Traders keep bearish bets on Yen ahead of upper house elections in Japan

EU mid-market update: Earnings in focus; EU softens auto tariff stance in bid to break US deadlock; Traders keep bearish bets on yen ahead of Upper House elections in Japan.

Notes/observations

- Bullish end to the week across all major EU indices. Only one sector in red, health care, mainly from GSK after FDA recommends against approving its blood cancer drug Blenrep.

- For trade updates, EU drops Germany’s “netting mechanism” in favor of tit-for-tat auto tariff cuts; Proposes scrapping 10% duty on US cars if Trump lowers 25% tariff below 20%. In the backdrop of Trump threatening 30% tariff from 1st Aug. Elsewhere, UK-Germany sign broad treaty and Japan-EU seek rare earths pact.

- EU officially adopts 18th sanctions package against Russia, capping oil price at $47 per barrel.

- Japan elections preview: In 1989, 1998 and 2007, losses in the Upper House swiftly produced Japan PM resignations and leadership contests, which may spark concerns about Japan's fiscal health and further delay BOJ hikes.

- Saw key EU premarket earnings from Electrolux, Danske Bank, SAAB, Reckitt, Burberry and Schindler; Electrolux trading sharply lower after it mentioned it was not followed by all of its competitors on price increases in North America.

- Asia closed mixed with Hang Seng outperforming +1.3%. EU indices +0.3-0.5%. US futures +0.1%. Gold +0.3%, DXY -0.3%; Commodity: Brent +0.7%, WTI +0.9%; Crypto: BTC -0.2%, ETH +3.8%.

Asia

- Japan Jun National CPI Y/Y: 3.3% v 3.3%e; CPI (ex-fresh food)/Y: 3.3% v 3.4%e.

Americas

- US May Total Net TIC Flows: +$311.1B v -$14.6B prior; Net Long-term TIC Flows: +$259.4B v -$8.2B prior.

- Fed's Waller noted that Fed should cut interest rates by 25bps in July's meeting which would give the Fed space to hold rates for a few meetings. Lots of uncertainty around long-term Fed Funds Rate (FFR), 3.00% seemed right; There's nothing wrong with taking out an insurance rate cut just in case. No one from Trump's Admin had spoken with him about taking the Fed's Chair.

- House voted 308 to 122 in favor of the so-called Genius Act to regulate stablecoins. To pave the way for banks to launch their own digital assets.

- President Trump expected to sign an executive order as soon as this week that would open up 401k plans to alternative investments (cryptocurrency investments, gold, and private equity) beyond traditional stocks and bonds.

Speakers/fixed income/FX/commodities/erratum

Equities

Indices [Stoxx600 +0.40% at 549.22, FTSE +0.28% at 8,997.94, DAX +0.37% at 24,458.51, CAC-40 +0.58% at 7,867.07, IBEX-35 +0.20% at 14,030.50, FTSE MIB +0.52% at 40,336.00, SMI +0.50% at 12,011.46, S&P 500 Futures +0.12%].

Market focal points/key themes: European indices open higher across the board and remained upbeat through the early part of the session; reportedly progress being made in US-EU trade negotiations seen supporting risk appetite; among better performing sectors are materials and energy; lagging sectors include industrials and technology; Reckitt Benckiser sells its Essential home unit to Advent; Senior sells its Aerostructures unit to Sullivan Street; Telia offers to acquire Bredband2; BP sells it US onshore wind operations to LS Power; reportedly Kering and Mayhoola considering offer for Valentino; earnings expected in the upcoming Americas session include 3M American Express, SLB and Ally Financial.

Equities

- Consumer discretionary: Burberry [BRBY.UK] +3.5% (trading update), Electrolux [ELUXB.SE] -14.5% (earnings; raised prices).

- Healthcare: GSK [GSK.UK] -6.0% (US FDA Adcom) - Industrials: Senior [SNR.UK] +9.5% (divestment; buyback), KONE [KNEBV.FI] -4.0% (earnings), Saab [SAABB.SE] +12.0% (earnings), Skanska [SKAB.SE] +0.5% (earnings).

-Materials: BHP Group [BHP.AU] +1.5% (production), Salzgitter [SZG.DE] -15.0% (cut outlook), Clariant [CLN.CH] -0.5% (rejects LyondellBasell's €1.6B competition law infringement claim).

Speakers

- ECB's Nagel commented that should not play out with central bank independence. Financial markets spoke their own language and were showing how Fed attacks affect them.

- Germany Chancellor Merz stated that its 1st priority was to lift Germany out of recession. Economic sentiment was improving.

- EU members said to agree on a 18th sanctions package against Russia.

- Netherlands Fin Min Heinen stated that EU’s €2.0T budget proposal was dead on arrival.

- Indonesia said to still request US to exempt Nickel, Cooca, CPO from 19% tariffs.

- Taiwan VP noted that its negotiators were 'working around the clock' to reach agreement with the US on tariffs. Not seeking conflict or to provoke confrontation; aggressive military posturing by China is counter-productive.

Currencies/fixed income

- Another quiet EU session with little economic releases to warrant any fresh position taking. Greenback did face some softness in Asia after Fed member Waller noted that Fed should cut interest rates by 25bps in July.

- EUR/USD steady at 1.1620 area with focus on next week policy decision. ECB likely to keep policy steady due to trade uncertainty. Analysts are split between Sept and Dec for the timing of the next rate cut.

- GBP/USD at 1.3430 as markets continue to see an 80% change of a BOE rate cut in Aug as recent growth and employment figures were soft.

- USD/JPY at 148.80 with focus on Sunday’s Upper House election. LDP appeared to possibly lose its majority. It would mark the first occasion that the ruling party was at risk of losing control of both houses, following its defeat in the lower house election last October. BOJ could face escalating political pressure to keep interest rates low for longer, as opposition parties favor loose monetary policy.

- 10-year German Bund yield at 2.69% and 10-year Gilt yield at 4.66%. 10-year Treasury yield: 4.44%.

Economic data

- (DE) Germany Jun PPI M/M:0.1 % v 0.1%e; Y/Y: -1.3% v -1.3%e.

- (ES) Spain May Total Mortgage Lending Y/Y: 48.8% v 24.9% prior; House Mortgage Approvals Y/Y: 54.4% v 14.4% prior.

- (CN) Weekly Shanghai Copper Inventories (SHFE): 84.6K v 81.5K tons prior.

- (TH) Thailand May Foreign Reserves w/e July 11th: $261.5B v $262.8B prior.

- (EU) Euro Zone May ECB Current Account Balance: €32.3B v €18.6B prior.

- (RU) Russia Narrow Money Supply w/e July 11th (RUB):18.48 T v 18.35T prior.

- (IT) Italy May Current Account Balance: €1.7BB v €0.4B prior.

- (GR) Greece May Current Account Balance: +€0.B v -€2.1B prior.

- (PT) Portugal May Current Account Balance: -€0.4B v +€0.2B prior.

- (EU) Euro Zone May Construction Output M/M: -1.7% v +4.3% prior; Y/Y: 2.9% v 4.7% prior.

Fixed income issuance

- (IN) India sold total INR270B vs. INR270B indicated in 2032 and 2074 bonds.

Looking ahead

- G20 Finance Ministers and central banker meeting.

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

- 05:30 (ZA) South Africa to sell combined ZAR1.0B in I/L 2031, 2046 and 2058 Bonds.

- 06:00 (UK) DMO to sell £4.0B in 1-month, 3-month and 6-month bills (£0.5B, £1.5B and £2.0B respectively).

- 06:30 (IS) Iceland to sell 2027 and 2029 RIKB Bonds.

- 07:30 (IN) India Forex Reserve w/e July 11th: No est v $699.7B prior.

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

- 08:30 (US) Jun Housing Starts: 1.300Me v 1.256M prior; Building Permits: 1.387Me v 1.394M prior; Housing Starts M/M: 3.5%e v -9.8% prior; Building Permits (prelim) M/M: -0.5%e v -2.0% prior.

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

- 10:00 (US) July Preliminary University of Michigan Confidence: 61.5e v 60.7 prior.

- 12:00 (CO) Colombia May Economic Activity Index (Monthly GDP) Y/Y: No est v 1.1% prior.

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

- 13:00 (EU) Potential sovereign ratings after European close (Fitch on Netherlands).