Goldman Sachs sees solid rationale for July rate cut by Fed

EU mid-market update: Political analysts try to assess how important JD Vance's views would be if Trump reelected; Goldman Sachs sees solid rationale for July rate cut by Fed; Hugo Boss becomes latest retailer to cut outlook.

Notes/observations

-Trump has officially picked JD Vance (R-Oh) as his VP running-mate at the 1st day of RNC; During his first interview post-announcement, Vance said, if elected, Trump would negotiate with Russia and Ukraine to “bring this thing to a rapid close so America can focus on the real issue, which is China”; Some analysts see the choice of JD Vance as a "wild card" for US financial and housing industries based on his comments made in past. According to them, JD Vance may have more policy influence than a typical vice president and be a "very important, perhaps decisive voice" on few matters related, for instance, to US Big Tech and crypto regulation.

-US Pres Biden reiterated he plans to debate Trump once again in Sept; VP Harris also accepted debates with JD Vance; Meanwhile, Trump reportedly met with Robert F. Kennedy Jr. to seek possible endorsement.

-Goldman Sachs in its note said its base case remains for a September Fed rate cut, but we also see solid rationale for cutting as early as July in few weeks; Fed futures now price 15% (v 5% d/d) chance of 50bps in cuts by Sept's meeting; Also price 100% chance (v 94% d/d) for 25bps rate cut by Sept 18th's meeting.

- ECB Q2 Bank Lending Survey noted that EU consumer loan demand rose for the first time since 2022.

- Hugo Boss become the latest European retail name with exposure to China to cut outlook; Richemont results mostly matched consensus, providing reassurance following Swatch's profit warning yesterday, with jewelry sales offsetting slowdown in watch demand in Asia; Elsewhere, French firm SCOR's profit warning and outlook cut triggered move down in European insurance names.

-Samsung reportedly plans new NAND flash production line in South Korea; The move said to show Samsung begins new investment in memory chips, ending prolonged output reduction.

-With ~10% of S&P 500 index members expected to report quarterly results this week, during upcoming pre-market session we should see UnitedHealth, Bank of America, Morgan Stanley, State Street, PNC Financial, Progressive Corp. and Charles Schwab.

-German ZEW economic expectations fell in July for the first time in a year.

-Amid key China Third Plenum meetings this week, China’s PBOC used open market operations to inject the largest amount of cash into the banking system since Jan 2024.

-BOJ accounts suggest it again intervened into FX markets last Friday, although with lower amount that during Thursday.

- Asia closed mixed with Hang Seng underperforming at -1.6%; Japan markets returned from holiday; EU indices are -1.0% to -0.2%. US futures -0.1-0.0%. Gold +0.5%, DXY +0.1%; Commodity: Brent -0.8%, WTI -0.9%; Crypto: BTC -3.2%, ETH -3.7%.

Asia

- (JP) Bank of Japan (BoJ) accounts data suggests ~¥2.1T (~$13B) of FX intervention on Fri, July 12th - press.

- (JP) Japan Chief Cabinet Sec Hayashi: Declines comment on FX intervention

- (CN) UBS analysts: If Trump enacted earlier speculated flat 60% tariff on Chinese imports, this would cut 2.5ppts from China’s gross domestic product in the year that follows and would more than halve China’s annual growth rate.

- (CN) Citic Securities: PBOC may want to increase the outstanding reverse repo amount to gradually replace the MLF amount – US financial press.

- (KR) South Korea reportedly mulls tripling National Pension Fund (NPS)'s advance dollar funding limit - press.

Europe

- (DE) Germany July Zew current situation survey: -68.9 V -74.8E; expectations survey: +41.8 ADJ V +41.0E; Notes for the first time in a year, economic expectations for Germany are falling.

- (EU) Euro Zone July ZEW Expectations Survey: 43.7 v 51.3 prior.

- (EU) ECB Q2 Bank Lending Survey: EU consumer loan demand rises for first time since 2022.

- (EU) Euro Zone May Trade Balance: €12.3B v €18.1Be.

- (EU) ECB’s Nagel (Germany): More than happy with strategy implementation so far [**Note: ECB is now in blackout period ahead of decision on July 18th].

- (EU) EU Economic Commissioner Gentiloni: I am sure EU member states with high debt including France will reduce their debt gradually.

- (UK) Kantar announces 12 week grocery market share and sales: 4-weeks to July 7th UK grocery inflation at 1.6% v 2.1% prior (lowest since Sept 2021 and 17th straight monthly drop).

- (TR) Turkey bill introduces 15% minimum corporate tax on global firms; To repeal some tax exemptions - press.

Americas

- (US) Reportedly Trump met with Robert F. Kennedy Jr. earlier to seek possible endorsement - Politico.

- (US) Newly-nominated Trump VP running-mate, J.D. Vance (R-OH): VP needs to support President in enacting agenda; China is the biggest threat to our country and we are completely distracted from it - first comments at RNC as running-mate.

- (US) US Pres Biden: I will be on the ballot 'unless I get hit by a train'; Will debate Trump again in Sept, as earlier agreed - interview comments [**Note: VP Harris also accepted debates with JD Vance].

- (US) Reportedly Democratic National Convention (DNC) leaders to confirm Biden as nominee by end-July - NYT.

- (US) Fed Chair Powell: Plans to stay in office until May 2026; The three readings in Q2 add confidence in inflation falling; Not going to send any signal on any particular meeting - comments at the Economic Club of Washington.

-(US) Fed's Daly (voter): Confidence growing we're nearing 2% inflation goal; Declined to give time-based guidance on rate cuts.

-(US) Goldman Sachs analysts: Our base case remains for a September Fed rate cut, but we also see solid rationale for cutting as early as July.

- (US) Reportedly President Biden to announce new proposal to cap rental costs nationwide at 5% - press.

-(US) Reportedly 1.3M member Teamsters union considering withholding endorsement of both Biden and Trump candidacies - press [**Note: The Teamsters endorsed Biden in 2020].

Global conflict/tensions

- (UR) Ukraine Pres Zelenskiy: Want Russia representative to join next peace summit; Aim to have all elements of peace plan ready for second summit to take place in Nov 2024; Changes in Ukraine govt being discussed; Ukraine will receive invitation to join NATO once the war has ended.

- (UR) Hungary PM Orban letter to EU leaders: It is generally observed that Russia-Ukraine military conflict will radically escalate in the near future; Trump ready to act as a peace broker immediately after his election.

Energy

- (US) Freeport LNG expects to restart first LNG train this week after damage from Hurricane Beryl - press.

Speakers/fixed income/FX/commodities/erratum

Equities

Indices [Stoxx600 -0.29% at 517.22,FTSE -0.06% at 8,178.27, DAX -0.39% at 18,526.85, CAC-40 -0.51% at 7,594.07, IBEX-35 -0.43% at 11,094.71, FTSE MIB -0.23% at 34,297.00, SMI -0.54% at 12,226.78, S&P 500 Futures +0.06%].

Market focal points/key themes: European indices open lower across the board and remained downbeat through the early part of the session; risk appetite seen impacted on prosects of increased tariffs as markets calculate it’s more likely Trump will win in November; all sectors negative at the start of the day; among less impacted sectors are telecom and energy; sectors dragging indices lower include consumer discretionary and materials; luxury subsector continues underperformance from yesterday; Spectris acquires Micromeritics; earnings expected in the upcoming US session include United Health, Bank of America, PNC Financial and Morgan Stanley.

Equities

- Consumer Discretionary: Hugo Boss [BOSS.DE] -8.5% (outlook cut), Ocado [OCDO.UK] +15.0% (earnings), Richemont [CFR.CH] +1.0% (sales).

- Financials: SCOR [SCR.FR] -24.0% (outlook cut), Swedbank [SWEDA.SE] -1.5% (earnings).

-Industrials: Experian [EXPN.UK] -2.0% (trading update), NCC [NCCA.SE] +3.5% (earnings).

-Materials: Rio Tinto [RIO.UK] -2.0% (iron ore shipments data).

-Information Technolgy: Wise [WISE.UK] +3.5% (trading update), Trustpilot [TRST.UK] -8.5% (placement).

Speakers

- (US) Elon Musk says he commits ~$45M a month to pro-Trump SuperPAC - WSJ.

- (EU) EU Economic Commissioner Gentiloni: I am sure EU member states with high debt including France will reduce their debt gradually.

- German regulator Bafin tells Deutsche Bank's 2019 financial report had deficiencies; Notes Deutsche Bank did not disclose deferred tax assets of ~€2.08B for its US business separately in the appendix.

Economic data

- (DE) Germany July Zew current situation survey: -68.9 V -74.8E; expectations survey: +41.8 ADJ V +41.0E; Notes for the first time in a year, economic expectations for Germany are falling.

- (IT) Italy Jun Final CPI M/M: 0.1% v 0.1% prelim; Y/Y: 0.8% v 0.8% prelim.

- (EU) Euro Zone July ZEW Expectations Survey: 43.7 v 51.3 prior.

- (EU) Euro Zone May Trade Balance: €12.3B v €18.1Be.

- (IT) Italy May Total Trade Balance: €6.4B v €4.8B prior; EU Trade Balance: +€0.5B v -€0.2B prior.

- (UK) Kantar announces 12 week grocery market share and sales: 4-weeks to July 7th UK grocery inflation at 1.6% v 2.1% prior (lowest since Sept 2021 and 17th straight monthly drop).

- (FI) Finland May GDP Indicator Y/Y: -1.9% v -1.5% prior.

- (TR) Turkey Jun Central Gov't Budget Balance (TRY): -275.3B v +219.4B prior.

- (EU) Daily 3-month Euribor Fixing: 3.674% v 3.662% prior.

Fixed income issuance

- (UK) DMO Ssells £2.25B in 4.75% Oct 2043 green gilts; AVG yield: 4.519% V 4.580% prior; bid-to-cover: 3.29X V 3.67X prior; tail: 0.1BPS V 0.4BPS prior.

- (PH) Philippines sells PHP30B vs. PHP30B indicated in 10-year bonds; Avg Yield: 6.212%.

- (ID) Indonesia sells total IDR10.0T in Islamic bills and bonds (sukuk).

Looking ahead

- 06:00 (IL) Israel Q1 Final GDP (3rd reading): No est v % prelim.

- 08:00 (PL) Poland Jun CPI Core M/M: No est v % prior; Y/Y: No est v % prior.

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

- 08:15 (CA) Canada Jun Annualized Housing Starts: No est v K prior.

- 08:30 (US) July New York Fed Services Business Activity: No est v X prior.

- 08:30 (CA) Canada Jun CPI M/M: No est v % prior; Y/Y: No est v % prior; CPI Core-Trim Y/Y: No est v % prior; Core-Median Y/Y: No est v % prior; Consumer Price Index: No est v X prior.

- 08:30 (US) Jun Advance Retail Sales M/M: No est v % prior; Retail Sales (ex-auto) M/M: No est v % prior; Retail Sales (control group): No est v % prior.

- 08:30 (US) Jun Import Price Index M/M: No est v -0.4% prior; Y/Y: No est v 1.1% prior; Import Price Index (ex-petroleum) M/M: No est v -0.3% prior; Export Price Index M/M: No est v -0.6% prior; Y/Y: No est v 0.6% prior.

- 08:55 (US) Weekly Redbook LFL Sales data.

- 10:00 (US) July NAHB Housing Market Index: No est v X prior.

- 10:00 (US) May Business Inventories: No est v % prior.

- 16:30 (US) Weekly API Oil Inventories.

- 18:45 (NZ) New Zealand Q2 CPI Q/Q: No est v 0.6% prior; Y/Y: No est v 4.0% prior; CPI Tradeable Q/Q: No est v -0.7% prior; CPI Non-Tradeable Q/Q: No est v 1.6% prior.

- 20:30 (AU) Australia Jun Westpac Leading Index M/M: No est v % prior.

- 20:30 (SG) Singapore Jun Non-Oil Domestic Exports M/M: No est v % prior; Y/Y: No est v % prior; Electronic Exports Y/Y: No est v % prior.

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