Volatility still floats high with record daily gain for Nikkei

EU Mid-Market Update: Dead cat bounce or is correction complete? Volatility still floats high with record daily gain for Nikkei; Harris set to unveil her VP pick.

Notes/observations

- Markets bounce back marginally from Monday’s collapse amid dip-buying and oversold conditions, highlighted once again with Nikkei225, seeing most volatility with a record daily gain of ~10%. Debate now on whether the JPY (yen) carry trade has more unwinding down the road.

- JPMorgan sees yen carry trade unwind, at least within the speculative investing community, is somewhere between 50-60% complete, while ING describes it as a vicious circle, as the yen's strength causes investors and others to close out their weak-yen bets, by buying more yen.

-Bets into an emergency a Fed rate cut (within a week) also cooled off from what is being described as ‘overly dramatic’ expectations yesterday, especially after Fed’s Daly comments. Based on history, bar for Fed’s intermeeting cuts is extremely high; However, US’s potential recession picture stays largely unchanged after ISM services data yesterday; 2-year/10-year US yields spread back into inversion territory.

-Still waiting for a response from Iran against Israel, within next 24 hours according to US intelligence.

- Upcoming earnings before open: Uber, Celsius, FuboTV, Caterpillar, Baxter, ATI, Constellation,

- Notable earnings after close: SuperMicro, Rivian, AirBNB, Reddit, Wynn Resorts, Gigacloud Technology, Axon, Upstart, Amgen.

- Asia closed higher with Nikkei225 outperforming +10.2%. EU indices are mixed -0.5% to +0.1%. US futures are +0.5-0.9%. Gold +0.2%, DXY +0.3%; Commodity: Brent 0.0%, WTI +0.2%; Crypto: BTC +4.0%, ETH +5.8%.

Asia

- RBA left the Cash Rate Target unchanged at 4.35% (as expected) for its 6th straight pause in the current phase of it tightening cycle. Statement reiterated that Board was not ruling anything in or out. Data had reinforced the need to remain vigilant to upside risks to inflation but did consider a rate hike.

- RBA Gov Bullock post-rate decision press conference noted that the Board judged the current level of OCR to be appropriate to balance CPI and employment outlook.

- RBA updated its Staff Projections (SOMP) which cut end-2024 Headline CPI from 3.8% to 3.0% while raising end-2025 Headline CPI from 2.8% to 3.7%. Forecasts raised end- 2024 GDP growth forecast from 1.6% to 1.7% and raised end-2025 GDP growth forecast from 2.3% to 2.5%.

- UK July BRC LFL Sales Y/Y: +0.3% v 0.2%e.

- Japan Jun Labor Cash Earnings Y/Y: 4.5% v 2.4%e; Real Cash Earnings Y/Y: +1.1% v -0.9%e.

- Japan Jun Household Spending Y/Y:-1.4% v -0.8%e.

- Japan MOF sold ¥2.6T vs. ¥2.6T indicated in 10-Year JGB Bonds; Avg Yield: 0.9260% v 1.0930% prior; Bid-to-cover: 2.98x v 3.23x prior.

- BoJ, MOF & FSA holding meeting to discuss international financial markets.

Americas

- Fed's Daly (voter) noted that the July jobs report reflected a lot of temporary layoffs and hurricane effects; Would look at data in totality; Policy needed to be proactive; It's extremely important that we did not let job market slow so much that it tipped into a downturn. Policy rate would need to be adjusted; when and how much to depend on data.

Tensions

- US confirmed injuries to several US soldiers from rocket attack on Al Assad Airbase in Iraq.

Speakers/fixed income/FX/commodities/erratum

Equities

Indices [Stoxx600 -0.02% at 486.92, FTSE -0.05% at 8,004.12, DAX +0.04% at 17,324.85, CAC-40 -0.05% at 7,109.60, IBEX-35 -0.39% at 10,383.15, FTSE MIB -0.66% at 31,086.00, SMI -0.78% at 11,473.08, S&P 500 Futures +0.46%].

Market Focal Points/Key Themes: European indices open generally higher and trended into the green through the early part of the session; markets reflect a rebound with better performing sectors mirroring yesterday’s underperformers as technology and financials lead the way higher; sectors inclined to the downside include telecom and utilities; on corporate front, Bayer’s shares trade cut initial gains made after reporting results and affirming outlook; Zalando also reported results and noted positive signals in e-commerce in Germany have been confirmed; earnings expected in the upcoming US session include Uber, Owens Corning, Caterpillar and Banco BPM.

Equities

- Consumer discretionary: Zalando [ZAL.DE] +2.5% (earnings; CFO Sandra Dembeck will not renew her contract; Notes positive signals in e-commerce in Germany have been confirmed), H&M [HMB.SE] +0.5% (Fast Retailing said to have suspended Bangladesh operations; Bangladesh is the world's biggest garments exporter after China).

- Energy: Tethys Oil [TETY.SE] +3.5% (Q3 results, cuts capex outlook) - Financials: Banca Monte dei Paschi di Siena [BMPS.IT] +8.5% (earnings) - Healthcare: Bayer [BAYN.DE] -0.5% (Q2 results, affirms guidance), Galenica [GALE.CH] -3.5% (H1 results, CEO steps down, affirms guidance).

- Technology: ASML [ASML.NL] +3.0% (tech stocks rebound; NVDA Blackwell's AI accelerator said to be being reworked to better work with data center infrastructure designed for an earlier chip, Hopper H100), Keller Group [KLR.UK] +9.0% (earnings; raises outlook).

Speakers

- Bank of England (BoE) Statement noted that its assessment provided further reassurance that if a major UK bank were to fail today it could enter resolution safely

- Turkey Fin Min Simsek commented that the decline in annual inflation would continue in Aug and that 2025 Next year would be a year of disinflation

- Japan top FX Diplomat Mimura stated after meeting govt officials that it had no change in overall assessment that domestic economy was recovering. Reiterated FX reflects fundamentals; closely watching currency moves. Govt would work closely with central bank

Currencies/fixed income

- Tuesday’s session took a breather from risk aversion following Monday’s selloff being attributed to US recession fears and the unwinding of yen carry trades. Dealers noted that better-than-expected US ISM services data eased concerns about potential recession and a possible need for significant interest-rate cuts. Dealers believe that the Fed was likely to continue on its expected policy path despite the recent market turmoil.

- EUR/USD at 1.0930 as the pair continued to fail to get over the 1.10 level. Some risk aversion sentiment was creeping back into sentiment as mid-day approached.

- USD/JPY retested the 146 level before retracing to 144.80 by mid-session. Analysts noted that the unwinding of yen-carry trades was somewhere between 50-60% complete.

Economic data

- (NL) Netherlands July CPI M/M: 1.5 v 0.2% prior; CPI (final) Y/Y: 3.7% v 3.7% prelim.

- (NL) Netherlands July Final CPI EU Harmonized M/M: 1.3% v 1.3% prelim; Y/Y: 3.5% v 3.5% prelim.

- (CH) Swiss July Unemployment Rate: 2.3% v 2.3%e; Unemployment Rate (seasonally adj): 2.5% v 2.5%e.

- (DE) Germany Jun Factory Orders M/M: 3.9% v 0.5%e; Y/Y: -11.8% v -14.2%e.

- (CH) Swiss Jun Real Retail Sales Y/Y: -2.2% v -0.2% prior.

- (HU) Hungary Jun Retail Sales Y/Y: 2.6% v 3.4%.

- (FR) France Q2 Preliminary Private Sector Payrolls Q/Q: 0.0% v 0.3% prior.

- (CZ) Czech Jun Industrial Output Y/Y: -9.1% v -6.0%e; Construction Output Y/Y: -10.2% v -6.8% prior.

- (CZ) Czech Jun Trade Balance (CZK): 29.3B v 15.8Be.

- (AT) Austria July Wholesale Price Index M/M: +0.5% v -0.1% prior; Y/Y: 1.4% v 0.5% prior.

- (DE) Germany July Construction PMI: 40.0 v 39.7 prior.

- (TW) Taiwan July CPI Y/Y: 2.5% v 2.5%e; CPI Core Y/Y: 1.8% v 1.9%e; PPI Y/Y: 3.7% v 3.6% prior.

- (UK) July Construction PMI: 55.3 v 52.5e (4th month of expansion).

- (EU) Euro Zone Jun Retail Sales M/M: -0.3% v -0.1%e; Y/Y: -0.3% v +0.1%e.

Fixed income issuance

- (ID) Indonesia sold total IDR23.0T vs. IDR23.0T indicated in bills and bonds.

- (ES) Spain Debt Agency (Tesoro) sold total €5.19BB vs. €4.5-5.5B indicated range in 6-month and 12-month bills.

- (UK) DMO sold £2.0B in 4.75% Oct 2043 Green Gilts; Avg Yield: 4.362% v 4.519% prior; bid-to-cover: 3.37x v 3.29x prior; Tail: 0.2bps v 0.1bps prior.

- (AT) Austria Debt Agency (AFFA) sold total €1.438B vs. €1.438B indicated in 2034 and 2040 RAGB Bonds.

Looking ahead

- (MX) Mexico CitiBanamex Survey of Economists.

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

- 05:15 (CH) Switzerland to sell 6-month Bills.

- 05:30 (DE) Germany to sell €4.0B in 2.5% Oct 2029 BOBL.

- 05:30 (BE) Belgium Debt Agency (BDA) to sell 3-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 2035, 2037 and 2040 bonds.

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

- 06:00 (IE) Ireland July Unemployment Rate: No est v 4.2% prior.

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

- 07:00 (BR) Brazil Central Bank (BCB) July Minutes.

- 07:00 (UK) BOE releases APF reports.

- 07:30 (TR) Turkey July Real Effective Exchange Rate (REER): No est v 61.90 prior.

- 08:00 (MX) Mexico July Vehicle Production: No est v 344.2K prior; Vehicle Exports: No est v 295.7K prior.

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

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

- 08:30 (US) Jun Trade Balance: -$72.5Be v -$75.1B prior.

- 08:30 (CA) Canada Jun Int'l Merchandise Trade (CAD): -2.0Be v -1.9B prior.

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

- 09:30 (CA) Canada July Services PMI: No est v 47.1 prior; Composite PMI: No est v 47.5 prior.

- 13:00 (US) Treasury to sell 3-Year Notes.

- 14:00 (BR) Brazil July Trade Balance: $7.8Be v $6.7B prior; Exports: $31.3Be v $29.0B prior; Imports: $23.6Be v $22.3B prior.

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

- 18:45 (NZ) New Zealand Q2 Unemployment Rate: 4.7%e v 4.3% prior.

- 18:45 (NZ) New Zealand Q2 Employment Change Q/Q: -0.2%e v -0.2% prior; Y/Y: 0.0%e v 1.2% prior; Participation Rate: 71.3%e v 71.5% prior.

- 19:00 (KR) South Korea Jun Current Account Balance: No est v $8.9B prior; Balance of Goods (BoP): No est v $8.8B prior.

- 19:00 (AU) RBA’s Hunter testifies in Parliament.

- 21:00 (PH) Philippines Jun Unemployment Rate: No est v 4.1% prior.

- 21:30 (KR) Bank of Korea (BOK) to sell KRW2.1T in 2-Year bonds.

- 22:35 (CN) China to sell 2-year and 5-year Bonds.

- 23:00 (ID) Indonesia July Foreign Reserves: No est v $140.2B prior.

- 23:30 (TH) Thailand July Consumer Confidence: No est v 58.9 prior.

- 23:30 (TH) Thailand July CPI M/M: +0.1%e v -0.3% prior; Y/Y: 0.7%e v 0.6% prior; CPI Core Y/Y: 0.4%e v 0.4% prior.