Markets

European stock markets copied yesterday’s steepest US losses (Nasdaq -2%) in the opening stages of today’s trading session. Once again, their resilience stands out though with half of those losses pared right now. We take a close look at US bourses with the Nasdaq painting a huge potential bearish engulfer on the technical charts. Q2 earnings started in earnest with several US financials. A standout trading result allowed JP Morgan Chase to comfortably raise loan loss provision by more than expected ($10.47bn) while still passing the EPS hurdle. CEO Dimon said he hoped to be seeing the peak on credit costs, while trading results are expected to revert to historical norms. The bank remains cautious on the clouded economic outlook. Wells Fargo, which can’t rely on an investment bank part, recorded its first quarterly loss since 2008. Citigroup’s results followed the JP Morgan Chase playbook. Both rose in pre-market trading, but couldn’t lift broader risk sentiment. Core bonds traded with a small downward slope before gaining some momentum in the run-up to US dealings. Both the US and German yield curves bull steepen with yields declining by up to 4.2 bps in Germany and 2 bps in the US (30-yr tenors). The Bund outperformance is related to a catch-up move. US Treasuries rallied after Monday’s European close after the California governor decided to reverse several economic reopening measures while US officials sounded hawkish on Chinese territorial claims. Today’s eco data only served as starter given the backloaded agenda. US eco data include July business surveys (Empire manufacturing, Philadelphia Fed) and June hard data (industrial production and retail sales). European focus turns to the ECB meeting and EU Summit at the end of the week. Anyway, turning to today, German ZEW investor sentiment disappointed by barely improving from multi-year lows. The forward looking expectations component is at historically high levels, but that shouldn’t surprise given that the economy hit rock bottom. The index decreased marginally in June (59.3 from 63.4). US NFIB Small Business Optimism rebounded further in June, from 94.4 to 100.6 with CPI inflation coming in at a soft, but near forecast 0.6% Y/Y for the headline reading and 1.2% Y/Y for the core gauge, suggesting the Fed’s symmetric inflation target will remain out of reach for some time.

We witnessed some more genuine dollar weakness on FX trading today. The trade-weighted dollar shows some cracks (96.5) with July lows (technical support) still dangerously close around 96.24. EUR/USD set an intraday high near 1.138 following an open around 1.135. The June high at 1.1422 is still the first technical reference. USD/JPY traded in a narrow 107.2-107.4 range. Sterling ranks dead last on the list of FX majors for a second straight session. Weak monthly GDP data and industrial production only added to the trend move. Cable fell below 1.25 with EUR/GBP targeting the 0.91 big figure.

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News Headlines

According to the ECB July Bank Lending Survey, credit standards remained broadly unchanged for loans to enterprises while tightening further for loans to households. Banks reported that government loan guarantees played a significant role in most countries for maintaining favourable credit standards for loans to enterprises. In the third quarter, banks expect a considerable net tightening of credit standards on loans to enterprises related to the expected end of (some) state guarantee schemes. A net tightening of standards on loans to households is expected to continue in Q3.

OPEC expects global oil demand to rebound by a record 7 mln barrels per day in 2021 as the global economy recovers from the economic downturn due to the coronavirus. The OPEC forecast assumes no further downside risk will materialize in 2021. Oil demand is expected to drop by 8.95 mln bpd this year, slightly less that projected in last month’s report. Further efficiency gains and remote working are expected to slow demand growth in 2021, causing demand to stay below the 2019 level.

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