Market Report.
🇺🇸 President Donald Trump and Federal Reserve Chairman Jerome Powell engaged in a public disagreement over the costs of renovations to the Fed headquarters in Washington. Trump claimed the renovations have cost over $3.1 billion, but Powell disputed this, saying Trump was including the costs of a separate government building. Despite their disagreement, Trump said he is unlikely to fire Powell, stating “I just don’t think it’s necessary.” He said he believes Powell will “do the right thing.”
💰 Trump’s visit to the Fed was seen as the latest chapter in his pressure campaign to get Powell to lower interest rates or resign as Fed chair.
🇪🇺 The European Central Bank (ECB) left interest rates unchanged on Thursday and offered a modestly upbeat assessment of the euro zone economy. ECB President Christine Lagarde said the economy is in a “good place” and growth is in line with or better than projections, bolstering market bets that the ECB may be done with cutting rates. The ECB’s baseline projection already incorporates 10% U.S. tariffs, which would result in lower growth and inflation below the 2% target over the next 18 months.
📉 However, we believe there are other motivations for maintaining interest rates in Europe. The first is that there is little room left for further cuts. The ECB has reduced interest rates at a rapid pace over the past few months due to fears of a recession in Europe. This has brought current rates down to 2.15%, compared to an inflation rate of 2%, resulting in a real interest rate of 0.15%—an extremely low figure compared to the United States or the United Kingdom. If rates were to be cut further, they would enter negative real interest rate territory.
⚠️ The second reason is that, given the context of a trade war, there are risks that, if China and Europe fail to reach an agreement with the United States, excess supply in Europe could arise in the coming months, potentially leading to deflation. This would render the current low interest rates less significant.
📈 Autarchy seems to be more profitable than globalisation: Europe’s smaller companies are emerging as a popular investment vehicle to help insulate portfolios against both tariffs and a stronger euro. The domestic-leaning bias of smaller companies makes them less vulnerable to cross-border tariffs and less exposed to currency swings that make euro-zone exports more expensive. The STOXX Europe small- and mid-cap indexes have outperformed the large-cap index so far this year, rising 9% and 11% respectively compared to 7% for the large-caps.
🇯🇵 The selloff in JGBs (Japanese government bonds) was driven by increased political risks and uncertainty around the Bank of Japan’s (BOJ) policy normalization path. Investors are concerned that the opposition parties’ calls for tax cuts and increased government spending could widen Japan’s already large fiscal deficit. The election result puts the BOJ in a difficult position, as higher inflation could keep pressure on the central bank to raise rates, while political paralysis and trade war impacts could compel them to go slow on policy normalization.
🚗 Tesla’s Bitcoin holdings, currently valued at approximately $1.24 billion based on its investor presentation deck, could have retained significantly higher value had the company retained the 75% of its cryptostock sold in 2022. At the time of the disposition, Bitcoin traded near $19,000; it has since surged to around $118,000, underscoring the opportunity cost of the partial sale.
📉 Tesla shares experienced an 8% decline following the disclosure of a second consecutive quarter of weakening auto demand. In European markets, the company’s market share retreated for the sixth straight month in June, settling at 2.8% (down from 3.4% a year earlier).
⚡ The expiration of the $7,500 U.S. electric vehicle (EV) tax credit at the end of September will reduce the immediate cost advantage of Tesla vehicles despite robust macroeconomic conditions. The tax credit’s expiration coincides with a broader policy recalibration, as lawmakers reconsider subsidies for EV adoption.
🔋 Automakers are calling for Europe to further stimulate demand for battery-electric vehicles, as their sales growth slowed to the lowest pace this year. New car sales in Europe fell 5.1% in June, the steepest decline in 10 months, as consumers remain cautious. European carmakers are facing challenges, with Volkswagen, BMW, and Mercedes losing ground in the crucial Chinese market to domestic competitors. The UK reintroduced EV purchase grants, leading to a 6.7% rise in new car sales in the country in June.
☀️ The solar energy sector is experiencing a decline in demand for rooftop photovoltaic installations due to reduced wholesale electricity prices and policy incentives, causing short-term uncertainty for residential adoption and supply chain sustainability.
💸 Deutsche Bank’s shares rose to the highest level in a decade after the bank reported better-than-expected trading results. Chief Financial Officer James von Moltke said the entire investment bank division has had a “good start” to the current quarter, giving the bank confidence in meeting its targets. The strong trading results driving a surge in the bank’s share price to a 10-year high.
📅 Next week’s financial calendar includes central bank policy announcements, nonfarm payroll data release, and quarterly earnings disclosures from major tech firms like Amazon, Apple, Meta, and Microsoft, along with key sector performance and macroeconomic trends.
🌍 Geopolitics:
🇷🇸 Serbia plans to repatriate its $6 billion gold reserves to domestic storage facilities by 2025, becoming the first Eastern European country to completely abandon international storage hub countries like Switzerland, the UK, and the US, aligning with global trends of central banks prioritising strategic diversification and asset control.
🇫🇷 French President Macron announces that France will recognise Palestine as a state in September. Saudi Arabia praises France’s decision to recognise a Palestinian state and calls on other countries to take the same step.
🇬🇧 In a strongly worded statement at the United Nations, the United Kingdom sharply criticised Israel over what it described as “genocide in Gaza” and denounced Jewish settlers as “terrorists.” The UK highlighted the killing of starving Palestinian civilians by the Israel Defence Forces (IDF) as they sought humanitarian aid, labelling these actions as unjustifiable.
🚫 The UK further condemned the proposed E1 settlement plan as an illegal and deliberate effort to obstruct the establishment of a Palestinian state. “Settler terrorism and talk of imposing the illegal E1 settlement plan are flagrant attempts to prevent a Palestinian state,” the UK representative stated.
📊 Market Review:
📈 Optimism remains in the markets, with Mini S&P 500 futures trading above 6,400 points. Nasdaq 100 futures follow suit, trading above 23,400 points.
📉 The US Dollar Index (DXY), which recovered slightly during yesterday’s session, has resumed its decline in recent hours, falling below 97.50 points. This has pushed the EUR/USD pair, which just a week ago was nearing 1.1550, to now trade above 1.1750.
🇪🇺 In Europe, the period of unlimited liquidity provided by the ECB through constant rate cuts has come to an end. Yesterday’s announcement to maintain interest rates has dampened European stock markets, with DAX 40 futures trading at 24,295 points, down from the 24,600 points reached on Wednesday. Eurostoxx futures are also retreating, moving towards the 5,360-point zone.
🛢️ The crude oil market remains relatively stable, with Brent crude trading near $69.50 per barrel.
🥇 The gold market is experiencing some volatility, with futures dropping again to $3,355 per ounce from the $3,450 reached on Wednesday.
₿ Bitcoin has broken the support level we have been mentioning for days, falling below 117,000 and currently trading at 115,400.
