US equities ended last week on a positive note with the S&P hitting fresh all-time highs set against the backdrop of a solid earnings season and hopes for further trade deals as the August 1 deadlines looms. More than 80% of S&P 500 companies have exceeded profit estimates. The S&P traded up towards 6,400 and closed 0.4% higher on the day. European equities were little changed and major Asian indices retraced following recent solid gains. The US dollar was generally firmer against G10 currencies and global bond markets were stable.
The US and European Union have agreed a trade deal that would impose a 15% tariff on exports including autos though would exclude pharmaceuticals and metals. The deal was announced after a meeting between European Commission President Ursula von der Leyen and President Trump on Sunday in Scotland. It includes a commitment for the EU to purchase additional US energy products and military equipment and make investments in the US.
Separately. It was reported in the South China Morning Post that the US and China are expected to extend their tariff truce, which was due to end on 12 August, by 90 days. US Treasury Secretary Bessent is due to meet Chinese Vice Premier early this week in Stockholm.
There was limited economic data to provide the market with direction into the weekly close. The plunge in headline US durable goods orders in June was almost entirely attributable to the volatile aircraft order component. However underlying orders were relatively weak, and orders for nondefense capital goods ex-aircraft fell by around 1% in real terms, highlighting the weakness in underlying investment demand. Investment intentions have been undermined by uncertainty over US economic policy.
US treasuries were little changed with 10-year yields closing at 4.39%. The market is looking ahead to supply though this week alongside the quarterly borrowing estimates and the refunding announcement. The refunding announcement is expected to see an increase in borrowing as Treasury rebuilds it cash balance via T-bill issuance. It is expected coupon auction sizes will remain unchanged in coming quarters.
The German IFO expectations index increased to 90.7 in July, marginally below the consensus estimate. This is the highest level in more than two years, and indicates the economy is showing resilience, despite the recent disruption from US tariffs. The decrease in uncertainty, now a trade deal has been secured with the US, will likely provide further support for business sentiment.
Tokyo CPI, which serves as a leading indicator for the nationwide reading increased 2.9% in July. The core measure, which excludes fresh food and energy also increased 2.9%. Inflation remains well above the Bank of Japan's 2% target and is likely to keep the Bank of Japan on the path toward further gradual rate increases, if the economy performs in line with its forecasts. However, the Bank is expected to leave rates on hold this week and there is less than a 25% chance of a 25bp hike priced for the September meeting.
The US dollar was generally firmer against G10 currencies in offshore trade on Friday night with the largest gains against the yen, pound and Canadian dollar. The euro was little changed. The pound was the weakest currency as softer than expected retail sales weighed on Q2 growth expectations. EUR/GBP jumped after the release and extended higher through the session ultimately advancing ~0.5% compared with the pre-data levels.
NZD/USD is marginally weaker compared with the local close and traded down towards 0.6000 before recovering.
There was limited movement across NZ fixed income markets on Friday in the absence of domestic data or other catalysts. Australian 10-year government bond futures are little changed since the local close on Friday, which suggests limited directional bias for NZ yields on the open.
The only data of note today is filled jobs for the month of June. The remainder of the week has several first-tier global economic data scheduled. The key releases include Q2 GDP and inflation data in the US and euro area, the US labour market reports and the employment cost index. The Federal Reserve and Bank of Japan are expected to leave rates unchanged.
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