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European equity markets gained recently on hopes that Donald Trump might broker a meeting between Vladimir Putin and Volodymyr Zelensky. However, Putin has not yet agreed to dialogue with Kyiv. Regardless, US crude is below a key support level (and falling) this morning on rising hope of progress – a move that could rapidly reverse as Russia looks much less enthusiastic to end the Ukrainian war then Trump is.

Meanwhile, defense stocks came under pressure yesterday after disappointing earnings from Germany’s Rheinmetall—one of the most popular European defense plays this year amid the US’s scaled-back security involvement in Europe and NATO’s pledges to ramp up military spending. A delay in budget approvals by Germany’s new government, along with timing around the NATO summit, reportedly postponed some orders to the second half. But investors weren’t receptive to excuses. Rheinmetall shares fell 8%, slipping to their 100-day moving average. Elsewhere in the sector, Q2 results were mixed: Leonardo raised its forecast, BAE Systems upgraded its sales and EBIT guidance, while Dassault Aviation missed expectations. Overall, the outlook for European defense remains positive—but valuations may have run ahead of fundamentals.

Despite that, the Stoxx 600 closed above its 50-DMA, and even the Swiss SMI rebounded—this, despite Switzerland leaving Washington without a better deal than the current 39% tariffs on its US-bound exports. Gains in European indices remain fragile, however, as these tariffs could weigh on underlying economies. My guess is that central banks will be forced to step in with further support.

The 39% tariffs have increased speculation that the Swiss National Bank (SNB) might resort to negative rates in the second half. Meanwhile, expectations for the European Central Bank (ECB) remain mixed. The ECB will likely hold rates steady at the next meeting but may signal one or two more cuts by year-end depending on data. While inflation in the eurozone remains contained—helped in part by a stronger euro—there’s growing divergence among member states, which could complicate decision-making. Still, I believe the bias will remain dovish enough to avoid further pressure on already strained economies.

Across the Atlantic, the mood was more downbeat. Energy stocks dragged markets lower as oil prices fell—US crude broke below $65/barrel, returning to a medium-term bearish consolidation zone.

Economic data didn’t help: Initial jobless claims rose to their highest level since November 2021, and a New York Fed survey showed rising inflation expectations, largely attributed to the new tariffs. That combination—rising inflation and slowing growth—fits the classic definition of stagflation, which would typically call for central bank caution. But theory doesn’t seem to apply when Trump is rewriting the rulebook.

US futures are trading higher this morning on news that Stephen Miran will replace outgoing Federal reserve (Fed) Governor Adriana Kugler, and that Christopher Waller is being considered as the next Fed Chair. Both men are viewed as dovish, which aligns with Trump’s rate-cut ambitions. However, the US 2-year yield has barely reacted—reminding us (again) that rate cuts don’t always lower borrowing costs if they aren’t seen as credible or justified. Remember last September, when the Fed unexpectedly slashed rates by 50bps? The 2-year yield jumped nearly 30bps over the following two months. For now, markets still expect the next cut to come in September, keeping the S&P 500 near record highs despite trade uncertainty and policy inconsistency.

Several analysts are warning of a potential 10–15% correction, as August, September, and October are seasonally weaker months. Still, most view any dip as a buying opportunity. And when everyone’s waiting to buy the dip, markets often don’t dip much at all—soft selloffs aren’t enough to trigger broad deleveraging. In short: the positive momentum continues, and AI remains a key driver.

In Japan, the Nikkei is up 1.7% this morning, while the tech-heavy Topix surged to a fresh all-time high. SoftBank shares hit a record after the company returned to profitability last quarter. Sony also approached record highs after raising its full-year profit forecast despite tariffs. Toyota, however, fell sharply after reporting a 37% drop in profit due to US tariffs.

All in all, tech continues to be a virtual comfort zone. Valuations are rich, but AI-driven demand remains strong, corporate spending is resilient, and some firms—like Meta—are successfully converting investment into revenue.

In US chip stocks, Trump’s 100% tariffs paradoxically lifted sentiment. The market expects chipmakers that manufacture domestically to benefit from protectionist measures. Nvidia flirted with record highs, while AMD shrugged off its post-earnings dip.

On the FX front, the US dollar remains under pressure from trade volatility, weak Treasury auctions, and dovish Fed expectations, though we’re seeing a modest rebound in Asian trading. The EURUSD is consolidating after a 2% rally since the start of August. Meanwhile, sterling extended gains against both the euro and the dollar after the Bank of England delivered a ‘hawkish rate cut. Four MPC members voted to keep rates unchanged, and with UK inflation expected to hit 4% in the coming months, prospects for a November rate cut have been mostly priced out.

We’ve come full circle: rising inflation is again translating into currency strength, reversing the early-2025 dynamic where dovish central banks were seen as pro-growth. That shift is particularly relevant for the euro, which had previously rallied on hopes the ECB would support growth.

In focus today

For Sweden, we note the production and consumption data for June, where the figures are expected to show improvement. According to the preliminary GDP estimate for the second quarter, activity picked up in June, which today's figures should confirm. However, this does not change the outlook of weaker indicators heading into the autumn and is rather a correction following the weak figures in May.

Otherwise, the week wraps up with a quiet day for data releases.

Economic and market news

What happened overnight

In the US, Trump has nominated Stephen Miran for a temporary position on the Federal Reserve Board to serve until 31 January 2026, filling the remaining term of a recently vacated seat. Miran has expressed scepticism about the Fed's independence and has argued for stronger presidential control over Fed Board. Known as a dove and a proponent of a weaker USD, his nomination led to a slight decline in the USD, as markets anticipate his potential alignment with Trump's push for looser monetary policy.

What happened yesterday

The Bank of England cut the Bank Rate by 25bp to 4.00% as widely expected. The vote split delivered a hawkish surprise, with five members supporting a cut and four voting for an unchanged decision. Additionally, the statement adopted a hawkish tone, noting that the monetary policy stance has become less restrictive and that any future cuts will depend on the outlook for further disinflation. Markets reacted with a modest rise in Gilt yields and a decline in EUR/GBP below the 0.87 mark.

In Sweden, CPIF excluding energy came in at 3.15% in July, just below the 3.2% market consensus. However, core inflation remains 0.3 p.p. above the Riksbank's target, with the broader CPIF measure exceeding the June forecast by 0.5 p.p. A positive development is the narrowing gap between actual core inflation and the Riksbank's forecast narrowing from 0.4% in June to 0.3% in July. While the outcome is relatively neutral compared to expectations, a cut by the Riksbank at the 20 August meeting is highly unlikely. Inflation details are due on 14 August.

Equities: Equities edged higher again yesterday, with notable regional divergence as European markets once more led the advance alongside emerging markets, while US indices ended marginally lower. Sector performance offered little in the way of a clear signal, though cyclicals marginally outperformed defensives. Healthcare remained under pressure - less so in the Nordic region - but weighed down by US company-specific headlines. In the US yesterday, Dow -0.5%, S&P 500 -0.1%, Nasdaq +0.4% and Russell 2000 -0.3%. In Asia this morning, the picture is mixed: most markets are in the red, with Japan the clear outperformer, partly on the back of relative "trade-war-position". Futures are pointing higher again in both Europe and the US.

FI and FX: Risk sentiment improved in the European session yesterday with cyclicals pushing equity indices higher. The mood was much more neutral in the US session, where the S&P 500 closed marginally lower. Bonds saw some headwinds through the session as a hawkish BoE and a weak 30Y UST auction added upward pressure on yields. However, market volatility in fixed income market remained muted with very little news to trade on. The USD found some support during the US session before news broke that Trump intends to nominate Stephen Miran as a Federal Reserve Governor, triggering a USD sell-off. EUR/USD is unchanged at 1.166 since yesterday. The upward pressure on EUR/NOK -partly related to the drop in energy prices - continued with the cross now trading above the 11.9 mark.

Daily Pivots: (S1) 1.1617; (P) 1.1658; (R1) 1.1705; More...

Intraday bias in EUR/USD remains mildly on the upside. As noted before, correction from 1.1829 should have completed with three waves down to 1.1390. Further rally should be seen to retest 1.1788/1820 resistance zone. On the downside, however, break of 1.1526 minor support will dampen this view and bring retest of 1.1390 instead.

In the bigger picture, rise from 0.9534 long term bottom could be correcting the multi-decade downtrend or the start of a long term up trend. In either case, further rise should be seen to 100% projection of 0.9534 to 1.1274 from 1.0176 at 1.1916. This will remain the favored case as long as 1.1604 support holds.

Daily Pivots: (S1) 146.66; (P) 147.18; (R1) 147.68; More...

USD/JPY remains bounded in tight range and intraday bias stays neutral. As long as 145.84 support holds, larger rebound from 139.87 is still in favor to continue. On the upside, above 148.07 minor resistance will bring stronger rebound back to retest 150.90. However, on the downside, firm break of 145.84 support will argue that whole rise from 139.87 might have already completed. Deeper fall should then be seen to 142.66 support for confirmation.

In the bigger picture, price actions from 161.94 (2024 high) are seen as a corrective pattern to rise from 102.58 (2021 low). Decisive break of 61.8% retracement of 158.86 to 139.87 at 151.22 will argue that it has already completed with three waves at 139.87. Larger up trend might then be ready to resume through 161.94 high. In case the corrective pattern extends with another fall, strong support is expected from 38.2% retracement of 102.58 to 161.94 at 139.26 to bring rebound.

Daily Pivots: (S1) 1.3371; (P) 1.3410; (R1) 1.3484; More...

Intraday bias in GBP/USD remains on the upside at this point. As noted before, correction from 1.3787 should have completed with three waves down to 1.3140. Further rise should be seen to 1.3587 resistance. Firm break there will target 1.3787 high. On the downside, below 1.3344 minor support will turn intraday bias neutral again first.

In the bigger picture, up trend from 1.3051 (2022 low) is in progress. Next medium term target is 61.8% projection of 1.0351 to 1.3433 from 1.2099 at 1.4004. Outlook will now stay bullish as long as 55 W EMA (now at 1.3049) holds, even in case of deep pullback.

Daily Pivots: (S1) 0.8044; (P) 0.8066; (R1) 0.8090; More….

Intraday bias in USD/CHF stays neutral at this point. On the downside, below 0.8020 will affirm that case that corrective bounce from 0.7871 has completed at 0.8170. Bias will be back on the downside for 07871/7910 support zone. On the upside, though, break of 0.8170 will resume the rise from 0.7871 to 38.2% retracement of 0.9200 to 0.7871 at 0.8379 instead.

In the bigger picture, long term down trend from 1.0342 (2017 high) is still in progress. Next target is 100% projection of 1.0146 (2022 high) to 0.8332 from 0.9200 at 0.7382. In any case, outlook will stay bearish as long as 0.8475 resistance holds.

Daily Pivots: (S1) 0.6495; (P) 0.6518; (R1) 0.6546; More...

AUD/USD's break of 0.6528 resistance suggests that corrective pullback from 0.6624 has completed at 0.6418. Intraday bias is mildly on the upside for retesting 0.6624. On the downside, though, break of 0.6449 support will resume the correction to 38.2% retracement of 0.5913 to 0.6624 at 0.6352.

In the bigger picture, there is no clear sign that down trend from 0.8006 (2021 high) has completed. Rebound from 0.5913 is seen as a corrective move. While stronger rally cannot be ruled out, outlook will remain bearish as long as 38.2% retracement of 0.8006 to 0.5913 at 0.6713 holds. Nevertheless, considering bullish convergence condition in W MACD, even in case of another fall through 0.5913, downside should be contained above 0.5506 (2020 low).

Daily Pivots: (S1) 1.3723; (P) 1.3748; (R1) 1.3775; More...

Intraday bias in USD/CAD stays mildly on the downside. Corrective rebound could have completed with three waves up to 1.3878. Deeper fall should be seen to retest 1.3538 low. On the upside, however, above 1.3809 will dampen this view and turn bias neutral again.

In the bigger picture, price actions from 1.4791 medium term top could either be a correction to rise from 1.2005 (2021 low), or trend reversal. In either case, further decline is expected as long as 1.4014 resistance holds. Next target is 61.8% retracement of 1.2005 (2021 low) to 1.4791 at 1.3069.

Daily Pivots: (S1) 171.22; (P) 171.70; (R1) 172.12; More...

Range trading continues in EUR/JPY and intraday bias stays neutral. While corrective fall from 173.87 short term top could extend lower, downside should be contained by 38.2% retracement of 161.06 to 173.87 at 168.97 to bring rebound, at least on first attempt. On the upside, above 172.36 resistance will bring retest of 173.87 first. However, sustained break of 168.97 will raise the chance of near term bearish reversal.

In the bigger picture, considering current strong momentum as seen in the rally from 154.77, corrective pattern from 175.41 could have already completed. Decisive break there will confirm long term up trend resumption. Next target is 61.8% projection of 124.37 to 175.41 from 154.77 at 186.31. However, rejection by 175.41, followed by firm break of 55 D EMA (now at 168.80) will delay this bullish case.

Daily Pivots: (S1) 196.69; (P) 197.36; (R1) 198.48; More...

Intraday bias in GBP/JPY remains on the upside at this point. As noted before, corrective pullback from 199.96 could have completed at 195.01. Further rise should be seen for retesting 199.96 high. Firm break there will resume the rally from 184.35. On the downside, below 196.21 minor support will turn intraday bias neutral first. Also, in case of another fall, strong support is expected from 193.99 cluster support (38.2% retracement of 184.35 to 199.96 at 193.99) to bring rebound.

In the bigger picture, price actions from 208.09 (2024 high) are seen as a correction to rally from 123.94 (2020 low). The pattern might still extend with another falling leg. But in that case, strong support should be seen from 38.2% retracement of 123.94 to 208.09 at 175.94 to contain downside. Meanwhile, decisive break of 208.09 will confirm long term up trend resumption.