French Improving Consumer Confidence Offers Reassurance Into 2Q — Market Talk

0832 ET - French consumer confidence firmed in July, completing a strong start to third-quarter survey data after pickups in the PMIs and Insee business confidence, Pantheon Macroeconomics' Claus Vistesen says in a note. The headline index rose to 86 from 84 in June, lifted by improvement in households' outlook for their own financial situation and the economy. Major purchasing intentions also climbed, though the survey's savings index rose as well, Vistesen notes. Since the survey period, however, airstrikes have resumed in Iran and energy prices have rebounded. Moreover, France is now also grappling with major forest fires, which are likely to weigh on household confidence in affected regions, and on sentiment in tourism and hospitality, he says. ([email protected])0809 ET - French corporate credit spreads remain tight compared to their sovereign peers, leaving them vulnerable to widening, Morgan Stanley credit strategists say in a note. France faces a weak fiscal outlook, political uncertainty, and a deteriorating credit rating outlook, which could cause sovereign spreads and credit spreads to widen in the coming months, the strategists say. "We expect historical correlations to reassert themselves, with banks particularly exposed given their higher [sensitivity] to sovereign spreads." ([email protected])0741 ET - Bitcoin stays under pressure as the selloff in chip stocks deepens, weighing on risk appetite. Nasdaq futures point to a 0.8% fall in the tech-heavy U.S. stock index. Investors are cautious with positioning ahead of the Federal Reserve's policy decision on Wednesday and earnings from major U.S. tech companies amid renewed concerns over the scale of AI-related spending, Capital.com's Daniela Hathorn says in a note. "Investors are becoming increasingly selective this earnings season, with strong revenue growth no longer enough to satisfy markets unless accompanied by evidence that elevated spending is translating into sustainable profitability." Bitcoin falls 2.2% to $63,462 after reaching an 11-day low of $63,038 overnight, LSEG data show. ([email protected])0724 ET - Market pricing of around 1.5 interest-rate hikes by the European Central Bank this year might be excessive, providing some cushion to German government bonds in case of renewed oil price rises, Metzler analysts say in a note. One-and-a-half rate raises would mean interest rates would rise by 37 basis points, according to LSEG. Metzler expects fewer interest-rate hikes than that. "We see support for the entire curve stemming from monetary policy with the greatest impact, naturally, at the short end," analysts Leon Ferdinand Bost and Yannik Mosbach say. Short-term yields have somewhat decoupled from the oil price and consequently Metzler sees a certain "margin of safety" against rising Brent prices, they say. The ECB raised interest rates in June and left them on hold in July. ([email protected])0640 ET - A further selloff in gold prices would be needed for the Swiss franc to remain weak, TD Securities strategists say in a note. Market participants have attributed the franc's weakness to the prospect of the Swiss National Bank keeping rates at 0% while other central banks raise rates. However, the currency also shows a strong correlation to falling gold prices, they say. "As we see limited scope for a prolonged global rate hiking cycle and only modest gold price downside, our foreign exchange forecast has euro-franc staying around 0.93 into year-end." The euro trades flat at 0.9315 francs after reaching a six-month high of 0.9321 earlier, LSEG data show. ([email protected])0639 ET - German economic output rose somewhat in the second quarter despite headwinds from the war in Iran, the Bundesbank says in its July monthly report. "The current picture painted by the indicators suggests a somewhat higher underlying pace of economic growth than was expected in the Bundesbank's June forecast," it says. Continued resilience in the industrial sector, helped by robust foreign demand and growing exports helped GDP to increase slightly in the quarter, the bank says. German exporters also benefited as international competitors were more severely affected by supply bottlenecks. Consumers were relatively unaffected by the high energy prices, and have kept their consumer spending at least stable, it notes. German 2Q GDP data are due Thursday. ([email protected])0635 ET - U.S. Treasury yields fall as oil prices drop and investors hope for a diplomatic solution in the Middle East. The dollar rises to a one-month high against a basket of currencies before Wednesday's Federal Reserve's rate decision and on safe-haven demand as a tech-stock selloff deepens. The Fed is expected to hold interest rates but could stress inflationary risks from high energy prices, while a hike isn't out of the question. "The Fed will have no choice but to strike a hawkish note on Wednesday," Ebury's Matthew Ryan says in a note. Money markets price a 34% probability of a Fed rate hike, according to LSEG. The 10-year Treasury yield falls 1.9 basis points to 4.622%, according to Tradeweb. The DXY dollar index hits a high of 101.640. ([email protected])0627 ET - The cost of insuring euro-denominated credit against default declines as U.S. and Iran pause hostilities. Markets hope for a resolution to the conflict and the reopening of the Strait of Hormuz. "Oil's sharp drop after the U.S. paused military strikes against Iran suggests investors are becoming more confident that diplomacy can prevent a prolonged disruption to global energy supplies," eToro's Lale Akoner says in a note. The iTraxx Europe Crossover index of euro high-yield credit default swaps falls 1 basis point to 260bps, S&P Global Market Intelligence data show. ([email protected])0619 ET - The dollar rises to a one-month high against a basket of currencies and could remain in demand as a safe haven, XM analyst Achilleas Georgolopoulos says in a note. Ahead of Wednesday's uncertain Federal Reserve decision and a batch of tech earnings, risky assets are in retreat, he says. AI concerns are playing a key role weighing on sentiment, he says. "Notably, the U.S. data calendar is much richer today, with a strong Conference Board consumer confidence index reading potentially adding to Fed rate hike expectations and further denting risk appetite." The survey is due at 1400 GMT. The DXY dollar index rises to a four-week high of 101.573. ([email protected])0539 ET - The Swiss franc could continue to struggle due to the Swiss National Bank potentially keeping interest rates low and the U.S. imposing new tariffs against Switzerland, Commerzbank's Michael Pfister says in a note. Markets are pricing a rate rise by June 2027, leaving potential for disappointment if the base rate is held at 0% until the end of next year, he says. Fresh U.S. tariffs against Switzerland come at a time when Swiss exports to the U.S. haven't recovered from last year's slump, he says. The dollar rises 0.1% to 0.8193 francs after reaching a 13-month high of 0.8199 earlier, LSEG data show. The euro rises 0.1% to 0.9316 francs after hitting a six-month high of 0.9321. ([email protected])0519 ET - Short-maturity and medium-maturity high-quality bonds offer favorable risk-return balance, making these assets attractive, UBS Global Wealth Management's Mark Haefele says in a note. Inflation pressures could fade over the coming months, reducing the prospects of major central banks increasing interest rates, Haefele says. This would likely cause bond yields to fall, he says. "We recommend locking in currently elevated yields." ([email protected])0508 ET - Sterling could fall if the Bank of England keeps interest rates steady Thursday and dampens expectations for rate rises later this year, Monex Europe analysts say in a note. The market is fully pricing a rate rise by November but this looks excessive, they say. "We expect a pushback from BOE Governor Andrew Bailey, which if realized, should pose a headwind to sterling alongside political developments." Greater fiscal premium should be attached to new Prime Minister Andy Burnham despite its pledges of fiscal discipline, they say. The euro falls 0.1% to 0.8547 pounds after reaching a three-week high of 0.8559 Monday, according to LSEG. Sterling rises 0.1% to $1.3299 after hitting a near four-week low of $1.3278 overnight. ([email protected])