Ukraine talks and trade war weigh on sentiment

EU mid-market update: Ukraine talks and trade war weigh on sentiment but a healthier Japan auction overnight gives yields a reprieve.

Notes/observations

- European equities open mostly lower. Focus remains on US-China trade tensions, with rare earths at the center. No new developments, though the White House continues to push for a Trump-Xi call this week.

- US dollar recovers slightly, but due to fragile investor confidence from uncertain US policy, the upcoming JOLTS and durable goods data could weaken sentiment again if it misses consensus.

- Japan 10-year bond auction demand impressed at highest bid-to-cover since Apr 2024, helping lower yields in medium to long-term JGBs.

- The latest Ukraine-Russia peace talks in Istanbul, Turkey end yesterday. The meeting lasted less than 90 minutes, with no breakthrough on a ceasefire but an agreement to exchange prisoners of war and return the bodies of 12,000 dead soldiers. The lack of progress and Ukraine’s drone attacks on Russia support safe-haven flows.

- Asia closed mixed with Hang Seng outperfomring +1.5%. EU indices -0.6%. US futures -0.4%. Gold -0.6%, DXY +0.3%; Commodity: Brent +0.2%, WTI +0.2%; Crypto: BTC +0.5%, ETH +5.0%.

Asia

- Australia May RBA Minutes noted that it did consider a pause in easing or cutting by 50bps. Board judged not yet time to move monetary policy to an expansionary setting.

- Australia Q1 Current Account Balance (A$):-14.7B v -12.5Be.

- China May Caixin PMI Manufacturing: 48.3e v 50.7e (1st contraction in 8 months).

- BOJ Gov Ueda reiterated overall assessment that domestic economy was recovering moderately, despite some weakness seen.

- Japan PM Ishiba: To consider dissolving parliament if no-confidence is submitted.

- Japanese 10-year govt bond yields fell 4bps back to 1.47% after today's 10-year JGB auction had a bid-to-cover above the one-year average and the highest since April 2024.

- US extended tariff pause on some Chinese goods to Aug 31st (from prior 90 day extension to Aug 14th).

Global conflict/tensions

- Russia memorandum assumed Ukraine's neutrality and ban on any military activities of third states on its territory; Demands Ukraine leave LPR, DPR, Zaporoxhye, and Kherson regions to Russia.

Europe

- BOE's Mann (hawkish dissenter): 10-year gilt has been dramatically affected by US spillovers; Effects from the BOE’s run-off of its balance sheet of bonds could not be easily offset by rate cuts as they influence short and long-dated bond yields differently. 25bps moves gets swamped by volatility, needed to be bold. QT could offset the effect of BOE cuts on long-term rates.

Americas

- Fed's Goolsbee (voter) noted that so far had excellent inflation reports with surprisingly little direct impact from tariffs; Did not know if that would remain true over next 1-2 months. A little gun-shy about arguing that tariffs would have a transitory effect on inflation.

Speakers/fixed income/FX/commodities/erratum

Equities

Indices [Stoxx600 -0.3% at 546, FTSE -0.2% at 8758, DAX +0.1% at 23966, CAC-40 -0.3% at 7711, IBEX-35 -0.7% at 14124, FTSE MIB +0.2% at 3913, SMI -0.1% at 12199, S&P 500 Futures -0.5%].

Market focal points/key themes: European indices opened higher across the board but quickly turned around to trade in the red as trade concerns reasserted themselves; better performing sectors include utilities and real estate; among sectors trending lower are materials and financials; Cofinimmo accepts merger offer from Aedifica; Pandox makes offer from Dalata; focus on US durable goods coming out later in the day; earnings expected in the upcoming Americas session include CrowdStrike and Hewlett Packard.

Equities

- Financials: Julius Baer [BAER.CH] -1.0% (mid-term targets).

- Industrials: bpost [BPOST.BE] +7.0% (affirms FY guidance and raises rev), Chemring [CHG.UK] +6.5% (H1 results).

- Technology: ASML [ASML.NL] -1.0% (analyst downgrade).

Speakers

- OECD updated its economic outlook which cut 2025 Global GDP growth forecast from 3.1% to 2.9% and cut 2026 Global GDP growth forecast from 3.0% to 2.9%.

- Netherlands Freedom Party leader Wilders (Far-right) confirmed to quit government coalition; Triggering collapse of govt.

- Germany Fin Min Klingbeil commented that would find common solutions with US on tariffs.

- BOE’s Dhingra stated that risks to inflation and growth were tilted to the downside. Would have preferred Bank Rate to have followed a different path.

- ECB Regulator Buch stated that ECB was addressing private market exposure shortcomings.

- BOJ Gov Ueda commented that tariff measures had complicated the country's outlook. Reiterated stance that would adjust degree of easing if economic outlook was met. Accommodative monetary environment likely to support economy. Underlying inflation likely to gradually move towards the 2% inflation target.

Currencies/fixed income

- USD consolidated its recent losses but focus remained on the US data releases. Analysts noted that another round of soft data, particularly in the labor market, could push the greenback back to its April lows.

- EUR/USD staying above the 1.14 level. Dealers noted recent rise in the euro reflected vulnerability in the USD and not euro strength. The next key resistance level is the 1.15 neighborhood. Focus on Thursday ECB rate decision, where the central bank is expected to deliver on easing and cut its key rates by 25bps.

- USD/JPY staying below the 143 handle. BOJ Gov Ueda spoke at length but did not add anything fresh on the rate outlook.

- 10-year German Bund yield at 2.50% and 10-year Gilt yield at 4.62%. 10-year Treasury yield at 4.42%.

Economic data

- (NL) Netherlands May Preliminary CPI Y/Y: 3.3% v 4.1% prior; CPI EU Harmonized M/M: -0.9% v -0.2%e; Y/Y: 3.0% v 3.9%e.

- (CH) Swiss May CPI M/M: 0.1% v 0.1%e; Y/Y: -0.1% v -0.1%e.

- (CH) Swiss May CPI EU Harmonized M/M: -0.2% v +0.7% prior; Y/Y: -0.2%e v +0.3% prior; CPI Core Y/Y: 0.5% v 0.6% prior.

- (HU) Hungary Q1 Final GDP Q/Q: -0.2% v -0.2% prelim; Y/Y: 0.0% v 0.0% prelim.

- (FR) France Apr Budget Balance YTD: -€69.3B v -€47.0B prior.

- 03:00 (ES) Spain May Unemployment Change: -57.8K v -67.4K prior; Employment Net Change M/M: +20.8K v +69.2K prior.

- (AT) Austria May Preliminary CPI M/M: -0.1% v +0.2% prior; Y/Y: 3.0% v 3.1% prior.

- (TR) Turkey May CPI M/M: 1.5% v 2.0%e; Y/Y: 35.4% v 36.0%e; CPI Core Index Y/Y: 35.4% v 35.7%e.

- (TR) Turkey May PPI M/M: 2.5% v 2.8% prior; Y/Y: 23.1% v 22.5% prior.

- (IT) Italy Apr Unemployment Rate: 5.9% v 6.1%e.

- (BR) Brazil May FIPE CPI (Sao Paulo): 0.3% v 0.3%e.

- (EU) Euro Zone May Advance CPI Estimate Y/Y: 1.9% v 2.0%e; CPI Core Y/Y: 2.3% v 2.4%e; CPI M/M: 0.0% v 0.0%e.

- (EU) Euro Zone Apr Unemployment Rate: 6.2% v 6.2%e.

- (BE) Belgium Apr Unemployment Rate: 6.4% v 6.3% prior.

Fixed income issuance

- (DK) Denmark sold total DKK1.55B in 2034 and 2035 DGB Bonds.

- (ES) Spain Debt Agency (Tesoro) sold total €5.77B vs. €5.0-6.0B indicated range in 6-month and 12-month bills.

- (UK) DMO sold £1.25B in 4.0% Oct 2063 Gilts; Avg Yield: 5.281% v 5.076% prior; bid-to-cover: 3.51x v 2.80x prior; Tail: 0.3bps v 0.3bps prior.

- (AT) Austria Debt Agency (AFFA) sold total €1.4375B vs. €1.4375B indicated in 2029 and 2035 RAGB bonds.

Looking ahead

- 05:15 (UK) BOE Gov Bailey with members Breeden, Dhingra and Man before Treasury Select Committee.

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

- 05:30 (ZA) South Africa Q1 GDP Q/Q: No est v 0.6% prior; Y/Y: 0.7%e v 0.9% prior.

- 05:30 (CH) Switzerland to sell 3-month Bills; Avg Yield: % v -0.092% prior; bid-to-cover: x v 3.37x prior.

- 05:30 (DE) Germany to sell €4.5B in 1.70% Jun 2027 Schatz.

- 05:30 (BE) Belgium Debt Agency (BDA) to sell combined €2.6B in 3-month, 6-month and 12-month bills.

- 05:30 (HU) Hungary Debt Agency (AKK) to sell 3-Month Bills.

- 05:30 (ZA) South Africa to sell combined ZAR3.75B in 2032, 2037 and 2053 bonds.

- 05:30 (EU) ECB allotment in 7-Day Main Refinancing Tender (MRO).

- 06:00 (FI) Finland to sell 9-month and 12-month Bills.

- 06:30 (EU) ESM to sell €1.1B in 3-month Bills.

- 08:00 (RU) Russia announcement on upcoming OFZ bond issuance (held on Wed).

- 08:00 (BR) Brazil Apr Industrial Production M/M: No est v 1.2% prior; Y/Y: 1.0%e v 3.1% prior.

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

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

- 10:00 (US) Apr JOLTS Job Openings: 7.10Me v 7.192M prior.

- 10:00 (US) Apr Factory Orders: -2.2%e v +4.3% prior; Factory Orders (ex-transportation): No est v -0.2% prior.

- 10:00 (US) Apr Final Durable Goods Orders: No est v -6.3% prelim; Durables (ex-transportation): No est v 0.2% prelim; Capital Goods Orders (non-defense/ex-aircraft): No est v -1.3% prelim; Capital Goods Shipments (non-defense/ex-aircraft): No est v -0.1% prelim.

- 11:00 (DK) Denmark May Foreign Reserves (DKK): No est v 661.4B prior.

- 11:00 (CO) Colombia May PMI Manufacturing: No est v 51.4 prior.

- 11:30 (US) Treasury to sell 6-Week Bills.

-12:15 (CH) SNB President Schlegel.

- 12:45 (US) Fed's Goolsbee.

- 13:00 (US) Fed's Cook.

- 15:30 (US) Fed's Logan.

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

- 19:00 (AU) Australia May Final PMI Services: No est v 50.5 prelim; PMI Composite: No est v 50.6 prelim.

- 19:00 (KR) South Korea May CPI M/M: 0.1%e v 0.1% prior; Y/Y: 2.1%e v 2.1% prior; CPI Ex Food and Energy Y/Y: 2.0%e v 2.1% prior.

- 20:30 (JP) Japan May Final PMI Services: No est v 50.8 prelim; PMI Composite: No est v 49.8 prelim.

- 20:30 (HK) Hong Kong May PMI (whole economy): No est v 48.3 prior.

- 20:30 (SG) Singapore May PMI (whole economy): No est v 52.8 prior.

- 20:30 (TH) Thailand May PMI Manufacturing: No est v 49.5 prior.

- 21:30 (AU) Australia Q1 GDP Q/Q: 0.4%e v 0.6% prior; Y/Y: 1.5%e v 1.3% prior.