Biden withdraws from race – PBOC unexpectedly cuts short-term rates

EU mid-market update: Biden withdraws from race; PBOC unexpectedly cuts short-term rates; Ryanair guidance and 'no H2 visibility' comment drags down airlines.

Notes/observations

- US politics once again in focus after Pres Biden withdrew from re-election bid on Sunday, questioning if ‘Trump trade’ could receive further momentum from last week. At present, VP Kamala Harris seen as Democratic favorite to head the 2024 ticket, but some analysts see an open DNC as more likely amid low approval ratings for Harris and key Democratic party figures like Pelosi and Obama still have not endorsed Harris. Market waits for further developments as Pres Biden set to address nation in coming days, VP Harris expected to speak this morning at NCAA White House Event, while DNC’s Rules Committee said to meet on Wednesday to implement a framework to select a new Democratic nominee.

- China’s PBOC surprised during Asian session with 10bps rate cuts to 7-day reverse repo, 1-year and 5-year LPR, and 7-day/1-month SLFs.

- About 40% of S&P 500 index members expected to report quarterly results this week, including Tesla and Alphabet tomorrow.

- European aviation sector nosedived after Q1 results from largest EU airline, Ryanair. Miss in top and bottom line, but the poor outlook for fares, recent July bookings color and comments about consumer push back got investor attention. Remaining on aviation theme, Farnborough International Airshow is underway July 22-26th, which typically yields large aircraft orders for Boeing and Airbus.

- Asia closed mixed with Nikkei underperforming -1.3%. EU indices are +0.6-1.2%. US futures are +0.2-0.5%. Gold +0.0%, DXY -0.1%; Commodity: Brent +0.2%, WTI +0.1%; Crypto: BTC +0.6%, ETH -0.6%.

Asia

- China PBOC cuts 7-day reverse repo by 10bps to 1.7% (prior 1.8%, first cut since Aug 2023).

- China PBOC monthly loan prime rate (LPR) setting: Cuts both 1-year and 5-year rates by 10bps.

- China PBOC cuts standing lending facility (SLF) rates by 10bps for the overnight, 7-day and 1-month maturities (1st cut since Aug 2023).

- China PBOC to strengthen counter-cyclical adjustment to better support real economy; To 'appropriately' reduces collateral requirements for MLF operations; To take effect from July - press.

- China Commerce Ministry (MOFCOM): To conduct final review on EU, UK South Korea and Indonesia stainless steel imports.

- China grain output said to be further threatened by more extreme weather - Chinese press.

- China to extend tariff exemptions for imports of some US products until Feb 28th, 2025.

- India PM Modi: Budget will set direction for five years of gov.

- Japan budget request reportedly to exceed $698B for the next FY - financial press.

Americas

- President Joe Biden steps down as democratic presidential candidate; endorses VP Kamala Harris as replacement (1st time US presidential candidate drops out from the race since Lyndon B. Johnson in Mar 1968, eight months before 1968's US elections).

- Democratic National Convention's Rules Committee said to meet on Wed, July 24th in the afternoon to implement a framework to select a new nominee - WSJ.

- Democratic party fund-raising increases by $50M since Pres Biden announced his decision to step down earlier today - financial press.

- Bill and Hilary Clinton endorse Kamala Harris - X statement; Note: Schumer, Pelosi, Jeffries, Obama so far have Not endorsed Harris in their statements; Last week, according to NYT, Former House of Representatives speaker told her colleagues in the California delegation that if Pres Biden were to end his campaign she would favor the “competitive” process of an open primary rather than an anointment of VP Harris as the new Democratic presidential nominee.

- Former Pres Trump: Think Harris will be easier to defeat that Biden would have been - CNN citing call.

- Democratic National Committee's Chair: The American people will hear from the Democratic party on next steps and the path forward for the nomination process.

- Hours before the Biden's announcement, former members of Hillary Clinton’s and Sen. Bernie Sanders’ 2016 presidential campaigns have reportedly come together to form United for Harris, so far the first public-facing effort to promote a potential 2024 presidential campaign for Harris - NBC News.

- US FAA: Tech issue may continue to affect flights over weekend.

- US CDC provides H5N1 Bird Flu Current Situation Summary: 50 US Jurisdictions with Bird Flu in 9,552 Wild Birds Detected; 48 States with Poultry Outbreaks as of 7/18/24; 13 States with Outbreaks in Cows affecting 163 Dairy Herds as of 7/18/24 (160 prior).

- Nvidia said to working on new version of 'flagship AI chips' for China market compatible with US export controls; Said to work with Inspur, one of its major distributor partners in China, on the launch and distribution of the chip tentatively named the "B20".

- Financial Stability Board (FSB): To propose policy solutions on leverage in non-banks by end 2024.

Conflict/tensions

- US Pres Biden and Israel Pres Netanyahu were to meet on Monday, July 22nd at the White House - press [**Note: Netanyahu's first official visit to Washington since the war against Hamas in Gaza began in Oct 2023].

- Israel strikes 'several' Houthi targets in western Yemen over the weekend following fatal drone attack in Tel Aviv last week, Later shoots down retaliatory missile fired from Yemen - press.

- Israel IDF said to ask people of the city of Khan Younis, Gaza to leave remaining eastern areas ahead of a 'forceful operation'.

Europe

- Weakness seen in European aviation sector following Ryanair outlook cut (largest airline in Europe).

- Russia's Tuapse Refinery infrastructure [capacity 240K bpd] again damaged by Ukraine drone attack - Russia state media.

- ECB’s Makhlouf (Ireland Central Bank Chief): There’s no need to actually rush to make decisions; No predetermined rate path - interview.

- ECB's Kazimir (Slovakia): Waiting for Sept data 'health check'; Door remains open for further easing; Bets on 2 rate cuts this year not totally misplaced, but not baseline.

- French lawmakers reelected a member of the far-left France Unbowed party to head the National Assembly's finance committee - press.

- UK govt said to be ready to offer teachers and nurses 5.5% pay rise (above rate of inflation) - financial press.

- Poland Central Bank (NBP) Duda: May start discussing rate cuts in H2 2025.

- UK Chancellor of the Exchequer (Fin Min) Reeves: Will run UK economy with "iron discipline"; Suggest giving public sector workers an above-inflation pay raise to help end a wave of strikes and strife.

Energy

- Russia's Tuapse Refinery infrastructure [capacity 240K bpd] again damaged by Ukraine drone attack - Russia state media.

Speakers/fixed income/FX/commodities/erratum

Equities

Indices [Stoxx600 +0.90% at 514.60, FTSE +0.53% at 8,199.05, DAX +1.14% at 18,372.05, CAC-40 +1.21% at 7,625.79, IBEX-35 +0.67% at 11,161.31, FTSE MIB +0.97% at 34,547.00, SMI +0.74% at 12,261.20, S&P 500 Futures +0.35%].

Market focal points/key themes: European indices open higher across the board and continued into the green through the early part of the session; among sectors leading the way upwards are technology and communication services; lagging sectors include financials and consumer discretionary; airlines stocks impacted following Ryanair's guidance cut; Vodafone divests a further 10% of Vantage; Hammerson sells its interest in Value Retail to L Catterton; reportedly Philip Jansen in talks to take over Rentokil; earnings expected in the upcoming US session include Verizon, Louis Vuitton, Crown Holdings and Cleveland-Cliffs.

Equities

- Consumer discretionary: Ryanair [RYA.IE] -12.5%, International Consolidated Airlines [IAG.UK] -3.5% (Ryanair earnings; cuts outlook), LVMH [MC.FR] +2.5% (China rate cuts).

- Consumer staples: Ocado Group [OCDO.UK] +7.0% (partnership with Kroger).

- Energy: Chariot [CHAR.UK] -5.5% (placement).

- Financials: Hammerson [HMSO.UK] +5.0% (disposal).

- Industrials: Rentokil Initial [RTO.UK] +10.5% (UK press report that Philip Jansen in talks with PE firms for Rentokil takeover), Airbus [AIR.FR] +0.5% (Farnborough International Airshow starts today), Varta [VAR1.DE] -64.5% (financial reorganization).

- Technology: Infineon [IFX.DE] +2.0% (South Korea July 1-20th Chip exports data; Taiwan export orders).

Speakers

-ECB's Kazimir (Slovakia): Waiting for Sept data 'health check'; Door remains open for further easing; Bets on 2 rate cuts this year not totally misplaced, but not baseline.

- ECB’s Makhlouf (Ireland Central Bank Chief): There’s no need to actually rush to make decisions; No predetermined rate path - interview.

- Japan Outgoing Top FX Diplomat Kanda: G-7 this week will focus on Ukraine support, Russian sanctions and global tax- Japanese press.

- India PM Modi: Budget will set direction for five years of govt.

-Japan LDP Ruling Party Sec Gen Motegi: Bank of Japan (BOJ) should more clearly indicate its policy normalization path, including chance of several-staged rate hikes.

-Philippines Pres Marcos: Power law may need changes; Will expedite infrastructure project approvals - State of the Nation Address.

Economic data

-(ID) Indonesia Jun M2 Money Supply Y/Y: 7.8% v 7.6% prior.

-(NL) Netherlands Jun House Price Index M/M: 1.3% v 1.1% prior; Y/Y: 9.7% v 8.6% prior.

-(JP) Japan Jun Tokyo Condominiums for Sale Y/Y: -12.8% v -19.9% prior.

-(TR) Turkey Central Bank (TCMB) July Inflation Expectations Survey: Next 12-months: 30.0% v 31.8% prior.

-(MY) Malaysia mid-July Foreign Reserves: $113.3B v $113.8B prior.

-(CH) Swiss Jun M3 Money Supply Y/Y: +0.4% v -0.6% prior.

-(FR) France Jun Retail Sales Y/Y: -0.7% v -1.4% prior.

-(PH) Philippines Jun Overall Balance of Payments (BoP): -$0.2B v +$2.0B prior (update from July 19th).

-(PL) Poland Jun Construction Output Y/Y: -8.9% v -5.1%e.

-(CH) Swiss Weekly Total Sight Deposits (CHF): 461.3B v 458.9B prior; Domestic Sight Deposits: 452.9B v 450.3B prior.

-(TW) Taiwan Jun Export Orders Y/Y: 3.1% v 12.3%e.

-(PL) Poland Jun Real Retail Sales M/M: 0.3% v 1.4%e; Y/Y: 4.4% v 5.3%; Real Sales (current prices) Y/Y: 4.7% v 6.0%e.

-(TW) Taiwan Jun Unemployment Rate: 3.3% v 3.3%e.

-(CN) China Jan-June Fiscal Rev: -2.8% y/y; Fiscal Expenditures +2.0% y/y.

-(HK) Hong Kong Jun CPI Composite Y/Y: 1.5% v 1.2%e.

-(BE) Belgium July Consumer Confidence: -5 v -1 prior.

-(IS) Iceland Jun Wage Index M/M: 0.5% v 0.2% prior; Y/Y: 6.0% v 6.7% prior.

Fixed income issuance

- (PH) Philippines sells total PHP20.0B vs. PHP15.0B indicated in 3-month, 6-month and 12-month bills.

Looking ahead

- 05:30 (DE) Germany to sell €5.0B indicated in 6-month and 12-month BuBills.

- 06:00 (IE) Ireland Jun PPI M/M: No est v -2.8% prior; Y/Y: No est v 0.9% prior.

- 06:00 (BE) Belgium Debt Agency (BDA) to sell €2.5B in 10-year and 31-year retail OLO bonds.

- 07:25 (BZ) Brazil Central Bank Weekly Economist Survey.

- 08:00 (PL) Poland Jun Money Supply M3 M/M: No est v 0.4% prior; Y/Y: No est v 8.4% prior.

- 08:00 (MX) Mexico May Retail Sales M/M: 0.9%e v 0.5% prior; Y/Y: 2.3%e v 3.2% prior.

- 08:00 (MX) Mexico May Economic Activity IGAE M/M: 0.6%e v -0.6% prior; Y/Y: 1.4%e v 5.4% prior.

- 08:30 (US) Jun Chicago Fed National Activity Index: -0.09e v +0.18 prior.

- 08:50 (FR) France to sell €6.4-8.0B in 3-month, 6-month and 12-month bills.