- US stocks were lower with selling pressure seen early in the session alongside reports that several top Democrats said the rising pressure from party congressional leaders and close friends will persuade US President Biden to drop out of the race, potentially as soon as this weekend, while there were also reports that the Houthi leader threatened an expanded escalation in the Indian Ocean and Mediterranean, as well as issued new threats against Saudi Arabia. As such, the major indices were on the back foot although pared some of the losses into the close, while the dollar was underpinned and treasuries were pressured which are typical characteristics of the 'Trump trade'.
- USD strengthened with the DXY back above 104.00 as risk-off sentiment was sparked amid a further diminishing of Biden's re-election chances after several top Democrats told Axios that the rising pressure from party congressional leaders and close friends will persuade Biden to decide to drop out of the presidential race, while former President Obama also reportedly told allies that Biden needs to re-assess his viability.
- Looking ahead, highlights include UK GfK Consumer Confidence, Japanese CPI, New Zealand Credit Card Spending, Comments from Fed's Daly & Bowman, Supply from Australia.
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LOOKING AHEAD
- Highlights include UK GfK Consumer Confidence, Japanese CPI, New Zealand Credit Card Spending, Comments from Fed's Daly & Bowman, Supply from Australia.
- Click for the Newsquawk Week Ahead.
US TRADE
- US stocks were lower with selling pressure seen early in the session alongside reports that several top Democrats said the rising pressure of party congressional leaders and close friends will persuade US President Biden to drop out of the race, potentially as soon as this weekend, while there were also reports that the Houthi leader threatened an expanded escalation in the Indian Ocean and Mediterranean, as well as issued new threats against Saudi Arabia. As such, the major indices were on the back foot although pared some of the losses into the close, while the dollar was underpinned and treasuries were pressured which are typical characteristics of the 'Trump trade'.
- SPX -0.78% at 5,544, NDX -0.48% at 19,705, DJI -1.29% at 40,665, RUT -1.82% at 2,198.
- Click here for a detailed summary.
NOTABLE HEADLINES
- Fed's Logan (non-voter) said the Fed is making progress in getting banks ready to use the discount window and Fed emergency lending programmes have been effective, while she added all eligible banks should be prepared for the discount window.
- Fed's Goolsbee (non-voter) said they have had multiple months of better inflation data and the inflation fight is not done, but feels a lot better about prices, while the labour market has been cooling to a better balance and in real-rate terms, have tightened substantially.
- US President Biden is not wavering on anything, according to a campaign aide. However, it was later reported that President Biden is 'soul searching' amid calls to exit the 2024 race and some Democratic officials said they see a Biden exit from the race as a matter of time, according to Reuters sources
- Several top Democrats privately told Axios the rising pressure from party congressional leaders and close friends will persuade President Biden to decide to drop out of the presidential race as soon as this weekend.
- Former President Obama reportedly told allies that US President Biden needs to seriously consider his viability, according to Washington Post.
- Fox was told that Democratic House and Senate members sense that there is a shift in President Biden’s thinking that he will definitely remain at the top of the ticket. Fox was told that the President contracting COVID is forcing a period of slowing down and reflection although the President’s bout with COVID could arrest the decision-making process, while one senior House Democratic source said “This will be an important weekend in Rehoboth”, while a House Democrat replied “When everyone returns to Washington Monday“ regarding when there might be more clarity.
- Sky News Arabia initially posted on X citing NBC News that a source close to Biden said US President Biden is about to announce his withdrawal from the presidential race. However, this was deleted shortly after and the actual article from NBC noted a source close to Biden admitted "We're close to the end" and another source said "They're finally realizing it's a when, not if".
DATA RECAP
- US Initial Jobless Claims w/e 243.0k vs. Exp. 230.0k (Prev. 222.0k, Rev. 223k)
- US Jobless Claims 4-Wk Avg w/e 234.75k (Prev. 233.5k, Rev. 233.75k)
- US Leading Index Change MM (Jun) -0.2% vs. Exp. -0.3% (Prev. -0.5%, Rev. -0.4%)
- US Philly Fed Business Index (Jul) 13.9 vs. Exp. 2.9 (Prev. 1.3)
- US Philly Fed Prices Paid (Jul) 19.8 (Prev. 22.5)
- US Philly Fed New Orders (Jul) 20.7 (Prev. -2.2)
- US Philly Fed Employment (Jul) 15.2 (Prev. -2.5)
FX
- USD strengthened with the DXY back above 104.00 as risk-off sentiment was sparked amid a further diminishing of Biden's re-election chances after several top Democrats told Axios that the rising pressure from party congressional leaders and close friends will persuade Biden to decide to drop out of the presidential race, while former President Obama also reportedly told allies that Biden needs to re-assess his viability.
- EUR softened and just above gave up the 1.0900 status against the buck after the ECB meeting and comments from ECB President Lagarde that September is "wide open".
- GBP steadily retreated beneath the 1.3000 handle throughout the day and failed to benefit from slightly better-than-expected employment change.
- JPY underperformed to give back some of its recent advances after the latest BoJ data did not immediately show evidence of intervention on July 17th, while the focus turns to Japanese CPI.
- South African Repo Rate (Jul) 8.25% vs. Exp. 8.25% (Prev. 8.25%). SARB said inflation expectations are still uncomfortably above the 4.5% objective and services price inflation also remains uncomfortably above the mid-point, as well as noted that while the inflation forecast has improved, the balance of risks is assessed to the upside.
FIXED INCOME
- T-notes settled lower after fading the early rising jobless claims bid as Biden's re-election chances diminished while attention turns to supply next week.
COMMODITIES
- Oil prices were choppy and ultimately settled flat as tailwinds from heightened geopolitical woes were offset by notable dollar strength.
- OPEC+ JMMC meeting on August 1st is unlikely to adjust oil policy including the current plan for an output hike from October, according to Reuters citing three OPEC+ sources.
- Slovak Economy Ministry said deliveries of Lukoil Oil to Slovakia via Ukraine stopped after inclusion in Ukraine sanctions list. However, Ukrainian industry sources stated that oil is being transported to European nations via Ukraine normally, according to Reuters.
- Chile's Codelco Chairman said 2024 copper production will outdo 2023 and that about two dozen companies agreed to enter the partner selection process for the Maricunga lithium project in Chile.
GEOPOLITICAL
MIDDLE EAST
- Israeli PM Netanyahu will hold a discussion session tonight with the defence minister and the negotiating team on the kidnappers deal, according to Axios citing an Israeli official.
- Israeli officials mull EU and Palestinians running Rafah crossing and if enacted, it would foreshadow an end to the conflict between Israel and Hamas and enable more aid to get into Palestinian territory, according to Bloomberg.
- Houthis leader threatened expanded escalation in the Indian Ocean and Mediterranean, while the group’s leader also issued new threats against Saudi Arabia, according to Sky News Arabia.
- White House said they have been monitoring threats from Iran when it comes to the former administration.
OTHER
- Russia's Kremlin said the presence of NATO warships in the Black Sea is a threat to Russia given the alliance's involvement in the Ukraine conflict.
- Russian Deputy Foreign Minister said Moscow does not exclude deployment of missiles with nuclear warheads in response to deployment of US missiles in Germany, according to Interfax.
- Japan’s Coast Guard held its first joint drill with its Taiwan counterpart, according to NHK. It was also reported that Japan warned that if Beijing was to fully commit to an invasion of Taiwan, China could land troops in Taiwan within a week, according to scenario analysis by the Japanese government cited by Taiwan News.
ASIA-PAC
NOTABLE HEADLINES
- China Third Plenum Communique stated it adopts a resolution on further deepening reform comprehensively and it is necessary to guide reform with the new development concept, deepen supply-side structural reform, improve the incentive and constraint mechanism to promote high-quality development, and create new momentum and new advantages for development. Furthermore, it said they must implement macroeconomic policies in accordance with the decisions and arrangements of the Party Central Committee on economic work and actively expand domestic demand, develop new quality productivity in accordance with local conditions, accelerate the cultivation of new foreign trade momentum, solidly promote green and low-carbon development, effectively protect and improve people's livelihood, and consolidate and expand the results of poverty alleviation. The plenary session also proposed that the integrated development of urban and rural areas is an inevitable requirement for China's modernisation.
- Chinese President Xi was seen on national TV at the Third Plenum, according to CCTV.
- French Cognac Association said a hearing organised by the Chinese Ministry of Commerce was held this morning in Beijing as part of the anti-dumping investigation into EU brandy.
- Japanese Cabinet Secretary Hayashi said no comment on FX moves and specifics of monetary policy is up to BoJ, while he added BoJ policy not aimed at guiding forex and he is closely monitoring the forex market.
- Latest BoJ data does not immediately show evidence of intervention on July 17th, according to Reuters.
- BoJ's Osaka Manager said they wish to maintain an accommodative monetary environment as much as possible and believe the next policy meeting is extremely important, according to JiJi.
- RBI Bulletin said Q2 FY24/25 started with signs of quickening momentum in the economy and the post-pandemic rise in the estimate of the natural rate is driven by strong growth in potential output.
EU/UK
NOTABLE HEADLINES
- UK Chancellor Reeves warned of difficult decisions ahead to fix the UK economy and said they face difficult decisions on UK spending, while they aim to foster a new era of trust with EU trade partners and the government doesn't want to close the UK down to imports and exports.
- BoE said a global payments issue is affecting the bank's Chaps service and delaying some high-value and time-sensitive payments including some home purchases.
- ECB kept its rates unchanged as expected with the Marginal Lending Facility at 4.50%, Refinancing Rate at 4.25% and Deposit Rate at 3.75%. ECB Statement reiterated it will keep policy rates sufficiently restrictive for as long as necessary, while it will be data-dependent and take a meeting-by-meeting approach, as well as reiterated the GC is not pre-committing to a particular path.
- ECB's Lagarde said incoming information broadly supports the previous assessment of the medium-term inflation outlook, while she suggested the nature of discussions was balanced and noted that lots of time was spent looking at wages, profitability and productivity. Lagarde said risks to economic growth are tilted to the downside (prev. balanced in near term, tilted to downside over the medium term) and that the decision was unanimous, while they determined not to have a pre-determined rate path and September is wide open.
- ECB officials reportedly consider if only one more cut is feasible in 2024, according to Bloomberg citing people familiar with the matter. As inflation pressures still linger, officials are becoming less confident that a path for two further reductions is realistic, and don’t want investors to assume that a move in September is a done deal, while policymakers’ experience of having made too strong a commitment in June are also motivating them to keep all options available for the September meeting. Furthermore, an argument in favour of a cut in September is the weak performance of the economy in Q2 which may struggle to pick up although sticky services inflation could weigh against such a move, while none of the people excluded the possibility that two rate cuts could still occur and all emphasised that decisions have yet to be made.
- ECB hawks are open to September rate cut provided upcoming data confirm disinflation is underway, according to Reuters sources.
- EU Parliament approved von der Leyen for a second term as European Commission President.
DATA RECAP
- UK Employment Change (May) 19k vs. Exp. 18k (Prev. -140k)
- UK ILO Unemployment Rate (May) 4.4% vs. Exp. 4.4% (Prev. 4.4%)
- UK Avg Earnings (Ex-Bonus) (May) 5.7% vs. Exp. 5.7% (Prev. 6.0%)
- UK Avg Wk Earnings 3M YY (May) 5.7% vs. Exp. 5.7% (Prev. 5.9%)
