• Risk-on sentiment driven by China, US stimulus
  • Chinese regulators walk back fears of a regulatory clampdown
  • US infrastructure and budget negotiations advance
  • Germany’s economy is getting hotter…
  • …and so is inflation
  • US Q2 GDP a footnote amid forward risks


Global markets are in classic risk-on mode across asset classes this morning. The main catalysts include efforts to calm Chinese financial markets and progress toward advancing infrastructure and a bigger budget resolution in the US Congress. The German economy provided an assist to the risk-on tone. There is little to no follow-through on the Fed’s communications (recap here) as record earnings beats this season matter more (chart 1).

Stocks are higher across the board including strong gains in HK and mainland China after attempts by Chinese regulators to assuage concerns about a broader clampdown even though that’s basically what China is doing. Sovereign curves are steepening with 10 year yields up by 1–3 bps with Canadas and Treasuries leading the rise. The dollar is broadly softer with all major crosses and pretenders pushing higher.

Some hot German numbers aren’t hurting. German unemployment claims fell by more than guessed (-91k) in July. That’s the fastest monthly improvement since May 2006 (chart 2). The unemployment rate fell two-tenths to 5.7% and is inching toward the 5% pre-pandemic level. Job vacancies are rising to 725k which is the highest since November 2019 (chart 3). It all coincided with Germany just crossing the 50% mark on the share of the population that is fully vaccinated (61% with at least one dose), although the rate of vaccination has slowed which has prompted increased vaccination efforts and more debate on targeted restrictions against the unvaccinated as elsewhere. Other signs of healing include restaurant reservations (chart 4).

German states have reported some hot inflation readings that point to upside risk to the national estimate due at 8amET. Consensus had expected 0.4% m/m and 2.9% y/y in the EU-harmonized reading but all of the states reporting so far have landed higher.

Preliminary Spanish CPI landed on expectations with the EU-harmonized measures at 2.9% y/y (2.5% prior) and down 1.2% m/m. Higher accommodation services (hotels) and gas drove the year-over-year rate higher along with food and electricity price effects.


US Q2 GDP (8:30amET) will be the main release this morning but it’s likely to be treated as a footnote in the face of forward uncertainties. Consensus estimates 8.5% q/q SAAR growth with most estimates between about 7–10% (Scotia 7.7%). Earnings risk is skewed to Amazon in the N.A. after-market.

Weekly claims (8:30amET) and pending home sales (10amET) will likely play second fiddle to GDP. Amazon is the main earnings risk in the after-market (EPS consensus US$12.28). 



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