Draghi said he is ready to rebuild his governing coalition

Notes/Observations

- Political turmoil leads the European theme as UK leadership battle ends fifth round of voting today where candidates will be whittled down to 2. Sunak holds convincing lead with second place up for grabs between Mordaunt and Truss. Italy PM Draghi addressed the Senate with comments about rebuilding the Govt coalition and reducing Russian gas dependency to zero over the next 18 months. Sri Lanka lawmakers convincingly elected new President Ranil Wickremesinghe, an ally of the former President who fled the country.

- Eclectic volume of economic data so far, with status quo of elevated inflation as UK CPI came in at 9.4% Y/Y, representing highest annual pace since 1981. Germany PPI moves off 50 year highs at 32.7% Y/Y.

- Emerging markets continued to show stress as India Central Bank (RBI) said they are willing to spend an additional $100B to prevent further currency depreciation. Indian Forex Reserves currently sit at $580B.

- Volatility continues to be seen in European Nat Gas Futures following yesterdays announcement from Nord Stream 1 that small gas volumes were sent as maintenance nears its end. Putin said Gazprom is planning to fulfill obligations but attempts to cap Russian oil prices will lead to prices skyrocketing. Reports this morning from Russian sources that gas exports from Nord Stream 1 are on schedule.

- In general, Asia closed higher with Nikkei outperforming at +2.7%. EU indices range between -0.3% to +0.4% with bond yields lower. US futures are in the green. Safe haven: Gold -0.2%, DXY 0.0%; Commodity: Brent -0.8%, WTI -1.0%, Copper +1.9%; Speculative: BTC +6.6%, ETH -0.2%.

Asia

- China PBoC Monthly Operation left both the 1-Year Loan and 5-year Prime Rate unchanged at 3.70% and 4.45% respectively (as expected).

- RBA Gov Lowe stated that the Board had extended discussion on neutral real interest rate; Neutral Nominal rate was 'at least' 2.5%, higher than this if mid-term inflation expectations shifted higher.

Ukraine conflict

- Ukraine and Russia said to be near agreement on deal to secure safe passage of grain through Black Sea but remained at loggerheads over port and export route security plans.

- Russian President Putin said to have told Turkey President Erdogan that not all grain issues were resolved.

Europe

- Fourth round of Conservative leadership ballot: Sunak 118, Mordaunt 92, Truss 86, Badenoch 59 (eliminated).

- BOE Gov Bailey stated that a 50bp increase would be among the choices on the table at next MPC but not locked in.

- UK Govt announced pay raise for National Health Service staff of at least £1,400, giving the lowest earners a raise of as much as 9.3%.

Americas

- Bill that will provide $52B in subsidies to encourage chip companies to increase US production cleared its first procedural hurdle in the Senate (**Note: details of the legislation are still being worked out).

- Senate Minority Leader McConnell: At this stage I will not be voting in favor of the chips bill. To decide on the chips bill later as it took shape.

Energy

- Weekly API Crude Oil Inventories: +1.9M v +4.8M prior.

- Gazprom Nord Stream spokesperson stated that was sticking to maintenance schedule. Earlier reports noted that Nord Stream 1 had restarted gas flows on time after annual maintenance but at a lower level of throughput.

- EU considering a 15% voluntary reduction in natural gas usage for Aug-Mar due to Russia supply issues.

Speakers/Fixed income/FX/Commodities/Erratum

Equities

Indices [Stoxx600 +0.19% at 424.24, FTSE +0.31% at 7,319.10, DAX +0.10% at 13,321.61, CAC-40 +0.15% at 6,210.34, IBEX-35 -0.31% at 8,100.06, FTSE MIB -0.06% at 21,684.00, SMI +0.03% at 11,124.93, S&P 500 Futures +0.02%].

Market Focal Points/Key Themes: European indices open modestly higher across the board but later slipped to trade mixed; sectors among those leading to the upside are financials and energy; while sectors trending into the red include technology and materials; communications services sector supported following results from Omnicom yesterday; ASML’s disappointing results drag on tech sector; Carrefour reaches agreement to sell stake in Taiwan business; Solutions 30 ends negotiations to acquire EnergyGo; earnings expected during the upcoming US session include Abbott, Tesla, Alcoa and United Airlines.

Equities

- Consumer discretionary: Royal Mail [RMG.UK] -5% (trading update), Villeroy & Boch [VIB3.DE] +12% (earnings).

- Energy: Uniper [UN01.DE] +10% (German govt nears the deal).

- Industrials: Volvo Cars [VOLCARB.SE] -4% (earnings), Hella KGaA [HLE.DE] +0.5% (earnings).

- Technology: ASML [ASML.NL] -1.5% (earnings; cuts outlook).

- Materials: Akzo Nobel [SKZA.NL] -2% (earnings).

Speakers

- Italy PM Draghi stated in the Senate that an unelected PM needed as big a parliamentary majority as possible. Believed that the Governing coalition could be rebuilt.

- Spain Econ Min Calvino: ECB rate hike should avoid rattling the debt markets.

- German govt said to pass on some energy costs to consumers as part of Uniper's rescue package.

- UK govt to extend recovery loan scheme for 2 years to support access to finance for small businesses.

- RBI said to be prepared to spend up to $100B more to defend the INR currency (Rupee).

- Iran Foreign Ministry stated that the EU was making preparation for next round of nuclear talks, needed US political decision.

Currencies/Fixed Income

- Reduced expectations of a supersized 100-basis-point rate hike at next week's Federal Reserve policy review.

- ECB held onto to most of its recent gains ahead of Thursday’s policy decision. Pair around 1.0235 area and near a two-week highs on the growing possibility of bigger interest-rate hike.

- GBP/USD hovered around the 1.20 area despite higher CPI data once again. Dealers noted that UK inflation was putting pressure on already strained household incomes. Concerns that inflation could become more permanent if BOE did not raise interest rates decisively.

- USD/JPY staying above the 138 level ahead of Thursday’s BOJ policy decision. Analysts reiterated that the central bank to remain dovish.

- Italy 10-year govt yield lower following PM Draghi Senate statement. The 10-year BTP yield below 3.20%, lower by over 10bps after Draghi noted that the need for stability obliged him and Parliament to see if a majority could be obtained; indicated he would stay on if he won the upcoming Parliamentary confidence vote. All parties in Italy's ruling coalition seemed to have limited interest in triggering an early election in autumn.

Economic data

- (NL) Netherlands July Consumer Confidence: -51 v -50 prior.

- (NL) Netherlands May Consumer Spending Y/Y: 7.3% v 12.6% prior.

- (UK) Jun CPI M/M: 0.8% v 0.7%e; Y/Y: 9.4% v 9.3%e (11th month above target and highest annual pace since Nov 1981); CPI Core Y/Y: 5.8% v 5.8%e; CPIH Y/Y: 8.2% v 8.1%e.

- (UK) Jun RPI M/M: 0.9% v 0.8%e; Y/Y: 11.8% v 11.8%e; RPI-X (ex-mortgage Interest Payments) Y/Y: 11.9% v 12.0%e; Retail Price Index: 340.0 v 340.1e.

- (UK) Jun PPI Input M/M: 1.8% v 1.2%e; Y/Y: 24.0% v 23.0%e.

- (UK) Jun PPI Output M/M: 1.4% v 1.0%e; Y/Y: 16.5% v 16.0%e.

- (DE) Germany Jun PPI M/M: 0.6% v 1.5%e; Y/Y: 32.7% v 33.7%e (annual pace moved away from 5 decade highs).

- (DK) Denmark July Consumer Confidence: -25.6 v -24.8 prior.

- (CZ) Czech Jun PPI Industrial M/M: 1.4% v 1.6%e; Y/Y:28.5 % v 28.8%e.

- (TR) Turkey July Consumer Confidence: 68.0 v 63.4 prior.

- (TW) Taiwan Jun Export Orders Y/Y: 9.5% v 6.4%e.

- (EU) Euro Zone May Current Account Balance: -€4.5B v -€3.9B prior.

- (ZA) South Africa Jun CPI M/M: 1.1% v 0.9%e; Y/Y: 7.4% v 7.3%e (2nd month above target range).

- (ZA) South Africa Jun CPI Core M/M: 0.6% v 0.5%e; Y/Y: 4.4% v 4.3%e.

- (PL) Poland Jun Sold Industrial Output M/M: -0.3% v -0.3%e; Y/Y: 10.4% v 11.5%e.

- (PL) Poland Jun Employment M/M: 0.1% v 0.1%e; Y/Y: 2.2% v 2.2%e.

- (PL) Poland Jun Average Gross Wages M/M: 2.4% v 2.8%e; Y/Y: 13.0% v 13.3%e.

- (PL) Poland Jun PPI M/M: 1.6% v 1.2%e; Y/Y: 25.6% v 25.1%e.

- (PL) Poland July Consumer Confidence: -41.7 v -44.5e.

- (IL) Israel Jun 12-month CPI Forecast: 3.1% v 3.1% prior.

- (UK) May ONS House Price Index Y/Y: 12.8% v 12.0%e.

- (IT) Italy May Current Account Balance: -€1.3B v -€2.2B prior.

- (GR) Greece May Current Account Balance: -€2.0B v -€1.6B prior.

- (PT) Portugal May Current Account Balance: -€1.9B v -€0.7B prior.

- (BE) Belgium July Consumer Confidence: -13 v -11 prior.

Fixed income issuance

- (IN) India sold total INR210B vs. INR210B indicated in 3-month, 6-month and 12-month bills.

Looking ahead

- (IT) Italy PM Draghi to face a vote of confidence.

- (MX) Mexico Banamex Survey of Economists.

- (AR) Argentina Jun Budget Balance (ARS): No est v -162.4B prior.

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

- 05:30 (DE) Germany to sell €1.5B in 0.00% Aug 2030 Bunds.

- 05:30 (ZA) South Africa announces details of next bond auction (held on Tuesdays).

- 06:00 (EU) EU Commission to sell combined €2.0B in 3-month and 6-month bills.

- 06:45 (US) Daily Libor Fixing.

- 07:00 (US) MBA Mortgage Applications w/e July 15th: No est v -1.7% prior.

- 07:00 (UK) Weekly PM Question time in House.

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

- 08:30 (CA) Canada Jun CPI M/M: 0.9%e v 1.4% prior; Y/Y: 8.4%e v 7.7% prior; Consumer Price Index: 153.0e v 151.9 prior; CPI Core- Common Y/Y: 4.2%e v 3.9% prior; CPI Core- Median Y/Y: 5.1%e v 4.9% prior; CPI Core- Trim Y/Y: 5.6%e v 5.4% prior.

- 08:30 (CA) Canada Ternet House Price Index M/M: No est v 1.6% prior; Y/Y: No est v 18.35 prior; House Price Index: No est v 318.21 prior.

- 08:30 (CA) Canada Jun Industrial Product Price M/M: -0.5%et v +1.7% prior; Raw Materials Price Index M/M: No est v +2.5% prior.

- 10:00 (US) Jun Existing Home Sales: 5.36Me v 5.41M prior.

- 10:00 (EU) Euro Zone July Advance Consumer Confidence: -24.9e v -23.6 prior.

- 10:30 (US) Weekly DOE Oil Inventories.

- 12:00 (RU) Russia Jun PPI M/M: 1.5%e v -6.9% prior; Y/Y: 18.0%e v 19.3% prior.

- 12:00 (CA) Canada to sell 5-year notes.

- 13:00 (US) Treasury to sell 20-Year Bonds Reopening.

- 15:00 (AR) Argentina May Economic Activity Index (Monthly GDP) M/M: No est v 0.6% prior; Y/Y: No est v 5.1% prior.

- 15:00 (AR) Argentina Jun Trade Balance: No est v $0.4B prior.

- 18:45 (NZ) New Zealand Jun Trade Balance (NZ$): No est v 0.26B prior; Exports: No est v 6.95B prior; Imports: No est v 6.69B prior.

- 19:50 (JP) Japan Jun Trade Balance: -¥1.559Te v -¥2.385T prior; Adj Trade Balance: -¥2.125Te v -¥1.93T prior; Exports Y/Y: 17.0%e v 15.8% prior; Imports Y/Y: 46.3%e v 48.9% prior.

- 20:00 (KR) South Korea July 1-20th Trade Balance: No est v -$2.5B prior; Exports Y/Y: No est v 5.4% prior; Imports Y/Y: No est v 19.4% prior.

- 21:00 (CN) China Jun Swift Global Payments (CNY): No est v 2.15% prior.

- 21:30 (AU) Australia Q2 Business Confidence No est v 14 prior; Conditions: No est v 9 prior.

- 23:00 (NZ) New Zealand Jun Credit Card Spending M/M: No est v 1.8% prior; Y/Y: No est v 2.2% prior.

- (JP) Bank of Japan (BOJ) Interest Rate Decision: Expected to leave Interest Rate on Excess Reserves (IOER) unchanged at -0.10% and maintain its policy framework of "QQE with Yield Control" around 0.00%.

- (JP) Bank of Japan (BOJ) Quarterly Outlook for Economic Activity and Prices.