More tariffs, more Middle East strikes and more AI capex worries

EU mid-market update: More tariffs, more Middle East strikes and more AI capex worries; Volkswagen cut rev guidance, but tried to reassure investors about restructuring.

Notes/observations

- Main catalyst attributed to USTR confirming a 10-12.5% forced-labor tariffs on ~60 economies from July 28th, the UK gets 10%, the EU rate remains ambiguous, and the EU says it will keep pressing on compliance with the joint statement. Risk appetite is fragile: Asian tech sold off sharply (Kospi -6% at worst) after US big-tech weakness on AI capex/ROI and hyperscaler debt concerns, though European indices opened mostly positive.

- Macro data saw UK June retail sales smashing expectations (ex-auto/fuel +1.1% m/m vs -0.5%e; +5.4% y/y), though sterling's reaction was muted, and July flash PMIs added to the upbeat picture: composite 52.1 (vs 49.8e), with services back in expansion (51.8 vs 49.4e) for the first time in three months and manufacturing at 52.8 marking a 9th month of growth. Eurozone PMIs also beat across the board: composite 51.9 (vs 50.2e), with services returning to expansion (51.6) for the first time in four months and manufacturing at 52.0. Germany led (composite 51.2, manufacturing 52.2 vs 50.5e); France lagged at 49.6 but still beat forecasts. German GfK consumer confidence disappointed at -29.6.

- For earnings, Intel was the standout: Q2 EPS $0.38 vs $0.21e, revenue $16.1B vs $14.4Be, its best revenue growth in 15+ years, with strong Q3 guidance, raised capex ($20B+), and AI demand "outpacing supply"; the lack of a major named foundry customer remains the overhang. SAP missed on EPS (€1.59 vs €1.76e) and trimmed FY26 operating profit guidance for acquisition dilution, but cloud backlog accelerated to +26% y/y with AI in 90%+ of top deals. Both rose post-earnings. Volkswagen cut FY26 revenue guidance (-3% to flat) on China weakness (Q2 deliveries -37%), saying current measures are "not sufficient", targeting €10-11B overhead cuts and 500k+ unit capacity reductions in both China and Europe.

- Middle East escalation continued into day 13 of US strikes, with Iran attacking US bases in Jordan, Bahrain and Kuwait. Trump said shipping damages will be paid from frozen Iranian assets; Hormuz transits have collapsed 66% under "full war conditions" and Brent touched $100/bbl. The EU sees no immediate oil supply concerns, but weekend escalation risk is elevated given Trump's "major combat ops" threats.

- Oil shock is feeding straight into rate expectations. ECB's Kocher explicitly put a September hike on the table, with Pictet seeing a hike as likely absent a significant oil pullback, though it views market pricing (~70bps by mid-2027) as excessive. BoE hike bets rose this week, although the July DMP survey offered a counterweight: firms cut 1-year ahead CPI expectations to 3.0% (from 3.3%) and 3-year to 2.6%, with output price expectations also easing. Elsewhere, FOMC and RBA hike odds jumped to the mid-30s%, and BOJ October hike probability surged to 83.5%. The rates backdrop is turbulent: 10-year Bunds hit a 15-year high of 3.21%, and analysts flag continued eurozone spread-widening pressure into heavy post-summer supply (OAT-Bund ~82bps).

- After cutting Revenue outlook, Volkswagen during earnings call said it is pushing aggressive restructuring to tackle structural inefficiencies amid China weakness and global pressures. It targets €10-11B overhead savings, capacity cuts exceeding 500k vehicles each in China/Europe (break-even below 8M units), major complexity reductions, and German headcount reductions to 25-26k by year-end, while viewing plant closures as a last resort. VW now expects to conclude unresolved restructuring discussions during next year—a delay from prior year-end targets—indicating prolonged negotiations with unions and stakeholders, saying closing plants is the least desirable option.

- AMD’s 2026 AI event marked its transition from an alternative GPU supplier into a credible full-stack, rack-scale systems vendor, backed by multigenerational commitments from OpenAI, Meta, Anthropic, Microsoft and Oracle and a newly expanded $2 trillion compute-market forecast for 2030. Its Helios platform, now in production, combines 72 MI455X GPUs, 18 EPYC CPUs, Pensando networking and 31TB of HBM4, offering Rubin-class headline scale-up bandwidth, greater memory capacity and potentially superior tokens per dollar at an estimated rack price below NVIDIA’s Vera Rubin NVL72. The annual MI450-to-MI600 roadmap and improving ROCm economics strengthen AMD’s position as the industry’s most viable second source, while Anthropic’s planned 2GW deployment and OpenAI and Meta’s initial 1GW ramps turn that proposition from roadmap rhetoric into real infrastructure demand. But Helios has not yet proved that its open UALink-over-Ethernet fabric can match NVLink and NVSwitch under the workloads that matter most: until AMD discloses topology, hop counts, bisection bandwidth, collective offload and sparse-MoE tail latency, it is a compelling alternative to NVIDIA, not yet a demonstrated performance equivalent.

- Intel's Q2 earnings call highlighted strong execution and accelerating demand outpacing supply across its foundry and product roadmap. It said 18A yields are ahead of targets with meaningful Q2 output gains, Panther Lake costs have dropped ~50% YTD (targeting another 20% in 2026), and 14A remains on track for PDK 0.9 in October 2026, risk production in H2 2027, and high-volume manufacturing in 2028.

- Asia closed lower with KOSPI underperforming -5.7%. EU indices +0.3-1.0%. US futures +0.0-0.4%. Gold +0.2.%, DXY -0.1%; Commodity: Brent -3.4%, WTI -3.0%; Crypto: BTC -0.6%, ETH -1.9%.

Asia

- Japan Jun National CPI Y/Y: 1.7% v 1.7%e; CPI (ex-fresh food) Y/Y: 1.6% v 1.6%e.

- Japan July Preliminary PMI Manufacturing: 54.7 v 54.8 prior (7th month of expansion).

- Australia July Preliminary PMI Manufacturing: 51.7 v 51.5 prior (4th month of expansion).

- Japan Fin Min Katayama stressed that excessive FX volatility was undesirable; In contact with US 24 hours a day, 365 days a year.

Global conflict/tensions

- 13th straight day of US air strikes on Iran.

- President Trump said he was close to deciding whether to launch a "massive attack" against Iran that would exceed previous strikes in the conflict. Reports circulated that Trump was increasingly skeptical of diplomatic efforts and hds shifted into what one senior official described as “revenge mode”.

- Iran said to have rejected a ceasefire proposal from President Trump that had been delivered through the Iraqi prime minister.

- Iran said to have rapidly rebuilt key infrastructure damaged by months of US and Israeli airstrikes, including underground missile bases, bridges, ports, and industrial facilities.

Europe

- UK July GfK Consumer Confidence: -17 v -22e [highest since Jan and largest m/m rise since Nov 2023].

Americas

- US Congress split on war powers resolutions to force Trump to abandon Iran war. Senate rejected a War Powers resolution seeking to end US hostilities with Iran in a 47-49 vote, House narrowly advanced a similar measure 214-208.

Treasury Semi-annual Current Report noted that China was not labeled a currency manipulator, but it stood out among trading partners for lack of transparency on exchange rate practices and policies. Maintained several countries on the currency monitoring list: China, Japan, Singapore, Taiwan, Thailand, Vietnam, Germany, Ireland and Switzerland. Yen weakness had persisted despite narrowing of US-Japan interest rate differentials; Excess volatility in the Yen was undesirable.

Trade

- President Trump set to introduce a new global tariff regime covering dozens of countries and the European Union as temporary duties expire. The new tariffs range from 10% to 12.5% and to take effect Friday, July 24th at 12:01 am (**Note: replacing the expiring 10% universal tariff imposed).

- USTR Greer announces 10-12.5% new Section 301 tariffs related to forced labor, replacing section 122 tariffs set to expire.

Speakers/fixed income/FX/commodities/erratum

Equities

Indices [FTSE +0.43% at 10,685.18, DAX +1.05% at 24,969.04, CAC-40 +0.36% at 8,329.20, IBEX-35 +0.98% at 19,456.01, FTSE MIB +0.66% at 51,657.00, SMI +0.50% at 14,286.50, S&P 500 Futures +0.16%].

Market focal points/key themes: European bourses staged a solid rebound amid ongoing Middle East risks and Trump tariffs. European and UK markets are navigating a precarious balance: escalating Middle East tensions have propelled Brent crude near $100, stoking inflation fears and energy-driven volatility. Fresh US double-digit tariffs on the EU (10%) compound export risks for Germany's industrials and France's luxury/auto sectors. Yet UK retail sales delivered a standout beat (+1.0% in June, far above expectations), fueled by warm weather and promotions + World Cup. Overall, this setup favors selective UK defensives and energy names amid broader European cyclical fragility, with geopolitical and tariff risks likely to keep volatility elevated until clearer de-escalation or policy offsets emerge.

Equities

- Financials: Wise [WISE.UK] -7.5% (OCC denies US national trust bank charter application).

- Healthcare: Sanofi [SAN.FR] -2.5% (discontinue study), Ipsen [IPN.FR] -3.5% (trial results).

- Industrials: Volkswagen [VOW3.DE] -0.5% (cuts Rev outlook, miss on profits; earnings call comments on restructuring).

- Technology: SAP [SAP.DE] +6.5% (earnings), ASML [ASML.NL] +0.5% (Intel capex raise).

Speakers

- ECB’s Nagel (Germany) stated that was in a good position to closely monitor further developments. Was right to keep key rates steady at the July decision. To have new data to analyze and fresh staff projections at the Sept policy meeting.

- ECB's Kocher (Austria) noted that recent developments in oil markets were concerning; saw risk of higher inflation as Mid-East war escalated. Upcoming September meeting has options of hike or a hold.

- ECB's Kaasik (Estonia) noted that one more rate hike was a reasonable expectation; Might have more clarity on wages in the autumn

- ECB Survey of Professional Forecasters (SPF) maintained 2026 HICP (EU Harmonized CPI) at 2.7% while raising 2027 HICP (EU Harmonized CPI) from 2.1% to 2.2% (at ECB target of 2%). Survey cut 2026 GDP growth forecast from 1.0% to 0.6% and cut 2027 GDP growth forecast from 1.3% to 1.2%.

- Bank of England (BOE) July Decision Maker Panel (DMP) Survey cut the 1-year ahead CPI from 3.3% to 3.0% (v 3.2%e) and cut the 3-year ahead CPI from 2.9% to 2.6%.

- SNB commented that it did not engage in FX manipulation (**Note: Treasury Semi-annual Current Report noted that it was monitoring Switzerland on the FX front).

- China Foreign Ministry spokesperson stressed that its position on US trade and economic issues were clear; opposed all unilateral tariffs.

- Iran Foreign Min Araghchi stated to meet with China and Russia counterparts.

Currencies

- USD was steady despite the retracement in oil process. Dealers noted US threats to Iran kept an underlying bid under oil prices for now. Markets also taking noted of new US tariffs.

- EUR/USD remained below the 1.14 level despite a hawkish tone to the recent ECB press conference on the inflation outlook coupled with better PMI data in the session. Markets continued to see a Sept rate hike as oil prices hovered around the $100/barrel area.

- Better UK retail sales for Jun failed to inspire te GBP currency. Focus on the upcoming BOE rate decision next Thursday with analysts seeing the central bank keeping policy steady for now. Markets are anticipating a move into tightening in Sept.

- USD/JPY hitting fresh 40-year highs despite the Treasury Semi-annual Current Report cautioning about the yen currency weakness. Focus on the upcoming BOJ rate decision next week, BOJ likely to maintain policy guidance pledging to keep raising interest rates; BoJ focus of attention said to shift to extent to which firms were passing on rising costs to households.

- Stepped-up FX intervention in Asian Emerging Market net oil importers. Amid recent intervention by RBI and BSP. Indian Rupee fell to another record low of 97/USD amid surging oil prices (Brent FUTs touched $100/bbl overnight) low again and the Philippine Peso also hit a fresh record low of 61.8/USD.

- 10-year German Bund yield last at 3.19%, France 10-year Oat at 3.99% and 10-year Gilt yield at 5.06% 10-year Treasury yield: 4.69%; 10-year JGB: 2.78%.

Economic data

- (FI) Finland Jun PPI M/M: -0.7% v +1.3% prior; Y/Y: 6.7% v 7.4% prior.

- (DE) Germany Aug GfK Consumer Confidence: -29.6 v -28.5e.

- (UK) Jun Retail Sales (ex-auto/fuel) M/M: +1.1% v -0.5%e; Y/Y: 5.4% v 3.2%e.

- (UK) Jun Retail Sales M/M: +1.0% v -0.3%e; Y/Y: 4.2% v 2.4%e.

- (SE) Sweden Jun PPI M/M: 0.1% v 1.3% prior; Y/Y: 7.4% v 6.6% prior.

- (SE) Sweden Jun Unemployment Rate: 9.9% v 9.4% prior; Unemployment Rate (seasonally adj): 8.9% v 8.8%e; Trend Unemployment Rate: 8.7% v 8.7% prior.

- (HU) Hungary Jun Unemployment Rate: 4.4% v 4.3%e.

- (ES) Spain Jun PPI M/M: 0.0% v 1.0% prior; Y/Y: 7.0% v 10.5% prior.

- (CZ) Czech July Consumer Confidence Index: 105.6 v 107.0e; Business Confidence: 100.2 v 99.8e; Composite Confidence: 101.1 v 101.5e.

- (FR) France July Preliminary Manufacturing PMI: 50.0v 51.0e (avoided a 2nd month of expansion); PMI Services: 49.8 v 47.5e.

- (DE) Germany July Preliminary Manufacturing PMI: 52.2 v 50.5e (6th month of expansion); PMI Services: 49.6 v 49.0e.

- (CN) Weekly Shanghai Deliverable Copper Inventories (SHFE): 69.6K v 79.9K tons prior.

- (TH) Thailand May Foreign Reserves w/e July 17th: $276.0B v $279.4B prior.

- (EU) Euro Zone July Preliminary Manufacturing PMI: 52.0 v 51.5e (6th month of expansion); PMI Services: 51.6 v 49.8e.

- (EU) Euro Zone Jun Consumer Expectation Survey: 1-year ahead CPI expectations: 3.0% v 3.2%e.

- (RU) Russia Narrow Money Supply w/e July 17th (RUB): 21.99T v 21.82T prior.

- (UK) July Preliminary Manufacturing PMI: 52.8 v 52.0e; PMI Services: 51.8 v 49.4e.

Fixed income issuance

- (IN) India sold total INR280B vs. INR280B indicated in 2041 and 2076 bonds.

Looking ahead

- (US) Jun Final Building Permits: No est v 1.367M prelim.

- 05:20 (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 £5.5B in 1-month, 3-month and 6-month bills (£0.5B, £2.0B and £3.0B respectively).

- 06:30 (RU) Russia Central Bank (CBR) Interest Rate Decision: Expected to leave Key Rate unchanged at 14.25%.

- 07:30 (IN) India Forex Reserve w/e July 17th: No est v $675.2B prior.

- 08:00 (MX) Mexico Jun Unemployment Rate: 2.8%e v 2.8% prior.

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

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

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

- 08:30 (CA) Canada Jun Industrial Product Price M/M: -0.4%e v +1.2% prior; Raw Materials Price Index M/M: -1.3%e v +0.7% prior.

- 09:00 (BE) Belgium July Business Confidence: No est v -12.4 prior.

- 09:00 (CL) Chile Jun PPI M/M: No est v 2.8% prior.

- 09:45 (US) July Preliminary S&P Manufacturing PMI: 54.4e v 53.9 prior; PMI Services: 51.5e v 51.2 prior; PMI Composite: 51.8e v 51.9 prior.

- 10:00 (US) Jun New Home Sales: 606Ke v 580K prior.

- 11:00 (US) July Kansas City Fed Services Activity: No est v 5 prior.

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

- 13:00 (EU) Potential sovereign ratings after European close (DBRS on Belgium).