ON DECK FOR TUESDAY, JULY 29
KEY POINTS:
- Equities keep charging ahead and are approaching record P/E ratios
- Trump’s fake investment pledges
- Light developments to give way to packed second half of the week
- US-China trade talks are quiet so far
- Eurozone GDP passes the first test as Spain beats with solid details
- US consumer confidence, JOLTS on tap
- BCCh expected to cut
Stocks are higher. Again. US equity futures are rallying by between ¼% and ½% with TSX futures up by a similar amount. S&P valuations (chart 1) are not far from the late 2024 highs that in turn were roughly two-decade highs (excluding the distorted pandemic figures). Nasdaq valuations are shown in chart 2 with TSX shown in chart 3. European cash markets are up by between ½% and over 1%. The dollar is broadly stronger again. Sovereign yields are little changed across global benchmarks.
There are light developments to consider. There is growing awareness that the US deals with Japan and the EU are made of magical fairy dust when it comes to the claimed investment bonanza. Japan’s investment pledged is all loans and guarantees that make money for Japan—not investment. The EU doused the investment pledge saying its legally nonbinding, and they can’t tell private companies what to invest. So, basically, all Trump’s deals achieved was to impose an import tax on Americans with exceedingly slight tariff reductions abroad—pending legal, enforceable text and implementation.
US-CHINA TRADE TALKS ARE QUIET SO FAR
Day 2 of US-China trade negotiations in Stockholm may be the key, but it’s unlikely there will be breakthroughs given China’s patient approach and Bessent’s guidance that the deadline is likely to be pushed out. The limited aim is to achieve enough progress in order to postpone the mid-August expiration of suspended US tariffs against China.
US TO REFRESH CONFIDENCE, JOLTS
A few US releases are due out this morning as a mild warm-up to the rest of the week when GDP, the Fed and nonfarm payrolls are due out. Most of the emphasis today will be upon US consumer confidence (10amET) and perhaps JOLTS job vacancies (10amET) that is of little use to nonfarm payroll forecasting. The US merchandise trade figures for June (8:30amET) and repeat sale home prices during May (9amET) are also expected.
EUROZONE GDP PASSES A PRELIMINARY TEST
The first glimpse at Eurozone GDP growth during Q2 passed the test. Spain beat consensus expectations with nonannualized growth of 0.7% q/q SA (0.6% consensus) in its preliminary estimate that is based on incomplete data mostly skewed to the first two months of the quarter. Domestic demand contributed a weighted 0.9 points to growth with external demand dragging -0.1% off growth. In unweighted terms, consumption was up by 0.8% q/q SA, government retreated by -0.1%, investment was up by a strong 2.1%, exports expanded by 1.1% and imports were up 1.7% which is a drag on GDP due to the leakage effect. By sector, industrial output expanded 0.8% with manufacturing up 0.3%, construction was up 1.5%, services grew 1.2% and the primary sector shrank.
OTHER DEVELOPMENTS
The Eurozone tally along with results from Germany, Italy and France arrive tomorrow morning.
The ECB’s measures for 1- and 3-year CPI expectations in June eased off somewhat (chart 4). The 1-year measure fell 0.2 points to 2.6% but the 3-year measure held unchanged at 2.4%.
Sweden’s economy missed expectations (0.1% q/q SA, 0.3% consensus) but ended Q2 on a decent note (+0.5% m/m) after sharp downward revisions to May (-0.8% m/m from -0.2%).
Chile’s central bank delivers its latest policy decision this evening and consensus unanimously expects a 25bps cut (6pmET). See my Global Week Ahead for more.
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