Futures Flat With $2.8 Trillion In Options Set To Expire

US equity futures are flat even as the global equity rally extended into Europe, following Friday’s gains in Asia and Thursday’s record close on Wall Street. As of 8:00am, S&P futures are unchanged while Nasdaq 100 futures rise 0.1% after NFLX had a solid report, but market reactions were muted amid high expectations. Europe’s Stoxx 600 initially rose 0.4% but has since erased gains, with Energy stocks outperforming and tracking a two-day advance in oil prices as Brent crude futures climb 1.2% to above $70 per barrel. Pre-market in the US, megacap tech sees NVDA up modestly (+0.4%), followed by AAPL and GOOGL. Consumer Staples and Financials are outperforming. The dollar and 2Y rates dropped after Fed Governor Christopher Waller repeated his recent view that the Fed should cut 25bps this month. Yields are lower and USD is weaker; 2-, 5-, 10-, and 30-year yields are down by 1-2bps. Commodities are mixed, with Oil and Precious Metals higher, while Base Metals are flat. The combined value of cryptoassets soared beyond $4 trillion for the first time, fueled by a surge in Ethereum and momentum from a legislative push to regulate the sector. Looking at today’s calendar, the US economic data slate includes June housing starts (8:30am) and July preliminary University of Michigan sentiment (10am). Fed speaker slate includes only Waller, and Fed officials’ external communications blackout ahead of their July 30 decision starts Saturday

In premarket trading, Mag 7 stocks are higher (Nvidia +0.4%, Tesla +0.3%, Alphabet +0.4%, Microsoft +0.2%, Apple +0.1%, Amazon +0.1%, Meta Platforms +0.2%). Here are some other notable premarket movers: 

• American Express Co. (AXP) rises 1.7% after the company’s billed business on its cards and other products outperformed expectations in the second quarter as its affluent customers continued to spend.
• Blaize (BZAI) surges 100% after the company secured a contract to deploy its hybrid AI platform across Asia in collaboration with Starshine Computing Power Technology.
• Hess Corp. (HES) rises 7% after winning its arbitration battle with Exxon Mobil Corp., clearing the way for it to be bought by Chevron Corp. more than 20 months after the $53 billion deal was announced. Chevron (CVX) shares are up 3%
• Interactive Brokers (IBKR) rises 5% after reporting total net interest income for the second quarter that beat the average analyst estimate
• Netflix (NFLX) falls 1.7% after the streaming-video company’s strong second-quarter results clashed against high expectations. The stock has been a strong performer this year, up nearly 50% off an April low.
• Sable Offshore (SOC) rises 6% after a Santa Barbara judge issued a preliminary ruling on the oil and gas company’s Las Flores Pipelines.
• Sarepta (SRPT) sinks 31% after the gene therapy maker said another patient has died from acute liver failure after receiving one of its experimental gene therapies for a muscle disease.
• Symbotic (SYM) slips 1.8% after Deutsche Bank cut the automation technology company to hold, citing that much of the stock’s growth is already priced in at the current valuation.
• Viatris (VTRS) falls 3% after saying its Phase 3 trial of pimecrolimus 0.3% ophthalmic ointment for blepharitis did not meet the primary endpoint, prompting the company to review its development plans.

The dollars dipped and treasuries advanced, with the 10-year yield down two basis points to 4.43%, after Fed governor Waller again backed a July interest-rate cut to support a softening labor market. The message failed to catch on in money markets, with swaps pricing less than a 60% chance of a quarter-point cut in September and assign no probability to easing this month. The cross-asset moves come at the end of a week marked by market jitters over speculation that President Donald Trump might fire Fed Chair Jerome Powell. And sure enough, Trump continued his Fed attacks on Friday, saying policymakers “are choking out the housing market with their high rate.”

Meanwhile, the week’s market gains reflected strong economic data and optimism that US companies will post robust second-quarter figures, helping to soothe uncertainty stirred by Trump’s tariff war. Early results show S&P 500 earnings are on track to rise 3.2% for the second quarter, slightly ahead of pre-season expectations of 2.8%, according to data compiled by Bloomberg Intelligence.

And speaking of earnings, on Friday, 3M raised its profit forecast and beat Wall Street’s estimates as CEO William Brown’s effort to reinvigorate the company gained momentum. American Express’s billed business on its cards and other products also beat forecasts. On Thursday, Netflix’s results surpassed expectations across all key metrics and raised its full-year outlook for both revenue and profit margins. The stock slipped in premarket trading after a near 50% rally from its April low.

“All that helps to reinforce the bull case for equities, with this solid underlying economic momentum likely to see earnings growth remain healthy,” said Michael Brown, senior research strategist at Pepperstone.

In trade, EU purposed scrapping 10% duty on US cars if Trump lowers 25% tariff below 20%, crude is bid as the EU adopted its 18th sanction package against Russia capping oil price at $47 per barrel, and the US House passed the GENIUS ACT to regulate stablecoins which now heads to the President to sign.

Elsewhere, the share of global equity flows heading to the US has plunged in 2025, BofA’s Michael Hartnett wrote, as the trade war raises doubts about so-called American exceptionalism. US stock funds attracted just under half of total flows so far this year, compared with 72% in 2024. For Mohit Kumar, chief European strategist at Jefferies International, risk assets are likely to remain well supported until next month, when US employment data may start to show some weakness. 

“We remain positive on risky assets over the coming weeks, though we have taken some chips off the table,” Kumar noted. “Technicals will start to  shift in August.”

Also don’t forget that today is a big option expiration Friday with over $2.8 trillion of notional options exposure will expire including $1.5 trillion of SPX options and $660 billion notional of single stock options. The notional open interest for this expiration is similar to that of last July. Next week we get ~23% of SPX mkt cap reporting and Powell speaking at a conference on Tuesday. 

Europe’s Stoxx 600 initially rose 0.4% but has since erased gains, with Energy stocks outperforming and tracking a two-day advance in oil prices as Brent crude futures climb 1.2% to above $70 per barrel. Mining stocks also outperform after BHP delivered an upbeat assessment of Chinese demand. US equity futures edged higher. Here are the biggest European movers: 

• Saab shares soar as much as 13% to hit an all-time high after the defense technology business posted sales above expectations in the second quarter and raised its growth outlook for the full year.
• Reckitt Benckiser shares rise as much as 2.2% after the UK consumer goods company agreed to sell most of its homecare business to Advent International for an enterprise value of up to $4.8 billion.
• Vestas shares rise as much as 12%, hitting the highest level since May, after the wind turbine company announced a large order in the US amid a paucity of order activity in the region.
• SKF advances as much as 5.5%, the most since May, after the Swedish ball-bearings giant reported a strong set of 2Q results, with analysts positively noting the company’s resilient sales and margins.
• Senior shares jump as much as 19%, soaring to a 2019-high, after the company struck a deal to offload its Aerostructures business.
• Getinge shares rise as much as 7.2%, the most since April 10, after the Swedish health-care equipment firm reported adjusted operating profit for the second quarter that beat the average analyst estimate.
• GSK shares drop as much as 6.9%, the most since April 9, after the company’s blood cancer drug Blenrep failed to secure the backing of a panel of US regulatory advisers, putting its approval in doubt.
• Kone falls as much as 4.6%, the most since April, after the Finnish elevator and escalator group’s second-quarter earnings slightly missed expectations in a report analysts otherwise deem as “mixed.”
• Billerud drops as much as 8.6%, hitting the lowest since March 2024, as the paper and packaging firm delivered second-quarter results below analyst expectations, driven by weakness in Europe.
• Yara International shares drop as much as 3.5%, making it the biggest laggard in the European chemicals space today, after posting quarterly adjusted Ebitda a touch below expectations.
• Salzgitter slumps as much as 13%, the most since September 2022, after the steelmaker revealed second-quarter Ebitda that came in significantly below consensus expectations.
• Electrolux falls as much as 14%, the most since April, after the Swedish home appliances maker reported weak underlying topline figures.

Earlier in the session, Asian stocks gained for the week, helped by a jump in technology shares. Hong Kong’s equity market resumed a recent advance. The MSCI Asia Pacific Index rose as much as 0.6%, putting the gauge on track for its first weekly gain in three weeks. TSMC was the biggest boost to the index, with sentiment aided by the chipmaker’s bullish sales outlook a day earlier.  The Hang Seng Index rose 1.3% to the highest level in more than three years, as tech and financial stocks led the charge.  Elsewhere, Japanese stocks dipped as investors remained cautious ahead of Sunday’s upper house election, with polls suggesting a potential loss of majority for Prime Minister Shigeru Ishiba’s Liberal Democratic Party.  Here Are the Most Notable Movers

• Taiwan Semiconductor Manufacturing Co.’s Taipei-listed shares closed up 2.2% to hit a record after the chipmaker raised its full-year forecast for revenue growth, a positive signal for AI demand.
• Disco shares plunge after its quarterly shipment guidance disappoints investors. Seven & i’s stock fell after Macquarie cut its rating following Alimentation Couche-Tard’s bid withdrawal.
• DigiPlus Interactive Corp. has turned from one of the world’s hottest casino stocks to the absolute worst as the Philippines moves to curb online gambling.
• Wilmar International shares rise as much as 3%, the most since April 10, after announcing its plan to acquire up to 20% of AWL Agri Business Ltd. from Adani Commodities.
• Wipro rises as much as 4.3% as analysts remain cautiously optimistic on the company after an in-line 1Q, strong deal wins and potential revenue recovery in 2Q.
• Axis Bank Ltd.’s shares fell the most in a year on Friday after the Indian lender reported first-quarter net income that was sharply below analysts’ expectations, driven by a surge in provisions for bad loans.
• POSCO Future M Co Ltd reported operating profit for the second quarter that missed the average analyst estimate.
• United Laboratories International’s shares drop in Hong Kong after the drug maker agreed to sell as many as 156 million shares at HK$14.16 apiece in a placement.
• Kingboard Laminates’ shares slump in Hong Kong after holder Kingboard Investments agreed to sell as many as 78.5 million shares at HK$10 apiece in a placement.
• GCL Technology shares surge as much as 15% in Hong Kong, the most since May 13, after the Hong Kong-based company announced a deal with CPIC Investment Management (HK) to explore tokenization of real-world assets.

In FX, the dollar slipped 0.2%, trimming this week’s rally after Fed Governor Waller said policymakers should cut rates by 25bps this month. The Swedish krona and Norwegian krone are leading gains against the greenback, rising 0.9% each. The yen dips slightly, as it remained under pressure ahead of an Upper House election in Japan on Sunday.

In rates, the 10-year Treasury yield slips 1bps to 4.44%; 2-year yield drops 1bp after Federal Reserve Governor Christopher Waller said late Thursday that policymakers should cut interest rates this month to support a labor market that is showing signs of weakness. He is scheduled to speak at 8am New York time in a Bloomberg TV interview.  Traders are pricing a total of around 43bps of Fed easing through year-end, compared with around 49bps a week ago. The 2s10s curve steepens by less than 1bp. Despite Waller’s comments, swap contracts for the Fed’s July 30 rate decision price in no chance of a rate cut, with a combined 44bp of easing priced in by year-end.

In commodities, WTI crude oil futures advance almost 1%, adding to Thursday’s gains. Spot gold rises $14 to around $3,353/oz. Bitcoin falls back below $119,000.

Looking at today’s calendar, the US economic data slate includes June housing starts (8:30am) and July preliminary University of Michigan sentiment (10am). Fed speaker slate includes only Waller, and Fed officials’ external communications blackout ahead of their July 30 decision starts Saturday. earnings releases include American Express and Charles Schwab.

Market Snapshot

• S&P 500 mini +0.0%
• Nasdaq 100 mini +0.1%
• Russell 2000 mini little changed
• Stoxx Europe 600 +0.5%
• DAX +0.4%
• CAC 40 +0.6%
• 10-year Treasury yield -1 basis point at 4.44%
• VIX -0.1 points at 16.45
• Bloomberg Dollar Index -0.2% at 1205.26
• euro +0.4% at $1.1639
• WTI crude +1.1% at $68.29/barrel

Top Overnight News

• Trump is set to open the US retirement market to crypto investments with Trump preparing an executive order to allow 401k plans to tap a broad pool of alternative assets, according to FT.
• Trump again warned Brazil to drop charges against Jair Bolsonaro, saying in an open letter addressed to the former leader he would be “watching closely.” President Lula da Silva said Brazil would not accept “blackmail” from the US and the country will respond to US tariffs on Aug. 1. BBG 
• Fed Chair Powell rebutted the Trump administrations accusations that he misled Congress over a $2.5bn refurbishment of the central bank’s HQ, saying it did not inform government planners of changes to the project because they were not “substantial” enough to warrant it. FT 
• The Fed’s Christopher Waller called for a quarter-point rate cut this month, saying the labor market is “on the edge” and upside risks to inflation are limited. Waller stated the Fed should not wait until the labor market hits trouble before cutting rates and delaying cuts runs the risk of needing more aggressive action later. Furthermore, he said a July rate cut could give the Fed space to hold rates for a few meetings and noted they should cut rates in July and then adjust policy meeting by meeting, as well as commented that data should determine the pace of rate cuts and there’s nothing wrong with taking out an insurance rate cut, just in case.
• White House said President Trump signed an executive order creating a new classification of non-career federal workers and signed four proclamations, granting two years of regulatory relief from Biden-era regulations impacting sectors vital to security. Furthermore, the proclamations cover coal plants, taconite iron ore processing facilities, and certain chemical manufacturers that produce chemicals related to semiconductors, medical device sterilisation, and national defence systems.
• China’s exports of rare-earth products jumped in June, pointing to a potential pickup in magnet supplies after government-imposed curbs that proved to be Beijing’s most powerful weapon in its trade war with the Trump administration. BBG 
• The ECB can delay its final rate cut until December without investors concluding that easing is over, a Bloomberg survey of economists showed. BBG 
• Meta is said to have hired two Apple AI experts, shortly after poaching their former boss. BBG 
• China trimmed its US Treasury holdings for a third straight month in May, amid escalating trade tensions with Washington and mounting concerns over a sweeping tax and spending bill. China’s holdings fell to US $756.3 bn vs US$757.2bn  in April, the lowest level since march 2009. SCMP 
• A slight easing in Japan’s consumer inflation is welcome news for the central bank, but stubbornly high food prices will be of concern for policymakers whose hands remain tied by tariffs. Japan’s national CPI came in at +3.3% in June (inline w/the Street and down from +3.5% in May), but core (ex-food/energy) ticked up to +3.4% (vs. the Street +3.3% and up from +3.3% in May). WSJ 
• The EU has reached an agreement on a new sanctions package against Russia, which includes a lower price cap for Moscow’s crude oil barrels, limited Russian bank’s access to funding, and a ban on using Nord Stream gas pipelines connecting Russia and Germany. FT, CNBC 

Trade/Tariffs

• China Commerce Minister Wang said China and US economic and trade relations have gone through storms and remain important to each other, while he added the US has adopted more unilateral, protectionist measures since 2018, provoking frictions and that decoupling is doomed to fail as it contradicts economic development. Wang stated that mutual benefit is the essence of US-China commercial ties, as well as noted that ups and downs have taught both sides that there are things they need from each other. Wang also commented that differences and frictions are inevitable but dialogue and consultation are the best way to fix problems, and the key is to respect each other’s core interests and major concerns. Furthermore, he said China still faces high US tariffs and that overall tariffs are in excess of 50%, while China wants to bring China-US commercial ties back to a state of healthy, sustainable development.
• Canada’s International Trade Minister said they are getting officials to talk to Chinese counterparts as soon as possible to work through trade challenges, while the official also commented that there is appetite from both sides to have conversations with Mercosur and there seems to be energy to get things done quickly with ASEAN countries.
• Canada said it reached a mutually satisfactory solution with New Zealand to resolve the CPTPP dairy TRQs dispute, while a dairy agreement with New Zealand will result in minor policy changes to Canada’s TRQ administration and does not amend Canada’s market access commitments.
• Brazil’s President Lula said regarding US tariffs that Brazil always has been open to dialogue, as well as stated that trying to interfere in the Brazilian justice is a serious attack on Brazilian sovereignty and that Trump’s letter about tariffs was unacceptable blackmail. Furthermore, he said the defence of Brazil’s sovereignty also applies to the operation of digital platforms in the country. In relevant news, US President Trump posted a letter to former Brazilian President Bolsonaro voicing sympathy and said he will be watching Brazil closely.
• Japanese Trade negotiator Akazawa says he discussed “various things” with US Treasury Secretary Bessent. Asked Bessent to vigorously continue discussions. Was friendly.

A more detailed look at global markets courtesy of Newsquawk

APAC stocks were predominantly higher following the positive handover from Wall St where the S&P 500 and Nasdaq 100 rose to fresh record highs with sentiment underpinned by better-than-expected data. ASX 200 outperformed its regional peers and climbed to a fresh all-time high as advances were led by the Mining, Materials and Resources sectors with the former helped by gains in BHP following its Q4 production update and with Novonix shares up around 20% on plans to boost US graphite production as the US sets 93.5% anti-dumping duties on Chinese graphite. Nikkei 225 failed to sustain a brief return above the 40,000 level and pared its opening gains amid cautiousness heading into the upper house election on Sunday with Japan facing political uncertainty should the ruling coalition fail to retain its majority in the House of Councillors. Hang Seng and Shanghai Comp were underpinned in tandem with the gains across most of the Asia-Pac region and as participants shrugged off reports that the US is setting a 93.5% anti-dumping duty on graphite from China and that China threatened to block the Panama Ports deal unless its shipping giant COSCO is part of it.

Top Asian News

• China’s Cyberspace Administration said China and the EU agreed to set up a working team to cooperate on bilateral cross-border flows of autodata.
• Japan’s PM Ishiba to hold press conference at 06:00BST on Monday following upper house elections.

European bourses began the day with gains after constructive APAC and US sessions, and have since extended, helped by strong quarterly reports, mostly from Scandi-listed companies. European sectors opened almost entirely in the green, and retain this bias. The only sector in the red is Healthcare, which has been dragged lower by GSK (-6%) after Blenrep failed to win FDA panel support. Energy tops the pile, lifted by Vestas (broker upgrade) and BP (sold LS Power).

Top European News

• Dutch Finance Minister Heine says the EU’s MFF proposal for just under EUR 2.0tln is “dead on arrival”.
• Morgan Stanley expects BoE to hold rates steady in September, revising previous forecast for a cut.
• BofA expects the BoE to cut rates twice this year, in August and November, vs prev. exp. August, September and November Expects the bank to deliver cut in February 2026, taking terminal rate to 3.5%
• ECB’s Nagel says financial markets speak their own language and are showing how Fed attacks affect them.

FX

• DXY is a touch softer but still up some 0.6% on the week and higher for a second week in a row. The drivers for the USD upside have been a combination of resilient US data, expectations that a tariff compromise will be reached between the US and global trading partners, inflation that will limit near-term Fed easing and the market pulling back from being overly short the dollar. DXY is back below its 50DMA and towards the bottom end of Thursday’s 98.33-95 range.
• EUR/USD is attempting to recoup some lost ground vs. the USD after hitting a MTD low on Thursday at 1.1555. Price action for EUR/USD this week has largely been at the whim of the USD. EUR/USD has made its way back onto a 1.16 handle and is eyeing Thursday’s best at 1.1642.
• JPY is flat vs. the USD as the ongoing rally in USD/JPY pauses for breath. Japanese inflation metrics overnight printed in-line and provided little traction for JPY with greater attention on this weekend’s upper house elections. USD/JPY has moved back onto a 148 handle and trades in a 148.30-88 range vs. the multi-month high printed on Wednesday at 149.18.
• GBP is firmer vs. the broadly weaker USD with incremental drivers from the UK light today. Focus in the UK this week has been on the data slight with hot inflation data on Wednesday and soft labour market data on Thursday underscoring the market narrative that, whilst the BoE is expected to keep easing policy in the coming months, they are unlikely to accelerate their current quarterly pace of rate cuts.
• Antipodeans are outperforming alongside the mostly positive risk appetite and recent rebound in commodity prices.
• PBoC set USD/CNY mid-point at 7.1498 vs exp. 7.1736 (Prev. 7.1461).

Fixed Income

• USTs are trading higher by a handful of ticks today and currently within a 110-19 to 110-24 range and trading towards the peak from Thursday at 110-25. Focus has been on commentary from the influential Fed Governor Waller; he continued to bolster his calls for a 25bps cut in July; he is set to talk later today also. Elsewhere, on trade updates, the White House said the EU continues to be very eager in trade negotiations. Elsewhere, on US/China relations, US is set to impose a 93.5% tariff on graphite used for battery material from China. Attention now turns to US Housing Starts/Building Permits and UoM Prelim data.
• Bunds have traded with a downward bias throughout the morning, and are the underperformer today. Nothing fundamentally driving the pressure today, but perhaps just a function of the relatively positive risk tone. Currently trading towards the bottom end of a 129.53 to 129.82 range. Further pressure may see a dip below 129.50 and then towards Thursday’s low at 129.38. Newsflow and data docket has been relatively light so far; some focus on German Producer Prices, whereby the Y/Y figure printed in-line with expectations whilst the M/M component ticked higher from the prior and came in a touch above expectations.
• Gilts are in the red, following EGBs, albeit to a lesser extent. Like above, downside today stems from the positive risk tone rather than any specific newsflow driven action. Trading in a tight 91.15 to 91.31 range, and currently just off the day’s trough. Today’s trough is a single tick above Thursday’s low, which also marks the WTD base.

Commodities

• Crude rallied from the early European morning, got as high as USD 68.53/bbl and USD 70.40/bbl for WTI and Brent. Newsflow at the time was fairly light, price action largely a continuation of Thursday’s upside (spurred by further drone attacks on refineries in the Middle East) and following the general risk tone, which remains underpinned after Thursday’s very strong US session. Newsflow this morning has been focussed on the latest EU sanctions package. A package which, as expected, includes a new lower Russian oil price cap. The cap will now by dynamic, set USD 15/bbl below market rates (prev. set at USD 60.0/bbl) and begin in the USD 45-50/bbl range as a starting point.
• Most recently, the complex has taken another leg higher and is approaching earlier peaks, no fresh fundamental driver behind the move.
• Gold is bid after climbing gradually through the latter-half of Thursday’s session despite the strong risk tone. Upside that was potentially driven by the softer yield environment, which in turn was possibly driven by Import Price data and remarks from former Fed official Warsh. The metal then picked up a little further overnight to a USD 3350.44/oz peak. Upside that comes in contrast to the mostly firmer APAC risk tone, with China largely shrugging off the latest unfavourable tariff updates.
• 3M LME Copper is following the risk tone, posting notable gains pretty much across the board thus far. This has taken it to a USD 9.75k peak and to a fresh high for the week.
• Asian refiners are reportedly increasing purchases of Kazakh CPC crude for August loadings amid lower European demand pressuring prices, according to Reuters citing traders.

Geopolitics

• Qatar, Egypt, and the US presented Israel and Hamas with an updated Gaza ceasefire and hostage deal proposal on Wednesday, according to Axios.
• Iran is moving to rearm its militia allies and is sending missiles to Hezbollah, while it seeks to smuggle weapons from Iraq to Syria and is moving quickly to replenish Houthi weapons stockpiles after US-Israeli strikes, according to WSJ.
• French, German and UK Foreign Ministers and the EU high representative held a call with the Iranian Foreign Minister with an aim to relaunch talks on Iran’s nuclear programme, while E3 ministers told Iran’s Foreign Minister to return to the diplomatic pathway immediately to reach a verifiable and lasting nuclear accord, as well as stressed again their determination to reimpose UN sanctions on Iran if no concrete progress is made towards a nuclear accord by the end of summer.
• EU Foreign Representative Kallas says the EU has just approved one of its strongest sanction packages against Russia to date. Europe will continue to increase pressure on Russia until the war concludes. Includes a lower Russian oil price cap.
• Iranian Foreign Minister says any new round of negotiations will only be possible if the other side expresses its readiness for a fair and balanced nuclear agreement, according to Sky News Arabia.
• Ukrainian President Zelensky says the negotiation process with Russia requires “more momentum”, assigned Umerov to the National Security Council.

US Event Calendar

• 8:30 am: Jun Housing Starts, est. 1300k, prior 1256k
• 8:30 am: Jun P Building Permits, est. 1387k, prior 1394k
• 10:00 am: Jul P U. of Mich. Sentiment, est. 61.5, prior 60.7

Central Banks (All Times ET):

• 8:00 am: Fed’s Waller on Bloomberg TV

DB’s Jim Reid concludes the overnight wrap

Markets have put in a decent performance over the last 24 hours, with the S&P 500 (+0.54%) and the NASDAQ (+0.74%) both reaching fresh all-time highs with the global rally mostly continuing this morning. The advance was driven by another batch of positive US data, including higher-than-expected retail sales, and then a 5th consecutive weekly decline in initial jobless claims. So that reassured investors that the US consumer was still resilient, and that the mid-Q2 jump in jobless claims was a blip rather than a permanent trend. With the stronger data and a continued rise in market inflation pricing, investors dialed down the amount of Fed rate cuts expected this year to 43bps, the lowest this has been since February. So collectively there is a growing sense of the US economy continuing to run hot, despite there being less than two weeks now until the August 1 tariff deadline. Overnight Fed Governor Waller, regarded as a potential candidate to succeed Powell, has expressed his preference for a 25bps reduction at the forthcoming late July meeting, citing escalating risks to the economy and the strong possibility that tariff-induced inflation will not lead to a sustained increase in price pressures. Furthermore, Waller cautioned that he has observed signs of strain in the labor market, reinforcing the argument for lower interest rates. He’ll likely largely be on his own for July which is why there’s only been a couple of basis point change in December pricing overnight alongside a 1.5 to 2bps UST rally across the curve. So notable comments but not enough at the moment to get close to swaying the committee, especially given the other Fed speak yesterday that we outline later.

Looking to the more immediate future, this Sunday will see the Upper House elections in Japan. Polls close at 8pm Tokyo time (12pm LDN) and final results are expected by the evening London time. Recent polls suggest that the ruling LDP-Komeito coalition may lose its Upper House majority with questions whether Prime Minister Ishiba would resign as a result. Rising prices have been a major policy issue for voters and opposition parties have called for more fiscal support, notably via consumption tax cuts. Prospects of looser fiscal policy have added to the recent rise in JGB yields so the election will influence whether this sell-off has further to run. You can see more from our Japan economist, including on the BoJ implications, here), while our FX strategists have noted the potentially binary implications of the election for the yen (see here).

Overnight Japanese core CPI increased by +3.3% year-on-year in June (compared to +3.4% anticipated). This rise was less than the +3.7% increase in May, primarily due to the resumption of gasoline subsidies. Core core CPI excluding fresh food and energy was up by 3.4% (from 3.3%) and a tenth above expectations. In fact the core CPI actually rose by 3.344%, just 0.006% short of consensus. So net net they are stronger numbers than initially meet the eye. See our economists’ review of them here. 10 and 30yr JGBs are rallying by -3.5bps and -5bps respectively though.

Back to yesterday and that positive US data, headline retail sales rose +0.6% in June (vs. +0.1% expected), bouncing back after the previous two months of declines, while retail control grew +0.5% (+0.3% expected). Meanwhile, initial jobless claims fell to a three-month low of 221k in the week ending July 12 (vs. 233k expected). In turn, that took the 4-week average for claims down to a two-month low of 229.5k, which added to the sense that this was a durable trend.

This optimism provided a fresh boost to risk assets, with equities posting fresh gains on both sides of the Atlantic. In the US, the S&P 500 (+0.54%) was led higher by cyclical sectors, including banks (+1.40%), information technology (+0.88%) and industrials (+0.87%). The NASDAQ was up +0.74%, whilst the Magnificent 7 (+0.30%) posted a 7th consecutive advance for the first time in over a year. Meanwhile in Europe, there were even stronger gains, because the main indices had closed shortly before Trump’s denial that he was going to fire Fed Chair Powell, meaning they hadn’t recovered from the brief selloff yesterday. So that meant the STOXX 600 (+0.96%) ended a run of 4 consecutive declines, with a particular outperformance for the German DAX (+1.51%).

Over on the rates side, US Treasuries saw some further unwind of Wednesday’s moves when speculation mounted about Powell’s firing. So we got the reverse trend of a flatter yield curve, a higher dollar and higher equities, which was consistent with growing confidence about Powell’s position. Admittedly, Trump issued a fresh call for lower rates, posting “Too Late:” Great numbers just out. LOWER THE RATE!!!” But that was consistent with his remarks for several weeks, and wasn’t interpreted as a fresh challenge to Powell’s position.

That curve flattening yesterday also came as investors dialled back the likelihood of rapid rate cuts, as the strong data was interpreted in a hawkish light. So the probability of a cut by September fell to 54%, down from 58% the previous day, although we’re back to around 58% post Wallet in thinner Asian markets. At the US close the amount of cuts priced by December came down -3.2bps on the day to 43bps, its lowest since February 20 although its edged back up a basis point post Waller

The problem for the Fed contracts are that there are growing concerns about inflation, not least amid questions over how much of the upside in retail sales was due to price increases versus volume growth. In fact, the 2yr US inflation swap (+4.2bps) closed above 3% for the first time since March 2023, at 3.02%. And that concern was extending to longer horizons too, with the 5yr inflation swap (+3.0bps) also at its highest since March 2023, right before the regional banking crisis kicked off with SVB’s collapse. Matters also weren’t helped by higher oil prices, with WTI up +1.75% yesterday to $67.54/bbl.

Back in Europe, the economic data painted a less robust picture, with UK unemployment up to 4.7% (vs. 4.6% expected) in the three months to May, marking its highest level since June 2021, back when the economy was still recovering from the pandemic. However, gilts still underperformed and investors dialled back the likelihood of BoE rate cuts, as there were pretty strong revisions to the previous month. So even though the headlines were negative, the employment picture actually looked a bit more solid than previously thought. Notably, the -109k decline in payrolled employees in May was revised down to only -25k, so a much less severe decline than thought, even if it was followed up with another -41k fall in June (vs. -35k expected). So that meant gilt yields moved up across the curve, with the 2yr yield up +5.1bps, and the 10yr yield up +1.5bps. That was a contrast with the rest of Europe, where yields on 10yr bunds (-1.3bps) fell back, alongside those on BTPs (-0.8bps).

In Asia markets are generally higher but the Nikkei (-0.31%) and the KOSPI (-0.43%) have both retraced earlier gains, while the Hang Seng (+0.63%), the CSI (+0.51%), and the Shanghai Composite (+0.34%) are higher. Australia’s S&P/ASX 200 stands out as the top performer, rising (+1.33%) to a record high following disappointing labour market data released earlier this week, which has intensified expectations that the RBA will need to further reduce interest rates in the upcoming months after a surprising hold in July. US equity futures are up just over a tenth of a percent.

To the day ahead now, and data releases include US housing starts and building permits for June, along with the University of Michigan’s preliminary consumer sentiment index for July. Otherwise, earnings releases include American Express and Charles Schwab.