Volatility amplified as red wave sweeps global assets ahead of US Nonfarm Payrolls

EU mid-market update: Volatility amplified as red wave sweeps global assets ahead of US Nonfarm Payrolls; Traders to watch if Sahm Rule for recession is triggered.

Notes/observations

- Markets continue freefall into Asia and EU, following a weak US ISM reading yesterday and ahead of Nonfarm Payrolls. Nikkei225 dropped >5.5%, VIX breached 20. Underlying themes of Middle East tensions, China/US/Taiwan concerns and US election uncertainty add to the bear case. Traders question ‘What else is the Fed expecting to see before Sept to entertain a rate cut’.

- Traders to watch carefully the so-called Sahm Rule for recessionary conditions in US; It set to be triggered as soon as today, if US unemployment rate ticks up just one tenth to 4.2%; In past, it has been triggered during every US recession since 1970; During post FOMC conference, Fed's Chair Powell said he views Sahm Rule as statistical regularity; After heavy stock market sell-off and disappointing ISM Manufacturing data, Fed futures currently price 30% chance for 50bps cut at Sept's meeting.

- Intel results weigh on chip sector sentiment (-20% premarket) and caused ASML in Europe to be halted at the open. In other news, Nvidia said to face DOJ antitrust probe over apparent complaints from rival companies.

- End of week allows traders a chance digest multitude of major catalysts, which saw BOJ hike, Fed hold and BoE cut rates. A significant proportion of S&P500 reported results, including Amazon, Apple and Intel after close yesterday.

- Upcoming earnings before open: ExxonMobil, Chevron, Frontier, Magna, Fluor, AdvanSix, Asbury Automotive, Enbridge.

- Asia closed lower with Nikkei225 underperforming -5.7%. EU indices are -0.3% to -1.5%. US futures are -0.5% to -1.7%. Gold +0.7%, DXY -0.2%; Commodity: Brent +0.4%, WTI +0.5%; Crypto: BTC 0.0%, ETH -0.8%.

Asia

- South Korea July CPI M/M: 0.3% v 0.3%e; Y/Y: 2.6% v 2.5%e; CPI Core Y/Y: 2.2% v 2.1%e.

- Australia Q2 PPI Q/Q: 1.0% v 0.9% prior; Y/Y: 4.8% v 4.3% prior.

- Australia Jun Home Loans Value M/M: 1.3% v 0.1%e.

- China PBOC adviser Huang urged govt to boost fiscal spending to fight deflation and shore up the economy. Believed the govt should lower the CPI target from 3.0% to a range between 2-3%.

Europe

- BOE Gov Bailey: Would caution against the view that the BOE would cut rates continually in successive meetings from here.

- BOE’s Pill (chief economist; dissenter): We aren't committing to further interest rate cuts; There will be bumps in the road ahead on inflation.

- UK July Inflation Expectations For Year Ahead M/M: 2.7% v 2.6% prior - Citi-YouGov.

Speakers/fixed income/FX/commodities/erratum

Equities

Indices [Stoxx600 -1.38% at 504.78, FTSE -0.34% at 8,255.12, DAX -1.08% at 17,891.05, CAC-40 -0.45% at 7,337.23, IBEX-35 -0.27% at 10,825.10, FTSE MIB -1.22% at 32,458.00, SMI -2.35% at 12,028.00, S&P 500 Futures -0.98%].

Market focal points/key themes: European indices open lower across the board and maintained the trend through the early part of the session; loss of risk appetite seen a continuation of poor performance in US markets yesterday on weaker economic data; all sectors start the day in the red; less negative sectors include consumer discretionary and health care; among sectors leading the way lower are tech, industrials and financials; EU chip sector catching with US’s sharp losses made yesterday, ASML shares trade down over 5% following Intel results/restructuring and DOJ’s potential probe into Nvidia; banking subsector affected by falling yields as investors price in more rate cuts; AXA selling its IM unit to BNP Paribas; Atlas raised its offer price for Millicom International Cellular; focus on release of US NFP later in the day; earnings expected in the upcoming Americas session include Exxon Mobil, Berkshire Hathaway, Chevron, and Enbridge.

Equities

- Consumer discretionary: International Consolidated Airlines [IAG.UK] +5.5% (earnings; terminates acquisition of Air Europa), Ocado [OCDO.UK] -3.0% (upsizes bond offering to £450M - post close).

- Financials: Axa [CS.FR] +1.5% (H1 results - post close; BNP entered into exclusive negotiations with AXA to acquire 100% of AXA Investment Managers), Erste Bank [EBS.AT] -0.5% (H1 results).

- Materials: IMCD [IMCD.NL] +7.0% (H1 results).

- Industrials: Capita [CPI.UK] -4.5% (H1 results), Pirelli [PIRC.IT] +1.5% (H1 results - post close) - Technology: ASML [ASML.NL] -6.0% (broad chip sector sell-off; Intel results and restructuring; Nvidia said to face DOJ antitrust probe over apparent complaints from rival companies).

- Utilities: Engie [ENGI.FR] +3.5% (H1 results).

Speakers

- None seen.

Currencies/fixed income

- Prior US and Asian sessions was capped by risk aversion flows but a sense of calm enduring during the European morning with focus on the upcoming US payroll data. Market participants to look for clues on the Fed future interest rate policy. Analysts noted that the current sharp rally in global bonds and the increased pricing of interest-rate cuts showed that markets were nervous about a more meaningful slowdown.

- USD steady and holding onto recent gains due to safe-haven flows. Greenback above to shrug off US recession fears stoked by recent manufacturing and construction data.

- GBP/USD staying above 1.27 level and remained on the defensive despite BOE Gov Bailey adopting a cautious tone and refrained from confirming additional policy easing in press interviews following yesterday’s BOE 25bps rate cut.

- EUR/USD clinging to the 1.08 area.

- USD/JPY hovering around the 150 area and seeing the yen consolidate its recent gains.

Economic data

- (CH) Swiss July CPI M/M: -0.2% v -0.2%e; Y/Y: 1.3% v 1.3%e.

- (CH) Swiss July CPI EU Harmonized M/M: +0.4% v -0.1% prior; Y/Y: 1.2% v 1.3% prior; CPI Core Y/Y: 1.1% v 1.1%e.

- (FR) France Jun Industrial Production M/M: 0.8% v 1.0%e; Y/Y: -1.6% v -1.1%e.

- (FR) France Jun Manufacturing Production M/M: +0.8% v -2.7% prior; Y/Y: -2.0% v -3.8% prior.

- (FR) France Jun YTD Budget Balance: -€103.5B v -€113.5B prior.

- (ES) Spain July Net Unemployment Change: -10.8K v -46.8K prior; Net Change in Employment M/M: +1.3K v +31.3K prior.

- (CH) Swiss July PMI Manufacturing: 43.5 v 44.5e; PMI Services: 44.7 v 52.0 prior.

- (TH) Thailand May Foreign Reserves w/e July 26th: $228.7B v $227.7B prior.

- (IT) Italy Jun Industrial Production M/M: 0.5% v 0.0%e ; Y/Y: -2.6% v -3.3% prior; Industrial Production (unadj) Y/Y: -5.6% v -3.3% prior.

- (UN) July FAO World Food Price Index: 120.8 v 121.0 prior.

- (NO) Norway July Unemployment Rate: 2.1% v 2.0%e; Unemployment Rate (seasonally adj): 2,1% v 2.0% prior.

- (RU) Russia Narrow Money Supply w/e July 26th (RUB): 18.31T v 18.39T prior.

- (BR) Brazil Dec FIPE CPI (Sao Paulo) M/M: 0.1% v 0.1%e.

- (IT) Italy Jun Retail Sales M/M: -0.2% v +0.4% prior; Y/Y: -1.0% v +0.5% prior.

Fixed income issuance

- (IN) India sold total INR177B vs. INR220B indicated in 2027, 2034 and 2054 bonds.

Looking ahead

- 06:00 (IE) Ireland July Live Register Monthly Change: No est v -1.3K prior; Live Register Level: No est v 171.5K prior.

- 06:00 (UK) DMO to sell £6.5B in 1-month, 3-month and 6-month bills (£0.5B, £2.5B and £3.5B respectively).

- 06:00 (BE) Belgium Debt Agency (BDA) to sell OLO Bonds through Ori Auction.

- 07:15 (UK) BOE’s Pill (chief economist).

- 07:30 (IN) India Forex Reserve w/e July 26th: No est v $670.9B prior.

- 07:30(IN) India announces upcoming bill issuance (held on Wed).

- 08:00 (MX) Mexico Jun Unemployment Rate: 2.6%e v 2.6% prior.

- 08:00 (MX) Mexico May Gross Fixed Investment M/M: 0.8%e v 0.9% prior; Y/Y: 8.4%e v 18.1% prior; Private Consumption Y/Y: 3.5%e v 8.0% prior.

- 08:00 (MX) Mexico Jun Leading Indicators M/M: No est v 0.07 prior.

- 08:00 (MX) Mexico July Vehicle Domestic Sales: No est v 122.9K prior.

- 08:00 (BR) Brazil Jun Industrial Production M/M: +2.5%e v -0.9% prior; Y/Y: +1.4%e v -1.0% prior.

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

- 08:30 (US) July Change in Nonfarm Payrolls: +175Ke v 206K prior; Private Payrolls: +141Ke v +136K prior; Manufacturing Payrolls: -5Ke v -8K prior.

- 08:30 (US) July Unemployment Rate: 4.1%e v 4.1% prior; Underemployment Rate: No est v 7.4% prior; Labor Force Participation Rate: 62.6%e v 62.6% prior.

- 08:30 (US) July Average Hourly Earnings M/M: 0.3%e v 0.3% prior; Y/Y: 3.7%e v 3.9% prior; Average Weekly Hours All Employees: 34.3e v 34.3 prior.

- 09:00 (SG) Singapore July Purchasing Managers Index (PMI): No est v 50.4 prior; Electronics Sector Index: No est v 51.2 prior.

- 10:00 (US) Jun Factory Orders: -3.2%e v -0.5% prior; Factory Orders (ex-transportation): No est v -0.7% prior.

- 10:00 (US) Jun Final Durable Goods Orders: -6.6%e v -6.6% prelim; Durables (ex-transportation): 0.5%e v 0.5% prelim; Capital Goods Orders (non-defense/ex-aircraft): 1.0%e v 1.0% prelim; Capital Goods Shipments (non-defense/ex-aircraft): No est v 0.1% prelim.

- 11:00 (DK) Denmark July Foreign Reserves (DKK): No est v 638.9B prior.

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