jun Trade Balance: No est v -€2.8B prior.

- 06:00 (UK) DMO to sell £B in 1-month, 3-month and 6-month bills (£0B, £B and £B respectively).

- 06:00 (BE) Belgium Debt Agency (BDA) to sell OLO Bonds through Ori Auction.

- 06:30 (IS) Iceland to sell Bonds.

- 07:00 (BR) Brazil July FGV Inflation IGP-DI M/M: -1.0%e v -0.8% prior; Y/Y: 2.7%e v 3.6% prior.

- 07:30 (IN) India Forex Reserve w/e July 31st: No est v $682.4B prior.

- 08:00 (PL) Poland July Official Reserves: No est v $293.5B prior.

- 08:00 (MX) Mexico July CPI M/M: 0.0%e v -0.3% prior; Y/Y: 3.1%e v 3.4% prior.

- 08:00 (MX) Mexico July CPI Core M/M: 0.2%e v 0.2% prior; Y/Y: 3.9%e v 4.0% prior.

- 08:00 (MX) Mexico July Vehicle Production: No est v 354.2K prior; Vehicle Exports: No est v 301.0K prior.

- 08:00 (CL) Chile July CPI M/M: 0.1%e v 0.0% prior; CPI Y/Y: 3.6%e v 4.3% prior.

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

- 08:30 (US) July Change in Nonfarm Payrolls: +80Ke v +57K prior; Private Payrolls: +82Ke v +49K prior; Manufacturing Payrolls: +4Ke v +3K prior.

- 08:30 (US) July Unemployment Rate: 4.2%e v 4.2% prior; Underemployment Rate: No est v 7.9% prior; Labor Force Participation Rate: 61.6%e v 61.5% prior.

- 08:30 (US) July Average Hourly Earnings M/M: 0.3%e v 0.3% prior; Y/Y: 3.5%e v 3.5% prior; Average Weekly Hours All Employees: 34.3e v 34.3 prior.

- 08:30 (CA) Canada July Net Change in Employment: +20.0Ke v 18.2K prior; Unemployment Rate: 6.5%e v 6.5% prior; Full Time Employment Change: No est v 0.6K prior; Part Time Employment Change: No est v 17.5K prior; Participation Rate: 65.0%e v 65.0% prior; Hourly Wage Rate Y/Y: 3.4%e v 3.7% prior.

- 08:30 (CL) Chile July Trade Balance: $2.5Be v $3.3B prior; Exports Total: No est v $10.8B prior; Imports Total: No est v $7.5B prior; Copper Exports: No est v $5.9B prior.

- 08:30 (CL) Chile July International Reserves: No est v $51.9B prior.

- 09:00 (RU) Russia July Official Reserve Assets: No est v $720.4B prior.

- 09:00 (IN) India announces upcoming bill issuance (held on Wed).

- 10:00 (CA) Canada July Ivey Purchasing Managers Index: No est v 56.2 prior.

- 10:00 (BR) Brazil July Vehicle Production: No est v 246.0K prior; Sales: No est v 272.5K prior; Exports: No est v 36.7K prior.

- 10:00 (US) Fed’s Barkin.

- 10:30 (TR) Turkey July Cash Budget Balance (TRY): No est v 50.8B prior.

- 11:00 (US) July NY Fed 1-year Inflation Expectations: 3.7%e v 3.7% prior.

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

- 13:00 (EU) Potential sovereign ratings after European close (S&P on Switzerland & Austria; Moody’s on Luxembourg).

- 15:00 (US) Jun Consumer Credit: $11.6Be v -$0.2B prior.

- 15:00 (AR) Argentina Jun Industrial Production Y/Y: No est v -5.7% prior; Construction Activity Y/Y: No est v 4.1% prior.

- 21:30 (CN) China July CPI Y/Y: 0.8%e v 1.0% prior; CPI Core Y/Y: 1.0%e v 1.0% prior; PPI Y/Y: 3.8%e v 4.1% prior.