Full trade returns – Weight is on Europe's shoulders heading into the NATO summit

Notes/observations

- Market returns in full, from US holiday on Fri, with desks looking past Iran and refocused on earnings and fundamentals. Early Asian optimism faded without a catalyst, turning mixed. European indices bucked the trend, opening higher and shrugging off a bit of Asian tech wobble. Kospi tech volatility keeps weighing on global sentiment.

- European data was better than feared. Eurozone July Sentix jumped to -3.1 (vs -10.0e), expectations swinging positive. German economy was in focus as May factory orders beat at +1.9% m/m. However, weak spots persist in construction with German PMI in contraction for a 6th month (44.8). Accordingly, Berlin plans to raise 2027 net borrowing to €118B as tax revenues disappoint. Porsche may cut up to 4.0K more German jobs. Heavy portfolio reshaping continues in Germany: Continental is selling ContiTech to Lone Star (€4.0B), Siemens Healthineers carving out Diagnostics.

- For tech, the memory cycle is hot. SK Hynix is raising KRW 43T ahead of its July 10th Nasdaq listing (trimmed to $28B). Samsung reports July 7th and is pushing for DRAM hikes of up to 20% q/q. Micron broke ground on a ~$9.3B Japan fab. Unverified chatter has OpenAI eyeing a GPT-5.6 launch this week.

- Germany's draft 2027 federal budget is set for cabinet approval on Monday, July 6, with total new borrowing reaching approximately €203.7B (core budget net borrowing of €118.7B plus additional debt via special funds for infrastructure and defence). This represents a significant increase from earlier projections (around €196.5B in April), driven by weaker tax revenues, higher defence spending (rising to ~€109.7B in the core budget, pushing NATO targets toward 3.5% of GDP), and record investments of €117.5B focused on infrastructure, transport, and climate projects. The government closed an initial €21B gap through savings, reserve withdrawals (€6.8B), and reforms, while maintaining spending at €555.4B; the plan will now proceed to parliamentary debate for final approval by year-end.

- Geopolitics dominates around the NATO summit in Ankara (Trump to meet Erdogan, Zelenskyy, Rutte), following a weekend Trump-Putin call floating a Ukraine settlement. China test-fired a nuclear-capable missile into the South Pacific from a submarine.

- US said to have warned Poland that Russia is preparing an armed provocation on Polish territory or against its critical infrastructure within the coming months, with possible scenarios ranging from missile strikes and drone attacks to simulated airstrikes or hybrid border incursions involving small Russian and Belarusian forces claiming GPS failure or rescue operations. According to intelligence shared with The Telegraph from NATO, US, Polish, and Baltic sources, the primary objective is to test NATO’s Article 5 resolve without triggering a full-scale conflict, potentially forcing Western allies into negotiations that would halt military aid to Ukraine in exchange for Russian withdrawal. European security officials view a provocation targeting Poland as more advantageous for Moscow than one against the Baltic states, and such developments are expected to be a key discussion point at the upcoming NATO Ankara summit amid ongoing concerns over hybrid warfare tactics from Kaliningrad or Belarus.

- Note on EU M&A: EasyJet agrees to an improved £6.90/share cash proposal from Castlelake - ~6% above the prior £6.50 bid the board rejected in late June. Elsewhere: Novartis/Myricx Bio ($1.1B upfront), Continental selling ContiTech to Lone Star (€4.0B), ITV's sale of Media & Entertainment to Sky (up to £1.6B), and ING taking ~40% of Spain's Singular Bank.

- Traders are circulating unverified social media chatter suggesting that OpenAI is preparing to launch GPT-5.6 this week, with the most likely date being Tuesday, July 7. The timing appears strategic to capture users migrating from Claude following recent restrictions on Fable 5 access, while the new GPT-5.6 plans are expected to feature significantly more generous usage limits. In preparation, OpenAI is already rolling out more aggressive safeguards, though these are anticipated to be less restrictive than those implemented by Fable.

- On Tuesday at 13:30 Paris time, a Paris appeal court will rule on whether to uphold Marine Le Pen’s embezzlement conviction related to a fake jobs scheme in the European Parliament, determining if the far-right National Rally leader can run in the 2027 French presidential election. Le Pen, who leads in current polls, faces a potential five-year ban on holding public office; acquittal or a reduced ban of two years or less would allow her candidacy, while a upheld ban or electronic tagging requirement could force her to step aside in favor of her young lieutenant Jordan Bardella.

- Asia closed mixed with Hang Seng outperforming +1.1%. EU indices -0.2% to +0.2%. US futures +0.1-1.1%. Gold -0.6%, DXY +0.2%; Commodity: Brent -0.6%, WTI -0.6%; Crypto: BTC +0.4%, ETH +0.3%.

Asia

- Hong Kong Jun PMI (whole economy): 52.0 v 50.4 prior.

- New Zealand Jun ANZ Commodity Price M/M: -1.0% v +0.7% prior.

- Thailand Jun CPI M/M: -0.3% v +0.2%e; Y/Y: 2.4% v 2.7%e; CPI Core Y/Y: 1.2% v 1.1%e.

- South Korea has officially launched an around-the-clock (24-hour) foreign exchange trading system for the Korean won.

- China test-launch ballistic missile lands outside Japan Exclusive Economic Zone (EEZ).

Global conflict/tensions

- Russia govt spokesperson noted that President Trump and Putin spoke for 85 mins on Saturday; Trump offered to reach a settlement in Ukraine ahead of NATO summit in Turkey.

- Ukraine Pres Zelenskiy said he spoke to Trump on July 4th and had a "very good" conversation; "There is a real prospect to end this war and American resolve will have a crucial meaning."

Europe

- Germany said to be planning to increase net borrowing to €118 billion in 2027, reflecting weaker tax revenues.

- ECB's Moulin (France) noted that was comfortable with our base scenario; Made no commitment for next meetings; Had good news about oil; Balance of risk in the right place.

- UK Labor Party Head and PM Candidate Burnham said to plan retain UK’s pension triple lock.

Energy

- OPEC+ to raise output targets in Aug by an additional 188K bpd from the additional voluntary production adjustments announced in April 2023 (as expected).

Speakers/fixed income/FX/commodities/erratum

Equities

Indices [Stoxx600 -0.18%, FTSE -0.02% at 10,677.20, DAX +0.05% at 25,810.69, CAC-40 +0.24% at 8,528.45, IBEX-35 -0.57% at 19,741.31, FTSE MIB +0.15% at 52,895.50, SMI -0.33% at 14,376.90, S&P 500 Futures +0.45%].

Market Focal Points/Key Themes: European stock markets are poised to open with a mildly positive bias, tracking higher US futures where S&P 500 contracts rose 0.3% and Nasdaq 100 futures climbed 0.9%, as investors await key US economic data this week. A weaker oil price outlook after OPEC+ announced further production hikes from August is weighing on Brent crude, which could pressure European energy shares. The strengthening US dollar is supporting a decline in gold prices and may keep pressure on the euro, affecting currency-sensitive stocks and exporters across the EU. On corporate front, EasyJet finally agreed to increased conditional offer from Castlelake and trades higher over 10% in London. Overall sentiment remains cautious amid upcoming US services PMI data and Federal Reserve speeches that could shape global rate expectations and risk appetite in European markets.

Equities

- Consumer discretionary: EasyJet [EZJ.UK] +10.0% (agrees to new Castlelake offer), ITV [ITV.UK] +1.5% (divestment).

- Financials: Close Brothers [CBG.UK] -6.5% (analyst downgrade), Wihlborgs Fastigheter [QIHL.SE] +1.0% (pre-close call).

- Healthcare: Novartis [NOVN.CH] -0.5% (acquisition; analyst downgrade).

- Technology: ASML [ASML.NL] -2.0% (Foxconn sales; weakness in Asian tech names).

Speakers

- EU Commission Pres Von der Leyen noted that was working to complete a 21st Russia sanctions package in coming days.

Currencies/fixed income

- USD maintained a form tone against the major currencies in quiet trading in the session. Dealers noted that focus was on upcoming release of the Fed Jun minutes this week and inflation next week. The recent soft US jobs report hit put a dents of a near-term Fed rate hike.

- EUR/USD at 1.1425 area. Dealers were awaiting ECB’s Schnabel (Germany) upcoming panel which included the Fed’s Waller. ECB rate bets were steady in the session with swaps implying 13bps of hikes by September and 20bps by year end.

- USD/JPY was back above the 162 level despite risks of possible FX intervention.

- 10-year German Bund yield last at 2.92%, France 10-year Oat at 3.71% and 10-year Gilt yield at 4.77% 10-year Treasury yield: 4.46%; 10-year JGB: 2.81%.

Economic data

- (SE) Sweden July SEB Housing-Price Indicator: 47 v 44 prior.

- (DE) Germany May Factory Orders M/M: 1.9% v 1.1%e; Y/Y: 6.2% v 4.6%e.

- (DK) Denmark May Industrial Production M/M: -3.9% v -1.0% prior.

- (HU) Hungary May Industrial Production M/M: 2.3% v 0.5%e; Y/Y: 5.4% v 1.8%e.

- (HU) Hungary May Retail Sales Y/Y: 4.8% v 4.7%e.

- (CH) Swiss Jun Unemployment Rate: 2.9% v 2.9%e; Unemployment Rate (seasonally adj) : 3.1% v 3.1%e.

- (DE) Germany Jun Construction PMI: 44.8 v 42.4 prior (6th month of contraction).

- (CH) Swiss weekly Total Sight Deposits (CHF): 479.2B v 474.7B prior; Domestic Sight Deposits: 440.9B v 440.6B prior.

- (UK) Jun New Car Registrations Y/Y: 11.4% v 7.1% prior.

- (TW) Taiwan Jun Foreign Reserves: $597.2B v $605.1B prior.

- (EU) Euro Zone July Sentix Investor Confidence: -3.1 v -10.0e.

- (UK) Jun Construction PMI: 38.4 v 40.0e (18th month of contraction).

- (EU) Euro Zone May PPI M/M: 0.2% v 0.2%e; Y/Y: 5.9% v 5.8%e.

- (EU) Euro Zone May Retail Sales M/M: 0.2% v 0.3%e; Y/Y: 1.6% v 1.6%e.

Fixed income issuance

- None seen.

Looking ahead

- (EG) Egypt Jun Net Reserves: No est v $53.1B prior.

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

- 05:30 (ZA) South Africa announces details of upcoming I/L bond sale (held on Fridays).

- 05:30 (DE) Germany to sell combined €5.0B in 3-month and 9-month BuBills.

- 05:30 (NL) Netherlands Debt Agency (DSTA) to sell €2.0-4.0B in 3-month and 6-month bills.

- 06:30 (TR) Turkey to sell Bonds.

- 07:00 (IL) Israel to sell bonds.

- 06:00 (IE) Ireland Jun Unemployment Rate: No est v 4.9% prior.

- 07:25 (BR) Brazil Central Bank Weekly Economists Survey.

- 07:30 (TR) Turkey Jun Real Effective Exchange Rate (REER): No est v 105.55 prior.

- 08:00 (MX) Mexico Apr Gross Fixed Investment M/M: 3.0%e v 0.4% prior; Y/Y: +4,2%e v -2.6% prior; Private Consumption Y/Y: 2.6%e v 3.8% prior.

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

- 08:00 (IN) India announces details of upcoming bond sale (held on Fridays).

- 08:00 (ES) Spain Debt Agency (Tesoro) size announcement on upcoming issuance (if any).

- 09:00 (FR) France Debt Agency (AFT) to sell €5.9-7.5B in 3-month, 6-month and 12-month bills.

- 09:00 (IL) Israel Central Bank (BOI) Interest Rate Decision: Expected to cut Base Rate by 25bps to 3.50%.

- 09:30 (CA) Canada Jun Services PMI: No est v 50.6 prior; Composite PMI: No est v 50.8 prior.

- 09:45 (US) Jun Final S&P Services PMI: 51.3e v 51.3 prelim; Composite PMI: No est v 52.2 prelim.

- 10:00 (US) Jun ISM Services Index: 54.1e v 54.5 prior.

- 10:30 (CA) Bank of Canada (BOC) Q2 Business Outlook: Overall Survey: No est v -0.4 prior; Future Sales: No est v 25 prior.

- 11:00 (US) Fed’s Waller with ECB’s Schnabel (Germany, ECB’s Wunsch (Belgium) and Riksbank Seim at ChaMP conference.

- 11:30 (US) Treasury to sell 13-Week and 26-Week Bills.

- 12:00 (EU) ECB chief Lagarde.

- 12:45 (UK) BOE’s Mann at conference.

- 14:30 (IE) ECB’s Lane at ChaMP conferenc.

- 16:00 (US) Weekly Crop Progress Report.

- 19:30 (JP) Japan May Labor Cash Earnings Y/Y: 3.4%e v 3.6% prior (revised from 3.5%); Real Cash Earnings Y/Y: 1.7%e v 2.0% prior (revised from 1.9%);; Cash Earnings - Same Sample Base Y/Y: No est v 2.6% prior (revised from 2.5%); Scheduled Full-Time Pay - Same Base Y/Y: 2.7%e v 2.9% prior (revised from 3.1%).

- 19:30 (JP) Japan May Household Spending Y/Y: -2.3%e v -0.5% prior.

- 19:30 (AU) Australia ANZ Roy Morgan Weekly Consumer Confidence Index: No est v 75.9 prior.

- 21:00 (PH) Philippines Jun CPI M/M: -0.1%e v -0.5% prior; Y/Y: 6.5%e v 6.8% prior.

- 23:00 (ID) Indonesia Jun Foreign Reserves: No est v $144.9B prior.

- 23:35 (JP) Japan to sell 30-year JGB Bonds.