EXECUTIVE SUMMARY
- BETTING MARKETS SHIFT SLIGHTLY TOWARDS DEMS AS BIDEN EXITS RACE
- CHINA JULY LOAN PRIME RATE REDUCED BY 10BPS
- ECB CUT BETS NOT FULLY MISPLACED, BUT NOT BASELINE, KAZIMIR SAYS
- ISRAEL INTERCEPTS MISSILE FIRED FROM YEMEN AS CONFLICT WITH HOUTHIS CONTINUES
MNI (LONDON) - Figure 1: Political betting markets, implied probability of win by party %
Source: Smarkets
NEWS
US (MNI): Betting Markets Shift Slightly Towards Dems as Biden Exits Race
The withdrawal of President Joe Biden from the election race, announced on 21 July, has seen a small shift in political betting markets. The seemingly likelihood (but not a guarantee) that Vice President Kamala Harris will be the Democratic party nominee has seen the implied probability for Republican nominee former President Donald Trump fall from 65.1% on 21 July prior to Biden's announcement to 62.5% at the time of writing. There is likely to be a wait-and-see phase in betting markets as bettors wait to see the first opinion polls on the election with Harris as the presumptive Democrat nominee. There have been numerous polls carried out to date asking voters of hypothetical Trump vs. Harris scenarios, but there could be a shift in mentality or stance towards the VP now that she holds the position of presumptive nominee.
ECB (BBG): ECB Cut Bets Not Fully Misplaced, But Not Baseline, Kazimir Says
Market bets on two more European Central Bank interest-rate reductions this year aren’t “entirely misplaced,” but shouldn’t be taken as “a given or a baseline scenario,” according to Governing Council member Peter Kazimir. “We are on track to return to our target, but we are clearly not there yet,” the Slovak central bank governor said in an op-ed Monday, referring to consumer prices. “Due to various factors, both domestic and global, there is still a non-negligible risk of inflationary pressures re-emerging.”
UK (BBG): Reeves’ Fiscal Discipline Tested by UK Calls on Pay, Benefits
Just over two weeks into the job, UK Chancellor of the Exchequer Rachel Reeves is facing growing demands to loosen the Treasury’s purse strings to raise pay for public sector workers and eliminate an unpopular Conservative cap on child benefits. On Sunday, Reeves hinted she’s prepared to grant above-inflation pay increases to teachers and National Health Service staff after the Times reported that independent pay review bodies had recommended raises of 5.5% for 1.8 million workers in those professions, while the Labour government has budgeted for hikes of only 3%.
CHINA (MNI): China July Loan Prime Rate Reduced by 10bps
MNI (Beijing) China's Loan Prime Rate was cut by 10bps on Monday according to a People's Bank of China statement, following the central bank's unexpected move to reduce the 7-day reverse repo rate by 10 basis points early this morning. The one-year LPR, based on the PBOC’s Medium-term Lending Facility rate and quotes submitted by 20 banks, was left at 3.35% from 3.45% and the five-year plus maturity was held at 3.85% from 3.95%.The rate last changed in February when the five-year plus maturity was reduced 25bp, while the one-year tenor held steady.
CHINA (BBG): Xi Vows to Rewire China’s Finances, Help Indebted Regions
President Xi Jinping unveiled sweeping plans to bolster the finances of China’s indebted local governments, as the ruling Communist Party announced a long-term blueprint for the world’s second-largest economy that offered few major surprises. China’s top leader mapped out measures for fixing the debt crisis facing regional authorities in a near-22,200 character resolution of a major meeting published by the official Xinhua News Agency on Sunday. Those plans - already hinted at by state media - centered around shifting more revenue from the central to local coffers, such as by letting regional governments receive a larger share of consumption tax.
ISRAEL (WaPo): Netanyahu Comes to Washington as Biden Withdraws From Presidential Race
Prime Minister Benjamin Netanyahu is scheduled to land Monday in a Washington consumed by political turmoil, creating further uncertainty about U.S.-Israeli relations at a crucial moment in the Gaza war. President Biden - who announced the end of his reelection bid on the eve of Netanyahu's departure - has both championed Israel's right to wage war against Hamas and chided the prime minister for his management of the conflict. Israeli officials didn't confirm that the prime minister would meet with the president as planned until the day before takeoff; they now don't know what the dramatic campaign upheaval will mean for the future.
ISRAEL/MIDDLE EAST (NYT): Israel Intercepts Missile Fired From Yemen as Conflict With Houthis Continues
Israel’s military said on Sunday that it had intercepted a missile fired from Yemen, suggesting that the Yemen-based Houthi militia would keep trying to strike Israel, despite the bombing by Israeli fighter jets of a port in Yemen on Saturday. The Houthis, which are backed by Iran, said in a post on the Telegram messaging app that they had launched the missile at Eilat, Israel’s southernmost city on the coast of the Red Sea, “in response to the American, British and Israeli aggression against our country.” The post said the strike had “achieved its goals,” without giving details.
AUSTRALIA (MNI): Hung Parliament Still Looks Most Likely Outcome in 2025
Polls have been consistently suggesting that if an election was held at the time of the survey there would be a hung parliament with Labor in minority government. The July Newspoll from The Australian is consistent with this view. The prospect of losing its lower house majority plus rate cuts appearing to be some way off or rates possibly rising further, make an early election look less likely. The government has to hold a vote before mid-May 2025.
ASIA/EQUITIES (BBG): Tech Rout Deepens in Asia as Morgan Stanley Says Take Profits
Asian technology stocks were on track for their worst selloff since the early days of the pandemic after Morgan Stanley strategists recommended investors book profits from the artificial intelligence boom. The renewed slump followed concerns that set in last week over the sustainability of the red-hot AI trade as well as a possible tightening of US restrictions on sales of tech to China. The Bloomberg Asia Pacific Semiconductors Index fell as much as 3% Monday, poised for its worst four-day loss since March 2020.
BITCOIN (BBG): Bitcoin Climbs to More Than One-Month High as Biden Bows Out
Bitcoin edged up to the highest level in over a month as traders evaluated the implications of US President Joe Biden’s decision to abandon his reelection bid. The largest digital asset recovered from earlier losses to hover around $68,300 as of 8:42 a.m. in Singapore on Monday as markets reacted to the possibility of a match-up between pro-crypto Donald Trump and Kamala Harris.
DATA
EUROZONE DATA (MNI): EZ Q1 Deficit Falls to 3.2% of GDP
The provisional Q1 Eurozone deficit (seasonally adjusted) fell to 3.2% of GDP (vs 4.0% in Q4 2023). This came as total expenditure fell to 49.4% of GDP (vs 50.7% prior) while revenues dropped a lesser extent to 46.2% (vs 46.7% prior). The fall in these ratios reflected falls in absolute seasonally adjusted revenue/expenditure as well as a rise in nominal GDP. Of the largest Eurozone countries, the deficit rose in Germany to 2.8% of GDP (vs 2.5% prior), fell in France to 5.6% (vs 5.9% prior) and was constant in Spain at 3.2%. The Italian Q1 data was released by ISTAT earlier this month, with the non-seasonally adjusted deficit rising to 8.8% of GDP (vs 7.4% prior).
FOREX: EUR/JPY Sales Set the Theme, But Recent Ranges Respected
- JPY markets saw early interest as EUR/JPY sales put the currency at the top of the G10 table. Order- and flow-driven pickups in volumes across JPY futures at the European open helped set the theme, but the price action stopped short of testing any major levels. For now, Y170.00 remains the bear trigger for EUR/JPY.
- Markets are still trying to parse the implications for Biden's withdrawal from the Presidential race. While the odds of a Democratic White House have inched higher over the weekend, Trump still remains a comfortable leader in betting markets, resulting in minimal fallout for equities or the broader dollar.
- Meanwhile, GBP trades well - but is yet to challenge nearby resistance against the EUR and USD. Friday's CFTC release showed the market's net long GBP position reaching the highest level on records stretching back over 25 years - as the post-election outlook improves and the odds of a BoE rate cut as soon as August remain too close to call.
- Monday's schedule is typically quiet, with just the Chicago Fed National Activity Index on the docket - and no central bank speakers of note. This keeps focus on bigger events later in the week, specifically the flash PMI releases from across Europe and the US as well as the Bank of Canada rate decision on Monday.
BONDS: Bunds/Gilts Close to Intraday Lows as Markets Assess Biden Withdrawal
Bund and Gilt futures have retraced opening gains to trade near intraday lows.
- The morning rally was aided by the unexpected PBoC rate cut overnight.
- There hasn’t been an obvious headline/macro driver to explain the reversal, though similar price action in UST futures suggests markets may be reacting to renewed US election uncertainty following Biden’s withdrawal yesterday.
- Bund futures are -11 at 131.99, with bears targeting the first support at 131.65 (50-day EMA)
- Gilt futures underperform Bunds a little, currently -25 at 97.85 but still above the first support at 97.63 (Jul 11 low). Weekend news flow saw Chancellor Reeves hint at an above-inflation pay increase for public sector workers, which has weighed on SONIA and Gilt futures this morning.
- ECB speakers (Makhlouf yesterday and Kazimir this morning) and today’s Q1 Eurozone deficit/debt data were not major market movers.
- The German and UK cash curves have bear flattened (with Gilts seeing a more pronounced flattening on the above Reeves comments).
- 10-year peripheral spreads to Bunds have tightened, with BTPs outperforming, as European equities partially reverse last week’s selloff.
- Regional macro focus remains on Wednesday’s flash PMI today.
EQUITIES: Slip Lower in E-Mini S&P Last Week Appears to Be a Correction
A bull cycle in Eurostoxx 50 futures remains intact, despite the pullback in prices into the Friday close. The move lower last week undermines the bullish theme somewhat, with price having traded through the 50-day EMA, and the bear trigger has been tested at 4860.00, the Jun 14 low. Clearance of this level would expose 4846.00, the Apr 19 low and a key reversal point. For bulls, a move higher and a break of 5087.00, the Jul 12 high, would again highlight a bullish theme. The broader trend condition in S&P E-Minis is bullish and the slip lower into last week’s close appears to be a correction. The recent rally to cycle highs confirms a resumption of the uptrend and maintains the bullish sequence of higher highs and higher lows. MA studies are in a clear bull-mode set-up too, highlighting positive market sentiment. Sights are on 5741.34, a Fibonacci projection. Firm support is at 5486.11 the 50-day EMA.
- Japan's NIKKEI closed lower by 464.79 pts or -1.16% at 39599 and the TOPIX ended 33.3 pts lower or -1.16% at 2827.53.
- Elsewhere, in China the SHANGHAI closed lower by 18.093 pts or -0.61% at 2964.216 and the HANG SENG ended 218.2 pts higher or +1.25% at 17635.88.
- Across Europe, Germany's DAX trades higher by 180.02 pts or +0.99% at 18353.15, FTSE 100 higher by 42.5 pts or +0.52% at 8198.17, CAC 40 up 79.81 pts or +1.06% at 7612.43 and Euro Stoxx 50 up 52.63 pts or +1.09% at 4879.07.
- Dow Jones mini up 71 pts or +0.18% at 40633, S&P 500 mini up 21.75 pts or +0.39% at 5575.25, NASDAQ mini up 124.25 pts or +0.63% at 19836.25.
Time: 09:50 BST
COMMODITIES: Recent Sell-Off in WTI Futures Results in Breach of 50-Day EMA
Weakness into the Friday close keeps the focus pointed lower for WTI futures. The 50-day EMA gave way during the sell-off late last week, opening the potential for further losses toward 76.95 - the Jun 13th low on the continuation contract. Initial key resistance to watch is $83.58, the Jul 5 high, and a break and close above this level is needed ahead of any test on the 84.36 bull trigger. The trend condition in Gold remains bullish, despite the fade off the mid-week highs. The broader gains last week reinforce current conditions, and keep the M/T trend pointed higher. The yellow metal has breached key resistance and the bull trigger at $2450.1, the May 20 high. This confirms a resumption of the medium-term uptrend and opens the $2500.00 handle next. Moving average studies are in a clear bull-mode set-up, highlighting a rising trend. Initial support is at $2382.6, the 20-day EMA.
- WTI Crude up $0.27 or +0.34% at $80.4
- Natural Gas up $0.04 or +2.07% at $2.172
- Gold spot up $0.31 or +0.01% at $2401.46
- Copper up $0.25 or +0.06% at $424
- Silver down $0.12 or -0.4% at $29.099
- Platinum down $3.61 or -0.37% at $961.82
Time: 09:50 BST
| Date | GMT/Local | Impact | Country | Event |
| 22/07/2024 | 1530/1130 | * |  US | US Treasury Auction Result for 26 Week Bill |
| 22/07/2024 | 1530/1130 | * | US | US Treasury Auction Result for 13 Week Bill |
| 23/07/2024 | 0700/0900 |  EU | ECB's Lane at ECB/IMF conference in Frankfurt | |
| 23/07/2024 | 0900/1000 | * |  GB | Index Linked Gilt Outright Auction Result |
| 23/07/2024 | 1100/0700 | *** |  TR | Turkey Benchmark Rate |
| 23/07/2024 | 1230/0830 | ** | US | Philadelphia Fed Nonmanufacturing Index |
| 23/07/2024 | 1255/0855 | ** | US | Redbook Retail Sales Index |
| 23/07/2024 | 1400/1600 | ** | EU | Consumer Confidence Indicator (p) |
| 23/07/2024 | 1400/1000 | *** | US | NAR existing home sales |
| 23/07/2024 | 1400/1000 | ** | US | Richmond Fed Survey |
| 23/07/2024 | 1530/1130 | * | US | US Treasury Auction Result for Cash Management Bill |
| 23/07/2024 | 1700/1300 | * | US | US Treasury Auction Result for 2 Year Note |