Key Highlights

• San Francisco Fed President Mary Daly said the U.S. job market is softening, and interest rate cuts may be near.

• Japan’s top trade negotiator plans to visit the U.S. and press for a swift auto tariff deal.

• The OECD warns that weak business investment poses a risk to global growth, with only Israel and Portugal back to pre-Covid trend.

Chart of the Day

AVERAGE RUSSIAN OIL EXPORTS BY COUNTRY AND REGION, 2024 IN MB/D

^{Source: BNY}

As U.S.-India trade tensions build, secondary tariffs on countries trading energy with Russia will move to the forefront. President Trump’s latest 10-day deadline expires this week, with uncertainty whether tariffs will target Russia or be more broadly applied. Trump has cited Indian imports of Russian oil as a reason behind the tariff ramp-up, raising the risk that similar measures could be applied to Russia’s other key energy export partners. According to International Energy Agency data, as of 2024, India is the second-largest importer of Russian oil, accounting for roughly a quarter of total exports at 1.9 mb/d. China remains the biggest importer of Russian oil at 2.4 mb/d. In 2023, Russia also became China’s top oil supplier, accounting for nearly a fifth of total crude imports. According to the U.S. Energy Information Administration, “This increase was the result of discounts related to sanctions and price caps on crude oil from Russia following its full-scale invasion of Ukraine in 2022.” We expect similar motivation for Indian refiners. Although China-Russia energy trade has not been central to U.S.-China trade relations, secondary tariffs were likely discussed during recent bilateral meetings. China is expected to remain exempt from any measures while the temporary trade truce holds. Meanwhile, recent reports suggest that Türkiye has significantly reduced its reliance on Russian crude, and no additional U.S. levy is expected beyond the 15% rate.

What's Changed?

Risk sentiment is positive. Bad news is good in the U.S. while stronger Services PMIs in the rest of the world help drive an equity market bounce. Late comments from San Francisco Fed President Daly bolster expectations for a September rate cut for the U.S. Q2 earning reports also help, with BP, DHL, Diageo and Infineon beating EPS estimates in Europe. In the U.S., the after-hours Palantir Q2 report also beat estimates and sent futures higher. Bonds are a different story, with Japan’s 10y JGB sale coming at 1.462% with a 1.7bp tail. A weaker bid-to-cover ratio suggests limited demand below 1.50%. BOJ June minutes suggest rate hikes may return after tariff uncertainty fades, though that was not enough to support the JPY. EMEA Services PMIs are mixed, with Germany back in expansion while France slows. The U.S. 10y is up 2.5bp to 4.215% ahead of today’s three-year $58bn sale. The outlier is the USD, which rises 0.25% to 99.0 on JPY and NZD weakness, while the KRW and ZAR lead declines in emerging markets. The correlation between a stronger dollar and stocks is being tested. The USD bid is also showing up in commodities, with oil down again. Brent trades are off 0.5% to $68.40, as the war in Ukraine continues and Russia-U.S. relations strain following reports on the end of the “intermediate-range nuclear force treaty.” India’s Sensex and INR are weaker, as the U.S. threatens higher tariffs on Russia oil purchases. The ability for the USD to hold gains hinges on upcoming data and the three-year bond sale. Markets remain cautious, with little tolerance for outliers. iFlow Mood remains in extreme negative territory despite yesterday’s global equity bounce, raising questions about the underlying strength of market conviction. This makes the ISM Services report critical, given belief in U.S. growth hinges on a soft-landing, with stronger growth alongside lower inflation.

What You Need to Know

India said the threat of U.S. tariffs on exports over its purchase of Russian oil is “unjustified and unreasonable” and vowed to protect its economic interests, deepening the trade rift between the two countries. Firmly rejecting the criticism, India pointed out that both the U.S. and the EU are continuing trade relations with Russia. USDINR has hit an all-time high as President Trump threatens to “substantially” raise tariffs over Russia oil. SENSEX -0.518% to 80599.14, USDINR +0.214% to 87.84, 10y INGB +1.1bp to 6.329%.

Japan’s final July Services PMI was than expected at 53.6 compared to flash 53.5 or 51.7 in June. There was a solid and accelerated rise in service sector activity across Japan in July, and the upturn was supported by a further increase in overall new work, which occurred despite a dip in export sales. However, confidence around the year-ahead softened, and employment across the sector stagnated. Price data showed weaker increases in both input costs and output charges, but rates of inflation remained historically elevated overall. Nikkei +0.642% to 40549.54, USDJPY +0.347% to 147.6, 10y JGB -4.4bp to 1.472%.

Eurozone July Services PMI rose to 51.0 (consensus: 51.2) from 50.5, while the Composite PMI climbed to 50.9 from 50.6, both at four-month highs. Growth remained modest and below the historical average, with stagnant demand and weak new business continuing to weigh on output. Export orders declined for the 41st consecutive month. Spain led activity gains, followed by Italy and Germany, while France saw the sharpest contraction in three months. Employment rose marginally at the fastest pace in over a year, and backlogs fell at the slowest rate since April 2024. Input cost inflation eased to a nine-month low, while output charge inflation rose slightly. Eurostoxx 50 +0.073% to 5246.17, EURUSD -0.303% to 1.1536, BBG AGG Euro Government High Grade EUR -1bp to 2.871%.

German July Services PMI rose to 50.6 (consensus: 50.1) from 49.7 in June, returning to growth for the first time in four months, while the Composite PMI also ticked up to 50.6 from 50.4. New business increased marginally for the first time since August 2024, driven by domestic demand, although international orders continued to decline. Employment growth slowed to its weakest since January, with some firms opting not to replace departing staff. Backlogs fell for the 15th straight month. Input cost inflation eased to its lowest since February 2021, and output price inflation slowed to a four-year low. Business sentiment rose to its highest since January. DAX +0.377% to 23847.14, EURUSD -0.303% to 1.1536, 10y Bund +1.2bp to 2.636%.

French July Services PMI fell to 48.5 (consensus: 49.7) from 49.6 in June, marking the sharpest contraction in three months as output and new business declined further. Weak domestic demand was the main drag, while international new business edged up slightly. Firms reduced staffing levels again, extending the trend that began in December, citing the non-renewal of temporary contracts and unfilled vacancies. Business confidence deteriorated sharply, with political uncertainty weighing on the outlook. Input cost inflation remained contained, driven by wages and intermediate goods, while output prices rose only marginally due to limited pricing power. The Composite PMI also dropped to 48.6 from 49.2. CAC40 +0.16% to 7644.23, EURUSD -0.303% to 1.1536, 10y OAT +1.6bp to 3.299%.

The U.K. July Services PMI fell to 51.8 (consensus: 51.2) from 52.8 in June, signaling a modest slowdown in activity growth amid weaker domestic and foreign demand. New work declined at the fastest pace since November 2022, and export sales also weakened. Employment dropped at the sharpest rate since February as firms froze hiring or implemented redundancies due to subdued sales and rising costs. Input price inflation moderated to its lowest level in 2025, though suppliers continued to pass on higher wage and transport costs. Output charges rose, but more slowly than in H1. Business confidence improved and remained well above the H1 average. FTSE 100 +0.307% to 9156.36, GBPUSD -0.068% to 1.3276, 10y Gilt +2.4bp to 4.533%.

What We're Watching

U.S June trade deficit is forecast to shrink to $61.3bn deficit compared to the $71.5bn deficit in May.

U.S. July Services PMI is expected to remain unchanged from flash 55.2 from 52.9.

U.S. July ISM Services is forecast to improve to 51.5 from 50.8, with a focus on jobs and prices.

U.S. Treasury sells $85bn in six-week and $50bn in 52-week bills, $58bn three-year notes.

What iFlow is Showing Us

Mood: iFlow Mood remains in risk-off mood. Equities flows were further reduced. Core sovereign bond inflows eased for the first time after 10 days of accelerated buying and the drop was the most since the end of May 2025.

FX: FX flows were relatively mixed and moderate with no significant scored flows. LatAm currencies were most sold, led by COP, while EMEA currencies were better bid. Within G10, USD, JPY and GBP posted light inflows against AUD and EUR outflows. In APAC, CNY and KRW were sold against buying in TWD and INR.

FI: U.S. Treasury, UK gilt, Chinese and Eurozone government bonds posted inflows against selling flows in Japanese and Indonesian government bonds.

Equities: DM Americas and DM EMEA equities were significantly sold, led by US, Denmark and Europe, while notable demand was seen in Sweden and Turkish equities. Within DM Americas, Industrial, Health Care and Information Technology sectors were significantly sold against moderate buying in Real Estate and Consumer Discretionary sectors.

Quotes of the Day

“You have to be odd to be number one.” — Dr. Seuss

“The third man in the ring makes boxing possible.” — Joyce Carol Oates

Economic Details

Eurozone June industrial producer prices rose 0.8% m/m (consensus 0.9%m/m), reversing May’s 0.6% decline, with energy prices up 3.2% and intermediate goods down 0.2%. Excluding energy, prices fell 0.1%. On a y/y basis, prices rose 0.6%, with non-durable consumer goods up 2.0% and energy down 0.1%. In the wider EU, producer prices increased 0.7% m/m and 0.6% y/y. Spain (+3.1%), Italy (+2.2%) and Portugal (+1.7%) posted the largest m/m increases, while Estonia (-3.8%) and Ireland (-2.8%) saw the steepest declines. Annually, Bulgaria (+8.4%) and Greece (+5.0%) recorded the highest gains, while Estonia (-5.2%) and Lithuania (-2.9%) fell the most. Eurostoxx 50 +0.073% to 5246.17, EURUSD -0.303% to 1.1536, BBG AGG Euro Government High Grade EUR -1bp to 2.871%.

France’s June manufacturing production rose 3.5% m/m (consensus 1.2%y/y) after falling 1.2% in May, while total industrial output increased 3.8% after a 0.7% drop. The strongest contribution came from transport equipment manufacturing, which surged 16.6%, led by a 26.7% jump in “other transport equipment” such as aerospace and shipbuilding. Energy and extractives output grew 5.0%, while coke and refining rebounded 21.2% after maintenance shutdowns. Electrical, electronic, and IT equipment rose 4.2%. On a y/y basis, Q2 manufacturing output increased 0.2%, though total industrial output fell 0.4%. Construction output dropped 0.4% m/m, the second consecutive monthly decline, and Q2 construction activity was 4.2% lower y/y. CAC40 +0.16% to 7644.23, EURUSD -0.303% to 1.1536, 10y OAT +1.6bp to 3.299%.

Italian July Services PMI rose slightly to 52.3 (cons. 52.6) from 52.1 in June, marking the eighth consecutive month of growth, supported by domestic demand. New business expanded for a sixth month, though growth slowed to its weakest over this period, and export orders fell for the month in a row. Employment rose again but at a softer pace, with hiring focused on filling long-standing vacancies. Input price inflation cooled to its lowest since November 2024, though firms continued to face rising costs in wages, fuel and services. Selling prices increased at the fastest rate in 15 months. Business confidence rose to its highest since October. FTSEMIB -0.042% to 40680.42, EURUSD -0.303% to 1.1536, 10y BTP +1bp to 3.437%.

Spanish July Services PMI rose to 55.1 (consensus 52.5) from 51.9 in June, the highest since February, marking a strong acceleration in activity and new business driven by domestic demand. Employment growth was the strongest since March, supported by confidence in future business conditions. Input costs remained elevated, driven by fuel and labor, though overall input price inflation eased to its lowest level since November. However, firms raised selling prices at the fastest pace since May 2024. Backlogs of work rose for the first time in three months. The Xomposite PMI rose to 54.7 from 52.1, with services leading the expansion alongside a solid rise in manufacturing output. IBEX 35 -0.458% to 14320, EURUSD -0.303% to 1.1536, 10y Bono +1.4bp to 3.214%.

Spain’s June property transactions rose 9.8% y/y to 194,105, despite a 5.8% m/m decline. Within that, home sales rose 17.9% y/y to 59,021, though also down 3.3% m/m. Separately, industrial production increased 2.3% y/y on a calendar- and seasonally adjusted basis, while the unadjusted annual rate stood at 4.9%. By category, production of capital goods rose 4.7% y/y (adjusted), followed by energy at 7.5%, while intermediate goods and consumer goods rose 0.8% and 1.0%, respectively. On a m/m basis, total industrial output rose 1.0% in June.

Sweden’s July Services PMI fell to 48.8 (consensus 54.0) from 54.3 in June, marking a sharp reversal after two months in expansionary territory. The largest drag came from new orders, followed by business volume. Employment posted its weakest reading since 2020, dropping below 40, extending its downward trend. Input price pressures continued to ease, with the raw and intermediate goods price index falling to 52.8 from 53.5, and down 5.1 points over the May – July period versus the prior three months. The Composite PMI declined to 50.3 from a revised 53.6 in June, returning to April’s level. July marked the tenth consecutive month the composite remained above 50, albeit signaling subdued growth. OMX +0.27% to 2559.57, EURSEK -0.095% to 11.1715, 10y Swedish GB -0.5bp to 2.454%.

South African July PMI edged up to 50.3 from 50.1 in June, indicating a marginal improvement in private sector conditions and marking the third consecutive month above the 50 threshold. The uptick was driven by renewed growth in new orders and continued employment gains, with job creation reaching its fastest pace since May 2024. Sector performance was mixed, with services and retail expanding while industry and construction contracted. Output was broadly flat, but backlogs fell at the quickest rate since February. Input price inflation accelerated to a three-month high due to rising wages and material costs, although output price increases remained modest. Business confidence recovered to its highest level since January. JSE TOP40 +0.215% to 91999.67, USDZAR +0.516% to 18.0239, 10y SAGB +2.8bp to 9.652%.

Czech July CPI rose 0.5% m/m and 2.7% y/y, according to the flash estimate, slightly down from 2.9% y/y in June. Core inflation indicators also eased, with CPI excluding energy up 3.7% y/y (vs 4.1% in June) and CPI excluding energy and unprocessed food at 3.5% y/y (vs 3.7%). Prices for food, alcohol and tobacco rose 4.9% y/y, while processed food, alcohol and tobacco rose 4.4%. Unprocessed food inflation eased to 7.8% y/y from 9.6%. Energy prices continued to decline, down 4.6% y/y. By category, services inflation accelerated to 4.8% y/y from 5.0%, while goods inflation slowed to 1.4% y/y from 1.6%. Final data will be published on August 8. Prague SE +0.065% to 2243.71, EURCZK +0.11% to 24.62, 10y CZGB -0.6bp to 4.327%.

South Korea July headline inflation eases from 2.2% to 2.1% y/y, while core inflation unchanged at 2.0% y/y. Headline and core CPI were up 0.2% m/m and 0.27% m/m. Housing, water, utilities component the largest weight within CPI eases to 1.8% y/y (Jun: 1.9%). The transportation component fell into negative territory at -0.2% y/y (June: 0.1% y/y) while food & non-alcoholic beverages were up 3.5% y/y (June: 3.4%), and the restaurants & hotels component was higher at 3.2% (June: 3.0%). KOSPI +1.596% to 3198, USDKRW +0.488% to 1391.8, 10y KTB -6bp to 2.775%.

Australia’s final July Services PMI came better than expected at 54.1 (flash 53.8, June 51.8), just shy of 54.4 highs in March 2025. Australia’s service sector expansion strengthened in July on the back of a sharp rise in new business and a stabilization of exports following a four-month period of contraction. In line with the trend for new business and activity, services firms hired additional staff at a quicker pace to support ongoing workloads and clear existing orders. Nevertheless, business confidence declined since June. Meanwhile, input price inflation intensified in July, which led Australian service providers to lift their own charges at a quicker pace. ASX +0.323% to 4967.84, AUDUSD -0.217% to 0.6453, 10y ACGB -9bp to 4.225%.

Australia’s June housing spending rose 0.5% m/m after 1.0% m/m in May. Goods spending rose 1.3% as households spent more on food, new vehicles, and electronics, while spending on services fell by 0.5% after two months of growth. On the year, household spending rose to 4.8% y/y from upwardly revised 4.4% y/y of which services spending and good spending were up 6.6% y/y and 3.4% y/y, respectively.

China July Services PMI rose more than expected from 50.6 to 52.6, the highest since May 2024 at 54.0. Services activity rose at a quicker pace due to rising inflows of new business, which were in turn supported by a fresh rise in foreign demand. Business sentiment also improved to the highest level since March. Higher workloads and rising confidence led services firms to hire additional staff in July. Meanwhile, an expansion of workforce capacity led to a softer accumulation of backlogged work. Turning to prices, average input costs and output charges both increased marginally. Nevertheless, this marked the first rise in selling prices since January. CSI 300 +0.804% to 4103.45, USDCNY +0.102% to 7.1882, 10y CGB -0.2bp to 1.709%.

Hong Kong’s July PMI improved from 47.8 to 49.2 but remains in the contraction zone since February 2025. The softer deterioration in conditions stemmed from slower reductions in both output and total new orders, though declines in new business from abroad and mainland China remained steep. Relatively muted-demand conditions contributed to a renewed fall in employment levels, while business sentiment regarding the year-ahead outlook remained strongly pessimistic. On the price front, the rate of input cost inflation gathered pace from June to reach a four-month high amid reports of increased purchase costs. That said, prices charged by private sector firms were broadly stable during July. Hang Seng +0.684% to 24902.53, USDHKD -0.002% to 7.8499, 10y HKGB -1.2bp to 1.417%.

India’s July PMI Services came at 60.5 compared with flash estimate of 59.8. The ongoing improvements in demand for Indian services continued to underpin growth of total new orders, international sales and output. Although the upturn added pressure on firms' capacity, hiring moderated. July's increase in employment was the slowest in 15 months, despite strengthening business confidence. Meanwhile, input costs and output charges rose at faster rates than in June. SENSEX -0.518% to 80599.14, USDINR +0.214% to 87.84, 10y INGB +1.1bp to 6.329%.

Philippines’ July CPI fell more than expected from 1.4% to 0.9% y/y, the lowest since October 2019 (0.6% y/y), while core inflation ticked up from 2.2% to 2.3% y/y. The fall in headline inflation was primarily driven by the drop in housing, water, electricity & gas at 2.1% y/y (June: 3.2% y/y) food & non-alcoholic beverages component at -0.2% y/y (June: +0.4% y/y) and transports -2% y/y (June: -1.6% y/y). Rice inflation dropped further at -15.9% y/y (June: -14.3% y/y). PSEi +0.078% to 6353.63, USDPHP +0.483% to 57.652, 10y PHGB -3.6bp to 6.078%.

Indonesia’s Q2 GDP came better than expected at 4.04% y/y, 5.12% after a Q1 contraction of -0.98% q/q, 4.87% y/y. Agriculture, forestry and fishing experienced the highest growth at 13.53% on the production side. Meanwhile, the General Government Final Consumption Expenditure component experienced the highest growth at 21.05% on the expenditure side. Services activities experienced the highest growth at 11.31% on the production side. The exports of goods and services component experienced the highest growth at 10.67% on the expenditure side. JCI +0.581% to 7507.999, USDIDR -0.055% to 16381, 10y IDGB -1.3bp to 6.48%.

Singapore’s June retail sales dropped -1.2% m/m but better on y/y basis at 2.3% compared to 1.3% y/y in May. Retail sales ex-auto came at 0.4% y/y after being flat in May. The estimated total retail sales value in June 2025 was $4.0bn. Of this, an estimated 13.6% were from online retail sales, higher than the 12.3% recorded in May 2025. Excluding motor vehicles, the total retail sales value was about $3.3bn, of which 16.2% were from online retail sales. Online retail sales made up 56.2%, 32.8% and 12.3% of the total sales of the computer & telecommunications equipment, furniture & household equipment and supermarkets & hypermarkets industries respectively. STI +0.237% to 4207.17, USDSGD +0.132% to 1.2893, 10y SGB -5.9bp to 2.06%.

Singapore July PMI rose to 52.7 compared to 51.0 in June. Business conditions across Singapore further improved at the start of the third quarter. Growth in new orders and activity both accelerated, while business confidence rose. In turn, firms raised their staffing levels for the first time so far this year, though backlogs continued to accumulate. Sufficient stock holdings and a lack of supply chain pressure meanwhile underpinned a reduction in purchasing activity. Selling prices were little changed despite rising cost pressures in July.