EXECUTIVE SUMMARY
- MNI BOE PREVIEW - FIRST CUT NOW OR LATER?
- US WEIGHS RESTRICTIONS ON CHINA’S ACCESS TO AI MEMORY CHIPS
- IDF CONFIRMS DEATH OF HAMAS MILITARY LEADER IN 13 JULY STRIKE
- CHINA CAIXIN JULY MANUFACTURING PMI FALLS BELOW 50
MNI (LONDON) - Figure 1: Analyst forecasts of timing of first BOE rate cut
Source: MNI
NEWS
MNI BOE PREVIEW - AUGUST 2024: First Cut Now or Later?
We have characterised the August rate decision as 50/50 for some time due to a number of factors – a lack of communication from the MPC (due to the election and the pre-meeting blackout periods), a changing composition of the MPC (with Lombardelli replacing Broadbent) and some inconclusive data. We have made no updates to our subjective hawk-dove spectrum of MPC members since publishing our BOE Review following the June meeting. Then we assigned around a 60% probability that Pill votes for unchanged rates and around a 60% probability that Lombardelli votes for a 25bp cut. Assuming Bailey and Breeden also vote for a cut, this would deliver a 5-4 vote in favour of a cut.
MNI FED REVIEW - JULY 2024: “Table” Set for September Cut
The immediate reaction to the FOMC’s July decision was slightly hawkish, with the Committee defying some expectations of revised forward guidance in the Statement that would strongly imply a September rate cut. But the language and tone of Chair Powell’s press conference provided sufficient dovish assurances that the bar to cuts in the near future is low, and he explicitly noted that easing "could be on the table as soon as September". The market impact by the conclusion of the meeting was a slight increase in implied rate cut expectations, with a September reduction seen as an even surer bet, and nearly 3 full cuts priced by year-end.
US/CHINA (BBG): US Weighs Restrictions on China’s Access to AI Memory Chips
The US is considering unilateral restrictions on China’s access to AI memory chips and equipment capable of making those semiconductors as soon as next month, a move that would further escalate the tech rivalry between the world’s biggest economies. The measure is designed to keep Micron Technology Inc. and South Korea’s leading memory chipmakers SK Hynix Inc. and Samsung Electronics Co. from supplying Chinese firms with so-called high-bandwidth memory, or HBM, chips, according to people familiar with the matter, who emphasized that no final decision has been made. The three firms dominate the global HBM market.
US (BBG): US to Push for Gaza Cease-Fire Despite Assassination Setback
US officials are still pushing for a cease-fire in Gaza but concede it’s harder than ever after a suspected Israeli strike killed a top Hamas leader in Tehran, according to people familiar with the Biden administration’s thinking. The viability of the months-long US effort to secure a pause in the Israel-Hamas war and free Israeli hostages was thrown into question after a missile strike in Tehran on early Wednesday killed Ismail Haniyeh, the group’s political chief and a key representative during rounds of so-far futile negotiations.
US (BBG): Harris Team Meets Shapiro, Labor Balks at Kelly as VP Pick Nears
Pennsylvania Governor Josh Shapiro met with Kamala Harris’ representatives while some labor groups expressed opposition to Arizona Senator Mark Kelly, as the Democratic candidate’s search for a running mate nears its end. Shapiro’s meeting Wednesday is part of Harris’ selection process and took place without the vice president, said people familiar with the matter, speaking on condition of anonymity. It’s unclear whether the session was held virtually, or who else has held discussions with the vice president’s team. Shapiro, Kelly and Minnesota Governor Tim Walz are among the top contenders for the job.
US (BBG): Trump Vows to Cut Taxes on Social Security in Bid to Woo Seniors
Donald Trump pledged to eliminate taxes on Social Security payments for seniors, a move that would cut levies for some elderly Americans but further strain benefits for those who have yet to retire. “Seniors should not pay taxes on Social Security and they won’t,” Trump said at a rally on Wednesday in Harrisburg, Pennsylvania. Trump’s pledge to cut taxes for elderly Americans, a key voting bloc, comes as the Republican nominee tries to recalibrate his campaign to focus on Vice President Kamala Harris rather than President Joe Biden, who quit the race on July 21.
ISRAEL (MNI): IDF Confirms Death of Hamas Military Leader in 13 July Strike
The Israeli Defence Forces (IDF) have confirmed that the commander of Hamas' military wing, Mohammed Deif, was killed in an airstrike on Khan Younis, Gaza on 13 July. Deif was one of the founders of the Qassem Brigades in the 1990s and for many years was one of Israel's top targets for assassination. Alongside Hamas' leader in Gaza, Yaha Sinwar, Deif was viewed as one of the top orchestrators of the 7 October attack on Israel. It was speculated as likely shortly after the airstrike took place that Deif had been killed. However, the timing of the announcement from the IDF is notable, coming amid high regional tensions over the killing of Hamas' political leader Ismail Haniyeh in the Iranian capital, Tehran.
MIDEAST (MNI): Iran Orders Strike on Israel Following Haniyeh Killing - NYT
The New York Times is reporting that according to Iranian officials briefed on the matter, Supreme Leader Ayatollah Ali Khamenei "has issued an order for Iran to strike Israel directly, in retaliation for the killing in Tehran of Hamas’s leader, Ismail Haniyeh,". Israel has not commented on the killing of Haniyeh, neither confirming nor denying its involvement. Since the incident, as well as the airstrike on Beirut that killed Hezbollah commander Fuad Shukr, there has been significant international concern that a direct Israel-Iran conflict in the Middle East could erupt.
OPEC (RTRS): OPEC+ Likely to Stick to Output Policy at Aug 1 JMMC Meeting
An OPEC+ panel is unlikely this week to make any changes to its current deal to cut production and to start unwinding some cuts from October, despite recent sharp declines in oil prices, five sources from the producer group told Reuters. Top ministers from the Organization of the Petroleum Exporting Countries and allies led by Russia, or OPEC+ as the group is known, will hold an online joint ministerial monitoring committee meeting (JMMC) on Thursday at 10:00 GMT.
CHINA (BBG): China Likely to Cut RRR and Interest Rates in 2H: Sec. Daily
China is likely to cut banks’ reserve requirement ratio and interest rates further as early as in the third quarter as the Politburo has vowed to step up counter-cyclical measures at its latest meeting to prop up the economy, official Securities Daily reported, citing analysts. PBOC may cut RRR cut in 3Q to ease liquidity pressure from the maturity of growing amounts of medium-term lending facilities, report cites Li Chao, chief economist of Zheshang Securities.
CHINA (MNI): China Retains Ample Policy Space in H2 – NDRC
MNI (Beijing) Authorities retain ample room for counter cyclical policy adjustments in H2 as the government remains confident in achieving this year's economic targets, said Zhao Chenxin, deputy director at the National Development and Reform Commission on Thursday. Speaking to reporters, Zhao said the economy in H2 will benefit from accelerating issuance of government bonds and the recovery of trade with emerging economies.
JAPAN (MNI): BOJ to Focus on Continued Positive Wage Setting
The Bank of Japan must examine whether firms' positive wage-setting behaviour continues, from the viewpoint of achieving the bank’s 2% target in a sustainable and stable manner, the full text of the BOJ Outlook Report said on Thursday. “It should be noted that the labour share at SMEs is higher than at large firms, and the pace of decline in the labour share is slower than at large firms, which may act to hold down wages,” the reported said.
JAPAN (MNI): Japan Q2 GDP to Rise 0.5% Q/Q; 2.2% Annualised
Japan's economy for Q2 is expected to have grown 0.5% q/q, or an annualised 2.2%, the first rise in two quarters following the recovery of private consumption and capital investment, according to private economist predictions. Japan's economy contracted 0.7% q/q, or an annualised 2.9% in Q1. Economists predicted private consumption, which accounts for about 60% of GDP, has risen 0.7% q/q following Q1's 0.7% decline.
COMMODITIES (BBG): Copper, Iron Ore Gain as Fed Flags September Rate Cut in Play
Copper and iron ore rose with most industrial commodities as Federal Reserve Chair Jerome Powell flagged the central bank was on course to cut rates next month, which would be a boost for global growth. The central bank left rates unchanged on Wednesday but policymakers signaled they were closer to reducing borrowing costs. Fed monetary tightening since 2022 has weighed on demand for industrial commodities both domestically and abroad.
CORPORATE (BBG): Meta’s Upbeat Quarterly Report Buys Time for AI, Metaverse
Meta Plaforms Inc. reported better-than-expected sales for the second quarter, offering evidence that the company’s investments in artificial intelligence are helping it sell more targeted and personalized advertisements. That progress, which sent the social media company’s shares up in late trading Wednesday, will buy time for Chief Executive Officer Mark Zuckerberg to invest in more future-looking products. Addressing investors and analysts, he spent most of his time expounding on Meta’s push into large language models that will power AI chatbots and praising the company’s AI smart glasses and virtual reality headsets.
CORPORATE (BBG): Nvidia Shares Add Record $329 Billion as Volatility Soars
Nvidia Corp.’s wild ride this week is headed for the record books. The world’s third-most-valuable company has added a record $329 billion in value - obliterating the single-day record that it has repeatedly set in the past few months. The 13% rally comes a day after a 7% rout wiped out more than $193 billion from the now $2.9 trillion company, continuing a run of volatility that makes even notoriously turbulent assets like Bitcoin look stolid.
CORPORATE (NYT): Bill Ackman Abruptly Withdraws Planned I.P.O.
The billionaire investor William Ackman won’t be ringing the opening bell at the New York Stock Exchange anytime soon. His firm, Pershing Square, will withdraw its plans for an initial public offering that would have allowed investors to buy into a portfolio of roughly a dozen stocks of his choosing, Mr. Ackman told his 1.3 million followers on the platform X on Wednesday. The abrupt withdrawal came after he had spent the last seven weeks and more than 150 meetings pitching the deal to potential investors.
CORPORATE (BBG): Barclays Unveils £750 Million Buyback, Boosts Guidance
Barclays Plc said it will repurchase as much as £750 million ($963 million) of shares as Chief Executive Officer C.S. Venkatakrishnan makes good on his promise to improve the bank’s payouts to investors. The buybacks come after Barclays reported better-than-expected income in the second quarter, aided by a surge in revenue from some of its Wall Street operations.
CORPORATE (BBG): SocGen’s Retail Unit Woes Mar Good Quarter for Its Traders
Societe Generale SA’s domestic retail unit continued to be a drag on the bank even as the trading business outperformed. The bank on Thursday cut its full-year guidance for net interest income at that unit by about €300 million ($324 million) as it’s facing subdued loan demand.
DATA
GERMANY DATA (MNI): Labour Market Data Continues to Signal Ongoing Softening
The latest German labour market data has again been on the weaker side overall, with rising unemployment and underemployment as well as a fall in labour demand, offset somewhat by a marginal rise in employment. "The chances of ending unemployment by taking up employment are at a historically low level", the employment agency adds. Unemployment rose again more than expected in July, by 18.0k, but less than in June (20.0k, revised from 19.0k) on a seasonally-adjusted basis. The (seasonally-adjusted) unemployment rate remained at 6.0%, as expected.
SPAIN DATA (MNI): July Manuf PMI Lowest in 6 Months But Still in Expansionary Territory
- SPAIN JUL MANUFACTURING PMI 51.0 (FCST: 52.5); JUN: 52.3
The Spanish July manufacturing PMI remained in expansionary territory, but printed at a 6-month low and below consensus at 51.0 (vs 52.5 cons, 52.3 prior). Bunds were little moved by the release. Although output charges were raised in response to increasing input costs, the emerging softness in demand conditions may temper the extent of this pass-on somewhat. Key notes from the release: "Demand for goods remained positive, especially from abroad where orders rose modestly and for the fifth successive month, there were reports that market conditions had become less favourable".
ITALY DATA (MNI): Demand Weakness Limits Input Cost Pass-on
- ITALY JUL MANUFACTURING PMI 47.4 (FCST: 46.0); JUN: 45.7
The Italian July manufacturing PMI was stronger than expected at 47.4 (vs 46.0 cons, 45.7 prior). However, the print remains below the 49.2 average seen in Q1. As in Spain, shipping delays from the Red Sea were cited, and pushed input costs higher. However, weak demand conditions meant that overall pass-on was muted. A reminder that the uptick in Italian goods inflation in July was due to less Summer sales discounting than in 2023 (particularly in e.g. clothing and footwear).
ITALY DATA (MNI): Trend Unemployment Rate Hits New Record Lows
The Italian unemployment rate ticked up to 7.0% in June (vs an upwardly revised 6.9% prior). However, smoothing some monthly volatility, the three-month average dipped a tenth to a new record low of 6.9%. Employment growth remained robust in June, growing at 0.5% 3m/3m (vs 0.6% prior). This is consistent with the European Commission’s Italian expected employment indicator printing above the long-run average of 100 in each month since early 2021 (albeit off cycle highs in recent months).
UK DATA (BBG): UK House Prices Increase for a Third Month, Nationwide Says
UK house prices rose for a third month, adding to evidence the market is stabilizing in the face of the highest borrowing costs in 16 years, according to one of the top mortgage lenders. Nationwide Building Society said its measure of house prices grew 0.3% in July following a 0.2% increase the month before. Economists had expected a 0.1% increase. “Housing market activity has been holding relatively steady in recent months with the number of mortgages approved for house purchase at around 60,000 per month,” Robert Gardner, Nationwide’s Chief Economist, said in a report Thursday.
EUROZONE JUN UNEMPLOYMENT RATE 6.5% (MNI)
EUROZONE JUL FINAL MANUFACTURING PMI 45.8 (FLASH: 45.6) (MNI)
GERMANY JUL FINAL MANUFACTURING PMI 43.2 (FLASH: 42.6) (MNI)
FRANCE JUL FINAL MANUFACTURING PMI 44.0 (FLASH: 44.1) (MNI)
UK JUL FINAL MANUFACTURING PMI 52.1 (FLASH: 51.8) (MNI)
CHINA DATA (MNI): Caixin July Manufacturing PMI Falls Below 50
MNI (Beijing) China's Caixin manufacturing PMI registered 49.8 in July, down by 2.0 points from June, marking the first contraction below the 50 mark since November 2023, the financial publisher said on Thursday. The production sub-index remained within the expansion range for nine consecutive months, but only slightly above 50 in July. The new orders sub-index fell into the contraction range for the first time since August 2023. The new export orders sub-index maintained its growth momentum for seven consecutive months, though showing signs of slowdown.
AUSTRALIA DATA (MNI): Q2 Goods Trade Surplus Narrows & Terms of Trade Deteriorate
- AUSTRALIA JUN TRADE BALANCE A$+5589mln
Australia's June goods trade surplus widened due to a downward revision to May from weaker export growth. The Q2 merchandise trade surplus narrowed about $4bn from Q1 and with Q2 trade prices showing export prices sinking 5.9% q/q while import prices unexpectedly rose 1% q/q, there is a risk of a net export contraction in the national accounts. However, we don't have services trade data yet.
FOREX: GBP Vols Surge, JPY Extends Post-Fed Bid
- GBP is the currency in focus Thursday, trading lower against all others in G10 as markets await the BoE decision at 1200BST. Pricing remains evenly split on whether the BoE cut rates now, or hold until later in the year, leaving options markets well priced for high levels of volatility later today. Overnight GBP/USD implied vols have just crossed 15 points for the first time this year, hitting the highest level mid-December and the confluence of central bank decisions pre-Christmas.
- This tips the break-even on an overnight straddle to ~80 pips, well over the double the YTD average - suggesting markets anticipate a sharp swing on the BoE decision today.
- JPY trades well, extending the post-Fed move and pressing USD/JPY to new pullback lows of 148.51. The pair is more stable headed into the NY crossover, but the sell-on-rallies theme clearly remains. Continued weakness in the pair over the coming weeks will bring key support and the next downside level of note into play at 146.49 the mid-March lows.
- Outside of the BoE, weekly US jobless claims are due as well as the July manufacturing ISM - both of which will be carefully watched for clues ahead of tomorrow's NFP, at which markets anticipate the US adding 175k jobs over the month.
BONDS: Bunds & Gilts Back From Highs, BoE Decision Eyed
Final Eurozone & UK manufacturing PMIs did little to alter the narratives provided by the flash readings, despite modest marks higher.
- EGBs & gilts were already away from highs ahead of the data.
- Recent rallies initially extended after Fed Chair Powell opened the door to a September rate cut, but March 10-Year yield lows were not tested in Gilts and Bunds.
- German yields are 0.5-1.5bp lower across the curve, light bull steepening.
- 10-Year EGB/Bund spreads are wider.
- French & Spanish supply was digested smoothly, clearing above pre-auction pricing after some modest concession into supply.
- Gilt yields are 2-4bp lower across the curve, also seeing light bull steepening.
- The market is pricing a little over 50% odds of a cut at today’s BoE decision.
- Most participants are split between the idea of a dovish hold or a hawkish cut.
- As such, a dovish cut probably presents the greatest viable risk to the market (outside of any knee jerk initial moves).
- Post-decision comments from BoE’s Bailey and Pill will be eyed, while U.S. data (weekly jobless claims, ULC and ISM manufacturing) provides further post-BoE decision risk.
EQUITIES: E-Mini S&P Extends Bounce Off This Week's Lows
A bear threat in Eurostoxx 50 futures remains present and recent gains are considered corrective. The contract has recently breached 4846.00, the Apr 19 low. A clear break of this level would pave the way for an extension towards 4738.18, the 200 day MA (cont). Moving average studies are in a bear-mode set-up, highlighting a downtrend. Initial firm resistance to watch is 4980.00, Jul 23 high. S&P E-Minis traded lower last week and this resulted in a break of the 20- and 50-day EMAs. The breach does highlight a short-term bearish corrective cycle and a resumption of weakness would open 5370.62, a Fibonacci retracement. For bulls, this week’s gains are a positive development. Resistance to watch is 5629.75, the Jul 23 high. Clearance of this level would highlight a bullish break and signal the end of the recent correction.
- Japan's NIKKEI closed lower by 975.49 pts or -2.49% at 38126.33 and the TOPIX ended 90.57 pts lower or -3.24% at 2703.69.
- Elsewhere, in China the SHANGHAI closed lower by 6.362 pts or -0.22% at 2932.387 and the HANG SENG ended 39.64 pts lower or -0.23% at 17304.96.
- Across Europe, Germany's DAX trades lower by 224 pts or -1.21% at 18284.9, FTSE 100 lower by 11.57 pts or -0.14% at 8356.64, CAC 40 down 93.73 pts or -1.24% at 7437.76 and Euro Stoxx 50 down 54.77 pts or -1.12% at 4818.17.
- Dow Jones mini down 32 pts or -0.08% at 41041, S&P 500 mini up 7.75 pts or +0.14% at 5566, NASDAQ mini up 38 pts or +0.19% at 19544.25.
Time: 09:50 BST
COMMODITIES: Recovery in WTI Futures Deemed Technically Corrective For Now
A bear threat in WTI futures remains present and yesterday’s strong bounce is considered corrective - for now. The recent breach of both the 20- and 50-day EMAs, reinforces a bear theme. A continuation lower would open $72.23, the Jun 4 low and the next key support. For bulls, a reversal higher would instead refocus attention on the key resistance points at $83.58, the Jul 5 high, and $84.36, the Apr 12 high. The recent move down in Gold is considered corrective. The yellow metal did manage to pierce support at the 50-day EMA - at $2367.2. A clear break of this average would signal scope for a deeper retracement towards $2277.4, the May 3 low and a key support. For bulls, this week’s gains are constructive. A continuation higher would expose $2483.7, the Jul 17 high, and a bull trigger. Clearance of this hurdle resumes the uptrend.
- WTI Crude up $0.6 or +0.77% at $78.47
- Natural Gas up $0.02 or +1.18% at $2.062
- Gold spot down $13.6 or -0.56% at $2434.29
- Copper down $5.15 or -1.23% at $412.55
- Silver down $0.24 or -0.84% at $28.7634
- Platinum down $13.66 or -1.4% at $965.5
Time: 09:50 BST
| Date | GMT/Local | Impact | Country | Event |
| 01/08/2024 | 1100/1200 | *** |  GB | Bank Of England Interest Rate |
| 01/08/2024 | 1130/1230 | GB | BoE Press Conference | |
| 01/08/2024 | - | *** |  US | Domestic-Made Vehicle Sales |
| 01/08/2024 | 1230/0830 | *** | US | Jobless Claims |
| 01/08/2024 | 1230/0830 | ** | US | WASDE Weekly Import/Export |
| 01/08/2024 | 1230/0830 | ** | US | Preliminary Non-Farm Productivity |
| 01/08/2024 | 1300/1400 | GB | BOE Monthly Decision Maker Panel Data | |
| 01/08/2024 | 1345/0945 | *** | US | S&P Global Manufacturing Index (final) |
| 01/08/2024 | 1400/1000 | *** | US | ISM Manufacturing Index |
| 01/08/2024 | 1400/1000 | * | US | Construction Spending |
| 01/08/2024 | 1430/1030 | ** | US | Natural Gas Stocks |
| 01/08/2024 | 1530/1130 | * | US | US Bill 08 Week Treasury Auction Result |
| 01/08/2024 | 1530/1130 | ** | US | US Bill 04 Week Treasury Auction Result |
| 01/08/2024 | 1615/1715 | GB | BOE's Pill MPR virtual Q&A | |
| 02/08/2024 | 0130/1130 | ** |  AU | Lending Finance Details |
| 02/08/2024 | 0630/0830 | *** |  CH | CPI |
| 02/08/2024 | 0645/0845 | * |  FR | Industrial Production |
| 02/08/2024 | 0800/1000 | * |  IT | Industrial Production |
| 02/08/2024 | 0900/1100 | * | IT | Retail Sales |
| 02/08/2024 | 1115/1215 | GB | BOE's Pill at National MPC Agency Briefing | |
| 02/08/2024 | 1230/0830 | *** | US | Employment Report |
| 02/08/2024 | 1400/1000 | ** | US | Factory New Orders |
| 02/08/2024 | 1430/1030 |  CA | BOC market participants survey | |
| 02/08/2024 | 1700/1300 | ** | US | Baker Hughes Rig Count Overview - Weekly |