Quiet run up on BoE commentary leaves market guessing on 25bps rate cut

EU mid-market update: Quiet run up on BOE commentary leaves market guessing on 25bps rate cut; UK industrials BAE and Rolls-Royce raise guidance as EU automakers disappoint on deliveries.

Notes/observations

- Focus on Bank of England rate decision, seen as a ‘close call’; Market is pricing in a 60% chance of 25bps cut, smaller call to leave policy unchanged. Uncertainty rests over the decision, after Gov Bailey has been unable to speak publicly in last 2 months due to recent UK General Election. We will see simultaneous release of quarterly staff projections (MPR) and post rate decision press conference at 07:30 ET.

- Markets digesting yesterday’s Fed decision and heavy hitting earnings from Meta and Arm. Decision was unchanged as expected with Powell leaving door open for Sept cut but wasn’t hugely convincing that it was a done deal.

- Cluster of European July manufacturing PMIs showed ongoing weakness in key nations of Germany, France, Italy and EU as a whole. Notable mentions include Netherlands with 1st contraction in 4 months and Norway with 56.9 improving substantially from 48.1 previously.

- Key EU Earnings Recap: Soc Gen cut domestic bank NII outlook; Credit Agricole beat estimates top and bottom; VW, BMW and Daimler Truck down on deliveries; ING raises FY rev guidance; Shell beats and announces $3.5B share buyback; Rolls-Royce raises guidance and reinstates dividend; Barclays £750M buyback; BAE beat and raised guidance.

- Upcoming earnings before open: Moderna, Canadian Natural, Crocs, MobilEye, ConocoPhillips, Wayfair, SiriuxFM, Canada Goose.

- Notable earnings after close: Amazon, Apple, Intel, Coinbase, DraftKings, Roku, Block, Marathon Digital.

- Asia closed mixed with Nikkei225 underperforming -2.6%. EU indices are lower by -0.3% to -1.6%. US futures are -0.1% to +0.1%. Gold -0.6%, DXY +0.2%; Commodity: Brent +0.9%, WTI +0.9%; Crypto: BTC -2.6%, ETH -4.0%.

Asia

- China July Caixin PMI Manufacturing registered its 1st contraction in 9 months) (49.8 v 51.5e.

- Japan July Final Manufacturing PMI confirmed its 1st contraction in 3 months (49.1v 49.2 prelim.

- Australia July Final Manufacturing PMI confirmed its 6th month of contraction (47.5 v 47.4 prelim).

- Australia Jun Trade Balance (A$): 5.6B v 5.0Be; Exports M/M: 1.7% v 1.3% prior; Imports M/M: 0.5% v 3.3% prior.

- South Korea July Trade Balance: $3.6B v $5.0Be; Exports Y/Y: 13.9% v 18.4%e; Imports Y/Y: 10.5% v 13.4%e.

- Australia Q2 Import Price Index Q/Q: +1.0% v -0.7%e; Export Price Index Q/Q: -5.9% v -5.3%e.

Global conflict/tensions

- Ukraine govt invoked moratorium law and to suspend foreign debt payments from Aug 1st.

Americas

- FOMC left the Target Range unchanged between 5.25-5.50% (as expected).

- Fed Chair Powell post rate decision press conference stressed it remained squarely focused on the dual mandate; had made considerable progress on both fronts. September rate cut was certainly being considered.

- Brazil Central Bank (BCB) left the Selic Target Rate unchanged at 10.50% (as expected) for its 2nd straight pause in the current easing cycle.

- Chile Central Bank (BccH) Overnight Rate Target unchanged at 5.75%; not expected) for its 1st pause in 9 decision under the current easing cycle.

Speakers/fixed income/FX/commodities/erratum

Equities

Indices [Stoxx600 -0.52% at 515.50, FTSE -0.28% at 8,344.70, DAX -1.09% at 18,297.35, CAC-40 -1.26% at 7,436.55, IBEX-35 -1.20% at 10,932.70, FTSE MIB -1.54% at 33,245.00, SMI closed, S&P 500 Futures +0.17%].

Market focal points/key themes: European indices open mixed with a downward bias and took on a decidedly negative trend in the first hours of trading; Switzerland closed for holiday; sectors inclined to gain include telecom and consumer discretionary; among underperforming sectors are industrials and financials; chip sector pressured by Arm results; on corporate news, Volkswagen reported results and announced it would have to make significant cost-cutting efforts in H2; Shares of Shell trade higher over 1% after energy giant beat expectations and announced buyback; focus on BOE rate decision and OPEC+ meeting later in the day; earnings expected in the upcoming US session include Apple, Amazon, ConocoPhillips and Intel.

Equities

- Consumer discretionary: Hugo Boss [BOSS.DE] +4.0% (final Q2 results), Next [NXT.UK] +8.5% (Q2 trading update, raises guidance), Wizz Air [WIZZ.UK] -15.0% (Q1 results, cuts guidance), Deutsche Post/DHL [DPW.DE] -0.5% (Q2 results) - Consumer staples: AB InBev [ABI.BE] +2.5% (Q2 results, guidance) - Energy: Shell [SHEL.UK] +1.5% (earnings; buyback; no foundation to potential £300B Shell merger with TotalEnergies speculation) - Financials: Barclays [BARC.UK] +1.0% (earnings), Societe Generale [GLE.FR] -7.5% (earnings; trims domestic outlook), ING Group [INGA.NL] -2.5% (earnings) - Healthcare: Merck KGaA [MRK.DE] +1.0% (final Q2 results, affirms guidance) - Industrials: Volkswagen [VOW3.DE] -2.0% (results), BMW [BMW.DE] -4.5% (Q2 results), Rolls-Royce [RR.UK] +7.5% (results).

- Materials: ArcelorMittal [MT.NL] -2.5% (earnings).

Speakers

- ECB Economic Bulletin reiterated stance ECB not pre-committing to a particular rate path. Council was determined to ensure that inflation returned to its 2% medium-term target in a timely manner. Domestic inflation remained high. Wages were still rising at an elevated rate.

Currencies/fixed income

- USD was firmer against the major European pairs. Dealers noted that Fed Chief Powell was cautious and stressed that a 50bps rate cut in September was out of the question. Dealers added that with the US economy coming into balance should not push rate cut expectations—and thus dollar weakness—much further in the absence of new data.

- EUR/USD at 1.0785 by mid-session and unable to capitalize on upward revision in PMI Manufacturing data in the region.

- GBP/USD was at 3-week lows below the 1.28 level ahead of the BOE rate decision. Markets slightly favoring the central bank moving into easing with its 1st cut since early 2020. Decision expected to be a ‘close call’ with Gov Bailey possibility being the decision vote.

- USD/JPY tested 148.50 during the Asian session following the Wed BOJ rate hike.

Economic data

- (NL) Netherlands Jun Retail Sales Y/Y: -2.4% v +2.9% prior.

- (NL) Netherlands July Manufacturing PMI: 49.2 v 50.7 prior (1st contraction in 4 months).

- (UK) July Nationwide House Price Index M/M: 0.3% v 0.1%e; Y/Y: 2.1% v 1.8%e.

- (RU) Russia July Manufacturing PMI: 53.6 v 52.1e (27th month of expansion).

- (NO) Norway Jun Credit Indicator Growth Y/Y: 3.6% v 3.1% prior.

- (SE) Sweden July PMI Manufacturing: 49.2 v 54.0e (1st contraction in 4 months).

- (HU) Hungary May Final Trade Balance: €1.0B v €1.1B prelim.

- (HU) Hungary July Manufacturing PMI: 49.2 v 49.0e (2nd month of contraction).

- (TR) Turkey July Manufacturing PMI: 47.2 v 47.9 prior (4th month of contraction).

- (PL) Poland July Manufacturing PMI: 47.3 v 44.8e (27th month of contraction).

- (ES) Spain July Manufacturing PMI: 51.0 v 52.3e (6th straight expansion).

- (CZ) Czech July Manufacturing PMI: 43.8 v 45.0e (26th straight contraction).

- (TH) Thailand July Business Sentiment Index: 46.9 v 48.7 prior.

- (IT) Italy July Manufacturing PMI: 47.4 v 46.0e (4th month of contraction.

- (FR) France July Final Manufacturing PMI: 44.0 v 44.1 prelim (confirmed 18th month of contraction).

- (DE) Germany July Final Manufacturing PMI: 43.2 v 42.6 prelim (confirmed 25th month of contraction).

- (EU) Euro Zone July Final Manufacturing PMI: 45.8 v 45.6 prelim (confirmed 25th month of contraction).

- (GR) Greece July Manufacturing PMI: 53.2 v 54.0 prior (18th month of expansion).

- (NO) Norway July Manufacturing: 56.9 v 48.1 prior (moves back into expansion).

- (IT) Italy Jun Unemployment Rate: 7.0% v 6.8%e.

- (UK) July Final Manufacturing PMI: 52.1 v 51.8 prelim (confirms 3rd month of expansion).

- (HK) Hong Kong Jun Retail Sales Volume Y/Y: -11.2% v -12.7%e; Retail Sales Value Y/Y: -9.7% v -11.8%e.

- (NG) Nigeria July Manufacturing PMI: 49.2 v 50.1 prior.

- (EU) Euro Zone Jun Unemployment Rate: 6.5% v 6.4%e.

- (BE) Belgium Jun Unemployment Rate: 5.9%t v 5.9% prior.

- (ZA) South Africa July Manufacturing PMI: 52.4 v 48.0e (1st expansion in 3 months).

- (CY) Cyprus July CPI M/M: 0.0%v -0.1% prior; Y/Y: 2.1% v 2.9% prior.

Fixed income issuance

- (ES) Spain Debt Agency (Tesoro) sold total €5.87B vs. €5.0-6.0B indicated range in in 2027, 2034 and 2044 SPGB bonds.

- Sold €1.83B in 2.50% May 2027 SPGB bonds; Avg Yield: 2.701% v 3.067% prior; bid-to-cover: 1.71x v 2.03x prior.

- Sold €2.86B in 3.45% July 2034 SPGB; Avg Yield: 3.107% v 3.345% prior; Bid-to-cover: 1.51x v 1.70x prior.

- Sold €1.18B in 5.15% Oct 2044 SPGB bond; Avg Yield: 3.566% v 3.301% prior; Bid-to-cover: 1.73x v 1.93x prior.

- (ES) Spain Debt Agency (Tesoro) sold €766M vs. €250-750M indicated range in 0.65% Nov 2027 Inflation-linked bonds (SPGBei); Real Yield: 0.892% v 0.830% prior; Bid-to-cover: 1.98x v 2.61x prior.

- (FR) France Debt Agency (AFT) sold total €B vs. €9.0-10.5B indicated range in 2034, 2038, 2043 and 2055 Bonds.

- Sold €4.956B 1.25% in 3.00% Nov 2034 Oat; Avg Yield: 3.01% v 3.05% prior, bid-to-cover: 2.25x v 1.97x prior.

- Sold €1.856B 1.25% in May 2038 Oat; Avg Yield: 3.21% v 3.21% prior; bid-to-cover: 2.35x v 2.33x prior.

- Sold €1.676B in 2.50% May 2043 Oat; Avg Yield: 3.36% v 3.36% prior; Bid-to-cover: 2.71x v 2.52x prior.

- Sold €2.009B in 4.00% Apr 2055 Oat; Avg Yield: 3.49% v 0.95% prior; Bid-to-cover: 2.02x v 2.07x prior.

Looking ahead

- (ZA) South Africa July Naamsa Vehicle Sales Y/Y: -9.4%e v -14.0% prior.

- (IT) Italy July Budget Balance: No est v -€13.4B prior.

- (AR) Argentina July Government Tax Revenue (ARS): No est v 11.3T prior.

- (RO) Romania July International Reserves: No est v $71.6B prior.

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

- 05:30 (HU) Hungary Debt Agency (AKK) to sell 12-month Bills.

- 05:40 (UK) BOE 7-day short-term repo operation (STR).

- 06:00 (IL) Israel Jun Chain Store Sales M/M: No est v -1.9% prior.

- 06:00 (PT) Portugal Jun Industrial Production M/M: No est v -3.2% prior; Y/Y: No est v 0.9% prior.

- 07:00 (UK) Bank of England (BoE) Interest Rate Decision: Expected to cut Bank Rate by 25bps to 5.00%.

- 07:00 (UK) Bank of England (BoE) Quarterly Monetary Policy Report (MPR).

- 07:00 (ZA) South Africa Jun Electricity Consumption Y/Y: No est v 4.8% prior; Electricity Production Y/Y: No est v 5.6% prior.

- 07:00 OPEC+ meeting.

- 07:30 (US) July Challenger Job Cuts Y/Y: No est v 19.8% prior.

- 07:30 (UK) BOE Gov Bailey post rate decision press conference.

- 08:00 (CZ) Czech July Budget Balance (CZK): No est v -178.6B prior.

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

- 08:30 (US) Q2 Preliminary Nonfarm Productivity: 1.8%e v 0.2% prior; Unit Labor Costs: 1.7%e v 4.0% prior.

- 08:30 (US) Initial Jobless Claims: 236Ke v 235K prior; Continuing Claims: 1.855Me v 1.851M prior.

- 08:30 (CZ) Czech Central Bank (CNB) Interest Rate Decision: Expected to cut 2-week Repurchase Rate by 25bps to 4.50%.

- 08:30 (CL) Chile Jun Economic Activity Index (Monthly GDP) M/M: +0.2%e v -0.4% prior; Y/Y: 1.5%e v 1.1% prior.

- 08:30 (US) Weekly USDA Net Export Sales.

- 09:00 (UK) Bank of England (BoE) Decision Maker Panel (DMP) July Survey.

- 09:00 (BR) Brazil July Brazil Manufacturing PMI: No est v 52.5 prior.

- 09:00 (RU) Russia Gold and Forex Reserve w/e July 26th: No est v $611.3B prior.

- 09:30 (CA) Canada July Manufacturing PMI: No est v 49.3 prior.

- 09:45 (US) July Final S&P Manufacturing PMI: No est v 49.5 prelim.

- 10:00 (US) July ISM Manufacturing: 49.0e v 48.5 prior; Prices Paid: No est v 52.1 prior.

- 10:00 (US) Jun Construction Spending M/M: +0.2%e v -0.1% prior.

- 10:30 (US) Weekly EIA Natural Gas Inventories.

- 11:00 (CO) Colombia July PMI Manufacturing: No est v 49.8 prior.

- 11:00 (MX) Mexico July Manufacturing PMI: No est v 51.1 prior.

- 11:00 (MX) Mexico Jun Total Remittances: $5.5Be v $5.6B prior.

- 11:00 (MX) Mexico Central Bank Economist Survey.

- 11:00 (PE) Peru July CPI M/M: 0.4%e v 0.1% prior; Y/Y: 2.2%e v 2.3% prior.

- 11:30 (US) Treasury to sell 4-Week and 8-Week Bills.

- 12:00 (CA) Canada to sell 2 Year Bonds.

- 12:00 (IT) Italy July New Car Registrations Y/Y: No est v 15.0% prior.

- 12:00 (UK) BOE’s Pill (chief economist).

- 14:00 (MX) Mexico July IMEF Manufacturing Index: 49.0e v 49.5 prior; Non-Manufacturing Index: 50.7e v 51.0 prior.

- 19:00 (KR) South Korea July CPI M/M: 0.3%e v -0.2% prior; Y/Y: 2.5%e v 2.4% prior; CPI Core Y/Y: 2.1%e v 2.2% prior.

- 19:50 (JP) Japan July Monetary Base Y/Y: No est v 0.6% prior.

- 21:30 (AU) Australia Q2 PPI Q/Q: No est v 0.9% prior; Y/Y: No est v 4.3% prior.

- 21:30 (AU) Australia Jun Home Loans Value M/M: +0.1%e v -1.7% prior; Owner-Occupier Loan Value M/M: No est v -2.0% prior; Investor Loan Value M/M: No est v -1.3% prior.

- 22:35 (CN) China to sell 30 Year Bonds.

- 23:30 (JP) Japan to sell 3-Month Bills.