Market News:

📈 Markets are positioned for a softer CPI print that could push yields lower, while watching developments in France and upcoming policymaker remarks.

🗣️ Fed Chairman Jerome Powell testifies before the Senate Banking Committee today, and the market is no doubt waiting for his comments. Though he won’t say that the Fed is careless about the easing process, he will presumably seek to reassure investors that rates are probably headed down. There is an 80% probability priced in for a 25bps Fed rate cut in September, reflecting softening data trends. Thursday’s CPI report could push yields lower if it supports the view of peaking inflation.

📊 Related Markets:

We have the SP500 futures holding above 5600 points, a new high since yesterday. Nasdaq 100 is now at 20,500 points, also new highs. The dollar, DXY, which had fallen after last week’s negative data, seems to be trying again and is above 105 puts. The US 2-year bond has finally fallen below 4.70% and is still trading around 4.60% discounting a more rate-cutting stance.

🇪🇺 In Europe, the ECB path is less clear, with mixed eurozone data. A September rate cut is still expected but not necessarily the start of consecutive cuts like in the US. French election uncertainty increases, with fiscal priorities unclear as left gains strength. OAT spreads could widen on political volatility.

🇫🇷 Realted Markets: The French Cac 40 continues to struggle. After opening with a bullish GAP yesterday, it has failed to hold and is now struggling not to lose 7,500 points. Bonds are also overheated, with the 2-year bond above 3%.

🛢️ Commodities:

The EIA will release its latest Short-Term Energy Outlook today, including updated forecasts for US oil and gas production through 2025. Hurricane Beryl appears to have caused little damage to energy infrastructure along the US Gulf Coast, with most facilities resuming operations. Crude and product markets showed little concern over potential disruptions.

In fact, WTI crude oil has fallen from $84 per barrel last week to $82 in the last few hours.

🌎 Geopolitics:

NATO leaders will meet in Washington DC from July 9-11th for the alliance’s 75th anniversary summit aiming to display unity against Russia. Members agreed this week to provide €40 billion in military aid to Ukraine for 2025 in an effort to “shock-proof” long-term support against political changes. Leaders seem to fear a Trump victory that could seal a peace deal between the two sides and end the war and the resulting contracts for the industry. Two-thirds of NATO members have now met or exceeded the 2% GDP defense spending target, with some pushing for a new 3% floor. Spending increases will be highlighted at the summit.Viktor Orban’s Moscow visit and the uncertain US election could also be debated, peace negotiations seem to be the point to avoid by all means.

🇭🇺 Hungarian PM Viktor Orban met with Chinese President Xi Jinping in Beijing yesterday to discuss a potential Ukraine peace deal. Xi told Orban that China sees an early ceasefire and resuming direct dialogue as in everyone’s interests. Orban said China was a “key power” in creating peace conditions, as he aims to clarify positions on resolving the conflict.The visit comes ahead of the NATO summit Orban will attend. Orban’s visit underscores China’s backing of negotiations that include Russia, in contrast to Ukraine and NATO’s aim of isolating Moscow.

🇨🇳 Chinese electric vehicle maker BYD has agreed with Turkey to build a $1 billion EV production plant with annual capacity of 150,000 vehicles. Turkish Industry Minister Mehmet Fatih Kacir said talks were held with Chinese officials since December 2023 on the deal. The plant could help BYD access European markets given Turkey’s customs union with the EU, as the bloc recently raised tariffs on Chinese EVs.The BYD deal demonstrates growing electric vehicle cooperation between China and Turkey, which could help Chinese automakers offset higher EU tariffs through Turkey’s trade links to Europe.