Ugly European PMIs give fuel for ECB doves – Biden to address nation

EU mid-market update: Flood of heavy hitting earnings knock down bullish mood; Ugly European PMIs give fuel for ECB doves; Biden to address nation.

Notes/observations

- Germany and France flash manufacturing PMIs came in below all estimates, while Euro Zone was lowest since Dec. Services held up better, but market focused on the manufacturing concerns and comments about demand, adding to rate cut bets for ECB, with EU bond yields and the Euro falling, despite EU PMI showing pace of inflation ticking up to a three-month high, sharper rise than the series average. Opposingly, UK manufacturing PMI hits highest since July 2022 with services and composite readings in line.

- Risk off equity sentiment as earnings writes the story this morning. Tesla and Google after US close weighing on Wall Street and tech in general. Alphabet made a lot of generally positive comments on AI Capex monetization during its earnings call, but also noted some of AI models' use cases are seeing traction; Momentum fell through to Asia and Europe, which was not helped by LVMH earnings, dragging down luxury sector. Another noteworthy earnings from EasyJet, surprising to the upside about demand following weak Ryanair results earlier in the week that spooked aviation sector. Other notable EU earnings from: Equinor, BNP, Deutsche Bank, Orange, Remy Cointreau, Aston Martin and Reckitt Benckiser.

- On US elections front, Pres Biden set to address nation tonight, while VP Harris to make her next presidential campaign stops in coming days; GOP nominee Trump to hold his first public campaign rally in swing state North Carolina since Biden dropped out of a 2024 race; According to first Reuters poll conducted between Jul 22-23rd just after Biden’s withdrawal, Harris leads Trump ‘slightly’ by 44% to 42% within margin of error of +/- 300bps.

- Analysts note that so far, Farnborough Air Show orders are underperforming against Paris Air Show last year.

- Crude prices are up on expectations that inventories are seen to be shrinking and Russia considering gasoline export ban for Sept-Oct.

- Upcoming earnings before open: Vertiv, AT&T, Amphenol, Lamb Weston, NextEra Energy, Thermo Fisher, Tenet, GE Vernova, General Dynamics, Boston Scientific.

- Notable earnings after close: Chipotle, Ford, ServiceNow, IBM, Newmont, Whirlpool, Viking Therapeutics, Waste Management.

- Asia closed lower with Nikkei225 underperforming -1.3%. EU indices are -0.4% to -1.4%. US futures are -0.4% to -0.9%. Gold +0.1%, DXY +0.1%; Commodity: Brent +0.8%, WTI +0.8%; Crypto: BTC -0.8%, ETH -1.7%.

Asia

- China short sales balance declines to 4-year low following curbs– China Securities Journal.

- Japan PM Kishida: Preparing a bill to boost advanced chip-making - Japanese press.

- Traders reportedly sees risk of 15bps BOJ rate hike next week– US financial press.

- Australia RBA launches consultation on central clearing of Australia bonds and repos - statement.

- Russian Foreign Min: Russia permanently bans Toyota, Denyo and Rakuten execs (13 Japanese nationals in all) from entering country, in retaliation for recent Japan sanctions against Russia - financial press.

- Sri Lanka Central Bank (CBSL) cuts Key Rates by 25bps; Not expected.

Europe

- French President Macron: Again rules out resigning before the end of his term in 2027; Will Not appoint PM before mid-Aug 2024; Outgoing majority has lost elections but the French want non-far right forces to work together.

- French leftist alliance proposes anti-money laundering specialist Lucie Castets as candidate for new PM - press.

- Reportedly Spanish lawmakers have rejected government's deficit target; Approving targets is mandatory step to presenting a budget in the autumn - press.

- UK PM Starmer, EU Commission Pres Von der Leyen to meet to drive UK-EU 'reset' - FT.

- UK Conservative Party's James Cleverly says he is running for party leader - press.

- Reportedly ECB halving Levfin probe demand to about €7B - press.

Americas

- VP Harris confirmed she has enough delegates to get Democratic nomination.

- VP Harris leads Trump ‘slightly’ by 44% to 42% margin in Reuters/Ipsos poll conducted between Jul 22-23rd – financial press.

Global conflict/tensions

- Former US President Trump's advisers suggest higher target for NATO spending; Floated demand that allies spend 3% of GDP on defense (prior 2%).

- China's Foreign Min Wang: Continue to play constructive role in Ukraine/Russia ceasefire; To expand food imports from Ukraine.

Speakers/fixed income/FX/commodities/erratum

Equities

Indices [Stoxx600 -0.61% at 512.30, FTSE -0.42% at 8,133.19, DAX -0.74% at 18,411.15, CAC-40 -1.33% at 7,497.62, IBEX-35 -0.12% at 11,198.89, FTSE MIB -0.74% at 34,383.00, SMI -0.74% at 12,195.22, S&P 500 Futures -0.70%].

Market focal points/key themes: European indices open lower across the board and remained under pressure through the early part of the session; all sectors start the day in the red; less negative sectors include utilities and financials; among sectors leading the way lower are consumer discretionary and technology; travel & leisure subsector supported following easyJet’s earnings; luxury names dragged following disappointing earnings from LVMH; Informa to acquire Ascential; Exclusive Networks receives takeover offer from CD&R; Unicredit acquires Aion and Vodeno; reportedly shareholders urging Reckitt Benckiser to review Mead Johnson sale; earnings expected in the upcoming US session include Thermo Fisher, IBM, AT &T and NexEra Energy.

Equities

- Consumer discretionary: LVMH [MC.FR] -5.0% (earnings; outlook), EasyJet [EZJ.UK] +6.0% (trading update), Ascential [ASCL.UK] +26.5% (confirms to be acquired), Remy Cointreau [RCO.FR] -1.5% (sales; outlook; July color), Hugo Boss [BOSS.DE] -4.0% (analyst action).

- Consumer staples: Reckitt Benckiser [RKT.UK] +4.0% (earnings; cut outlook; potential sale of unit; strategy update).

- Energy: Equinor [EQNR.NO] -0.5% (earnings).

- Financials: Banco Santander [SAN.ES] +1.5% (earnings; raises outlook), Deutsche Bank [DBK.DE] -8.5% (earnings; provision led to loss), BNP Paribas [BNP.FR] -2.0% (earnings), Unicredit [UCG.IT] -2.5% (earnings).

- Industrials: Porsche [P911.DE] +1.0% (earnings; product launch update; comments on supply chain), Alstom [ALO.FR] -2.5% (earnings; contract).

- Technology: ASM International [ASM.NL] -1.5% (earnings; outlook and bookings).

- Utilities: Iberdrola [IBE.ES] +0.5% (earnings).

Speakers

- Czech Central Bank Holub (Chief Economist): Nearing point where it is reasonable to go from 50bps cuts to 25bp steps; Rates below 4.0% possible by EOY.

Economic data

-(PH) Philippines Jun Budget Balance (PHP): -209.1B v -174.9B prior.

-(MY) Malaysia Jun CPI Y/Y: 2.0% v 2.2%e.

-(IN) India July Preliminary PMI Manufacturing: 58.5 v 58.3 prior; PMI Services: 61.1 v 60.5 prior; PMI Composite: 61.4 v 60.9 prior.

-(FI) Finland Jun PPI M/M: -0.3% v -0.3% prior; Y/Y: -0.3% v -0.4% prior.

-(DE) Germany aug GFK consumer confidence: -18.4 V -21.0E.

-(HU) Hungary May Average Gross Wages Y/Y: 14.9% v 12.5%e.

-(ES) Spain Jun PPI M/M: 1.9% v 0.9% prior; Y/Y: -3.5% v -4.5% prior.

-(CZ) Czech July Consumer Confidence: 98.4 v 101.8e; Business Confidence: 94.5 v 97.4 prior; Composite Confidence: 95.1 v 98.0 prior.

-(FR) France July preliminary Manufacturing PMI: 44.1 V 45.9E; Services PMI: 50.7 v 49.7e; Composite PMI: 49.5 v 48.8e.

-(DE) Germany July preliminary Manufacturing PMI: 42.6 V 44.0E; - Services PMI: 52.0 v 53.3e; Composite PMI: 48.7 v 50.6e.

-(ZA) South Africa Jun CPI M/M: 0.1% v 0.1%e; Y/Y: 5.1% v 5.1%e; CPI Core M/M: 0.4% v 0.4%e; Y/Y: 4.5% v 4.6%e.

-(EU) Eurozone July preliminary Manufacturing PMI: 45.6 V 46.1E; Services PMI: 51.9 v 52.9e; Composite PMI: 50.1 v 50.9e.

-(UK) July preliminary Manufacturing PMI: 51.8 V 51.0E; Services PMI: 52.4 v 52.5e; Composite PMI: 52.7 v 52.6e.

-(IS) Iceland July CPI M/M: 0.5% v 0.5% prior; Y/Y: 6.3% v 5.8% prior.

Fixed income issuance

-China MOF sells 30-year Special Bonds: Yield 2.4700% v 2.4989% prior.

-Thailand sells total THB30B in 9.9-year bonds; Avg Yield: 2.6275%, bid-to-cover: 1.96x.

- Australia sells A$11.5B in new Dec 2035 bonds via syndication: Yield to maturity at 4.425% (vs current 10 yr yield: 4339%).

-Vietnam Finance Ministry sells VND3.85T in 10-year, 15-year and 20-year bonds.

-India sells total INR200B vs. INR200B indicated in 3-month, 6-month and 12-month bills.

-UK DMO sells £2.25B in new 4.375% July 2054 gilts; AVG yield: 4.636%; bid to cover: 3.35X; tail: 0.2BPS.

Looking ahead

-05:30 (DE) Germany to sell €5.0B in 2.60% 10-year 2034 Bund.

-06:00 (CZ) Czech Republic to sell CZK8.0B in 2033 and 2036 bonds.

-07:00 (US) MBA Mortgage Applications w/e July 19th: No est v 3.9% prior.

-08:00 (EU) ECB’s Lane.

-08:30 (US) Jun Advance Goods Trade Balance: -$98.7Be v -$99.4B prior (revised from -$100.6B).

-08:30 (US) Jun Preliminary Wholesale Inventories M/M: 0.5%e v 0.6% prior; Retail Inventories M/M: 0.5%e v 0.7% prior.

-09:00 (CL) Chile Jun PPI M/M: No est v 0.7% prior.

-09:45 (CA) Bank of Canada (BOC) Interest Rate Decision: Expected to cut Interest Rates by 25bps to 4.50%.

-09:45 (US) July Preliminary S&P Manufacturing PMI: 51.7e v 51.6 prior; Services PMI: 54.8e v 55.3 prior; Composite PMI: 53.9e v 54.8 prior.

-10:00 (US) Jun New Home Sales: 640Ke v 619K prior.

-10:30 (CA) Bank of Canada (BoC) Gov Macklem post rate decision press conference.

-12:00 (RU) Russia Jun Industrial Production Y/Y: 4.5%e v 5.3% prior.

-16:05 (US) Fed’s Bowman.

-17:00 (KR) South Korea Aug Business Manufacturing Survey: No est v 75 prior; Non-Manufacturing Survey: No est v 70 prior.

-18:00 (HU) Hungary July Business Confidence: No est v -11.2 prior; Consumer Confidence: No est v -26.1 prior; Economic Sentiment: No est v -11.2 prior.

-19:00 (KR) South Korea Q2 Advance GDP (1st of 3 readings) Q/Q: 0.1%e v 1.3% prior; Y/Y: 2.5%e v 3.3% prior.

-19:50 (JP) Japan Jun PPI Services Y/Y: 2.6%e v 2.5% prior.