Market Report.
📈 It’s Friday, and it’s time to wrap up the week by reviewing the latest macroeconomic data.
🇬🇧 Yesterday, we began the session with good data on the British economy. The United Kingdom reported an annualised growth rate exceeding expectations. The quarterly growth was 0.3% compared to the expected 0.1%, while the annualised growth reached 1.2% against the anticipated 1%.
📊 British industrial production also increased by 0.7%, surpassing the expected 0.3%. In Europe, GDP growth was 1.4% annualised, in line with expectations; however, industrial production contracted by -1.3%, worse than the -0.9% predicted. This is a negative scenario that we have been anticipating in these reports for months.
🇺🇸 In the United States, wholesale prices are rising. The July producer price index jumped 0.9% for the month, exceeding the 0.2% gain predicted by the Dow Jones. Since 2022, it was the largest monthly increase. At 3.3%, the yearly percentage was the highest since February.
📉 David Zervos, a prospective Fed chair, supports a drastic rate cut. Reaccelerating wholesale prices in July shouldn’t stop the central bank from reducing its “restrictive” monetary policy by 50 basis points, the chief market strategist at Jefferies said.
💰 Gold is headed for a weekly loss as traders have pared bets on the Federal Reserve cutting rates next month following a pick-up in US wholesale inflation. Bullion is ending the previous session 0.6% lower, as the report showed US wholesale inflation accelerated in July by the most in three years. Swap traders now see around a 90% chance the US central bank will reduce rates in September, after fully pricing in the move earlier this week.
🔍 Yesterday, our Risk Director at ATFX Connect London, Christopher Hawkes, detected an interesting anomaly in the British market. The spread between SONIA and the Bank of England’s official rates has recently turned negative.
📉 When the SONIA (Sterling Overnight Index Average) rate falls below the Bank of England (BoE) official Bank Rate, it indicates several things about UK money market conditions: Excess Liquidity in the Banking System – high level of reserves (cash) in the banking system. Deposit Remuneration Strategy – Banks prefer to hold funds at the BoE, which earns the Bank Rate, rather than taking additional overnight deposits at a lower rate, or simply, and perhaps even worse, a lack of confidence in the British economy, by Banks reducing the granting of credit.
🇨🇳 China’s new home prices fell 0.3% month-on-month in July, but the pace of declines eased slightly in major cities as more local governments rolled out incentives for homebuyers. The property market in China has been in a severe slump for over 4 years, with declining prices, sales, new investment and construction starts weighing on economic growth.
🔄 It is still unsure when the property market conditions will bottom out, as a sustained recovery has remained elusive despite multiple rounds of policies to stimulate demand. Property investment fell 12% year-on-year in January-July, while property sales by floor area fell 4.0%. Reviving the real estate sector, which used to account for a quarter of China’s economic activity, is a key task for policymakers as they aim to meet the annual GDP growth target of “around 5%”.
📉 Meanwhile, China’s annualised industrial production falls below expectations, resulting in 5.7% compared to the anticipated 6%. There is also a slight increase in China’s unemployment rate, rising to 5.2% from the expected 5.1%. Could this be a result of Trump’s tariff policy?
🇯🇵 In Japan, GDP growth improves in Q2, resulting in an annualised rate of 1% compared to the expected 0.4%. On the other hand, its industrial production is also strengthened, with an increase of 2.1% in June against the anticipated 1.7%.
📊 And finally, a key piece of information: this afternoon we will learn the US retail sales figures, which will give us a clue as to the direction of the economy. Is it strengthening or weakening?
🏢 There is also interesting news in the corporate world today.
📈 Intel shares rose 7% after a Bloomberg report that the Trump administration is in talks to take a stake in the struggling chipmaker. Intel is the only U.S. company capable of manufacturing the fastest chips domestically, though rivals like TSMC and Samsung also have U.S. factories.
💼 The government’s stake would help fund Intel’s new chip factories in Ohio, as the Trump administration has called for more U.S. manufacturing of chips and high-tech products. Intel’s CEO recently visited the White House, after the president had previously called for his resignation over alleged ties to China.
🏭 Under the Trump administration, the U.S. government has increasingly taken equity stakes in major industries, including in chip companies selling to China. This week, the WSJ published an interesting article titled: The U.S. Marches Toward State Capitalism, highly recommended.
📱 In this regard, President Trump has made it clear he wants Apple to manufacture iPhones in the U.S., and Apple CEO Tim Cook is trying to appease the president without making that ultimate concession.
💵 Cook announced plans for Apple to spend about $600 billion over four years in the U.S., including investments in U.S. suppliers and manufacturing. However, he said final iPhone assembly will remain outside the U.S. “for a while.” The announcement seemed designed to get Apple out of Trump’s crosshairs regarding tariffs, as the president said Apple would be exempt from a planned tariff on chips. But the new investments seems to be the “cost of doing business” rather than a major shift.
🌍 What will happen to Europe if there is a peace agreement in Ukraine after the Putin-Trump meeting?
🛡️ One possible scenario is that NATO countries will do everything possible to prevent an agreement, given that, in such a case, increased spending on armaments at the expense of citizens will be questioned.
💼 CNBC considers another possibility, however: European defense stocks are expected to continue their strong performance, regardless of whether a breakthrough is achieved on the war in Ukraine between U.S. President Trump and Russian President Putin. The Stoxx Europe Aerospace and Defense index has surged 52% so far this year, as European governments and NATO have drastically increased defense spending in response to the war. Even if a peace deal is reached, there will still be years of munitions and air-defense replenishment needed, providing steady demand for defense companies.
📉 Zelenskyy is claiming that intelligence suggests Russia is preparing new offensives in Ukraine, rather than preparing for a ceasefire or peace negotiations. This claim is likely an attempt by Zelenskyy to undermine the talks and prevent any potential concessions or compromises between Putin and Trump. Ukraine and its European allies have not been invited to the talks, which are seen as a direct negotiation between the U.S. and Russia over the war in Ukraine.
⚠️ Yesterday we mentioned that, according to the Russian Ministry of Defence, Ukraine could be preparing a self-attack that would leave numerous civilian casualties in order to blame Russia and thus suspend negotiations.
📈 Market View:
📉 The macro data from the United States yesterday briefly saddened the markets, but futures are once again starting today, Friday, at new highs. The Mini S&P 500 futures are positioned above 6,500 points. The Nasdaq 100 futures, which reached 24,000 points on Wednesday, remain static in that area, currently trading at 23,950 points.
💵 The dollar strengthened during yesterday’s session, but in recent hours it has retreated again, with its index trading back below 98 points. This caused some movement in pairs such as EUR/USD, which fell below 1.1650, from where it has recovered to the current 1.1675.
📈 In Europe, futures continue to advance, with DAX 40 contracts approaching their historical highs, trading at 24,570 points. Euro Stoxx 50 contracts are nearing 5,500 points.
📈 The crude market has recovered following Wednesday’s declines, with Brent crude trading close to the $67 mark.
📉 Gold futures experienced declines during yesterday’s session due to the macro data from the United States, causing the price to retreat towards $3,385 per ounce.
📉 Bitcoin has also retraced from the highs reached early Thursday, falling towards the support zone of $117,000, from where it has rebounded to the current $119,235.
