Weak Eurozone Bank Lending Suggests Uncertainty Is Hampering Monetary Easing

Economic

Forex

Summary:

While the European Central Bank reports year-on-year growth in bank lending in its press release, we like to compare slightly shorter time frames to better capture developments in recent months. We notice some weakening effects of monetary transmission in the numbers.

In May, bank lending to non-financial corporates declined compared to April - the first decline since July last year. While volatile, the three-month average growth rate has been dropping steadily, indicating that bank lending to corporates is not seeing many positive effects from the ECB moving its interest rates to neutral at this point.

Meanwhile, there is a break from the trend with bank lending growth to households, which accelerated over the course of 2024 but seems to have plateaued at just over 0.2% month-on-month this year. May saw a small tick down in the growth pace, which is now at the weakest level since November. Overall, we're seeing a levelling off effect, which suggests that monetary easing conditions are not translating as forcefully through the lending channel anymore.

Uncertainty has prompted businesses to become more reluctant to borrow for investment purposes, as the bank lending survey from April showed. Since then, uncertainty has only increased, which makes a downturn for borrowing in May understandable. The big question is how long this uncertainty will continue to suppress borrowing appetite among businesses, as this suppresses investment in the eurozone economy.

The ECB is widely expected to pause its rate cuts in July. This is not necessarily to see how its policies are playing out, but mainly to see how the economic environment is shaping up in times of huge uncertainty. If economic uncertainty has become so large that it starts to weaken lending and investment substantially, that could provide another dovish argument for a further rate cut in September.

Source: ING

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Warren Takunda

Stocks

London stocks had pared earlier small gains to trade flat by midday on Monday, as investors mulled a raft of UK data releases and amid hopes of a US-Canada trade deal.

The FTSE 100 was steady at 8,796.43.

Dan Coatsworth, investment analyst at AJ Bell, said: "There is a lot going on to influence markets before the summer lull and investors’ animal spirits continue to fuel the equities space.

"Investors seem confident trade deals will be struck, geopolitical tensions ease, and a major economic slump is avoided. The big unknown is whether investors are correct or are simply being too complacent.

"Following yet another bust-up between the US and Canada, the latter has now scrapped its digital services tax aimed at US tech firms and resumed trade talks. This has brought a sense of calm to markets, also helped by an extended deadline for negotiations whereby Canada has an extra week and a bit to agree a trade deal. It also provides some hope that other countries will get extra time to deal with the Trump administration beyond the 9 July cut-off."

On home shores, investors mulled the latest monthly Money and Credit report from the Bank of England, which showed mortgage approvals nudged higher in May, beating expectations.

Net mortgage approvals were 63,032 last month. That was a 2,376 increase on April, and higher than forecasts for 59,750.

Net borrowing of mortgage debt was also higher. It rose £2.8bn to £2.1bn, following April’s £13.8bn slump. The slide had been prompted by buyers rushing to complete in March ahead of changes to stamp duty thresholds.

The effective interest rate - the actual interest paid - on newly drawn mortgages decreased marginally in May to 4.47% from 4.49%.

Earlier, figures from the Office for National Statistics showed the economy grew 0.7% in the first three months of the year, confirming a preliminary estimate released in May.

Growth was driven by a 0.7% increase in the services sector, while production also grew, by 1.3%, and the construction sector saw 0.3% growth.

ONS director of economic statistics Liz McKeown said: "While overall quarterly growth was unrevised, our updated set of figures show the economy still grew strongly in February, with growth now coming in a little higher in March too.

"There was broad based growth across services, while manufacturing also had a strong quarter.

"The saving ratio fell for the first time in two years this quarter, as rising costs for items such as fuel, rent and restaurant meals contributed to higher spending, although it remains relatively strong."

Investors were also digesting the latest growth indicator from the Confederation of British Industry, which showed that UK companies remain deeply uncertain about their near-term growth prospects as they continue to battle higher costs and global headwinds.

In equity markets, defence firms Rolls-Royce and Babcock were among the risers.

Babcock in particular got a boost as Citi hiked its price target on the shares to 1,338p from 730p and reiterated its ‘buy’ rating as it said growth is likely to accelerate over the next 10 years.

Chemring advanced after announcing the acquisition of Hampshire-based software-defined radio systems manufacturer Landguard Nexus in a deal worth as much as £20m.

Water company Pennon rallied after an upgrade to ‘buy’ at Deutsche Bank.

On the downside, British Gas owner Centrica was knocked lower by a downgrade to ‘neutral’ from ‘overweight' at JPMorgan, which cited limited valuation upside.

WH Smith tumbled after it sold its high street business for £12m less than expected following a period of "softer trading".

Source: Sharecast

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Glendon

Political

Palestinians in northern Gaza reported one of the worst nights of Israeli bombardment in weeks after the military issued mass evacuation orders on Monday, while Israeli officials were due in Washington for a new ceasefire push by the Trump administration.

A day after U.S. President Donald Trump urged an end to the 20-month-old war, a confidant of Prime Minister Benjamin Netanyahu was expected at the White House for talks on a Gaza ceasefire, Iran, and possible wider regional diplomatic deals.

But on the ground in the Palestinian enclave there was no sign of fighting letting up.

"Explosions never stopped; they bombed schools and homes. It felt like earthquakes," said Salah, 60, a father of five children, from Gaza City. "In the news we hear a ceasefire is near, on the ground we see death and we hear explosions."

Israeli tanks pushed into the eastern areas of Zeitoun suburb in Gaza City and shelled several areas in the north, while aircraft bombed at least four schools after ordering hundreds of families sheltering inside to leave, residents said.

At least 25 people were killed in Israeli strikes on Monday, health authorities said, including 10 people killed in Zeitoun.

There was no immediate comment from the Israeli military, which says Palestinian militants embed among civilians. The militant groups deny this.

The heavy bombardment followed new evacuation orders to vast areas in the north, where Israeli forces had operated before and left behind wide-scale destruction. The military ordered people there to head south, saying that it planned to fight Hamas militants operating in northern Gaza, including in the heart of Gaza City.

NEXT STEPS

A day after Trump called to "Make the deal in Gaza, get the hostages back", Israel's strategic affairs minister Ron Dermer, a confidant of Netanyahu's, was expected on Monday at the White House for talks on Iran and Gaza, an Israeli official said.

In Israel, Netanyahu's security cabinet was expected to convene to discuss the next steps in Gaza.

On Friday, Israel's military chief said the present ground operation was close to having achieved its goals, and on Sunday, Netanyahu said new opportunities had opened up for recovering the hostages, 20 of whom are believed to still be alive.

Palestinian and Egyptian sources with knowledge of the latest ceasefire efforts said that mediators Qatar and Egypt have stepped up their contacts with the two warring sides, but that no date has been set yet for a new round of truce talks.

A Hamas official said that progress depends on Israel changing its position and agreeing to end the war and withdraw from Gaza. Israel says it can end the war only when Hamas is disarmed and dismantled. Hamas refuses to lay down its arms.

The war began when Hamas fighters stormed in to Israel on October 7 2023, killed 1,200 people, most of them civilians, and took 251 hostages back to Gaza in a surprise attack that led to Israel's single deadliest day.

Israel's subsequent military assault has killed more than 56,000 Palestinians, most of them civilians, according to the Gaza health ministry, has displaced almost the entire 2.3 million population and plunged the enclave into a humanitarian crisis.

More than 80% of the territory is now an Israeli-militarized zone or under displacement orders, according to the United Nations.

Source: Reuters

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ING

Forex

Economic

According to the preliminary estimate, Polish CPI inflation in June rose to 4.1% year-on-year (ING: 4.0%, consensus: 4.0%) from 4.0% YoY in May. Food and non-alcoholic beverage price growth slowed, in line with our forecast, to 4.9% YoY from 5.5% YoY a month earlier. The year-on-year fall in fuel prices was 10.0% compared with 11.4% in May; this was steeper than our expectations, which took into account increases in petrol station prices in the second half of the month due to conflict in the Middle East. Energy prices increased by 12.8% YoY versus 13.0% a month earlier, in line with our forecasts. According to our estimates, core inflation – the main source of today's inflation surprise – rose to 3.4% YoY in July, up from 3.3% YoY in May.

Significantly lower-than-expected wage pressure in May and the government's decision to maintain the electricity price freeze for households in 2025 are signs of improvements made in the inflation outlook from the previous month. Despite today's data, our estimate is that CPI should be close to the National Bank of Poland's inflation target in July. This means that the Monetary Policy Council has room for further monetary easing.

In contrast, recent opinions from MPC members indicate that the chances of rate cuts in the coming months are low. They see wage growth above 6%, expansionary fiscal policy and tightening by other central banks in the region as arguments for a no-change policy. This week, the new NBP staff macroeconomic projection will be released, which, alongside NBP Governor Adam Glapiński's press conference on Thursday, should provide more insight into future monetary policy decisions.

We expect further interest rate cuts to be made in 25bp increments, occurring in September and November. At the end of 2025, we expect the reference rate to drop to 4.75%. Rate cuts should continue in 2026, when we estimate the main rate will hit 4.25%.

Source: ING

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Glendon

Economic

China will press on with levying anti-dumping duties on imports of stainless-steel products, including from Indonesia, as it seeks to protect a domestic industry battered by persistent oversupply and trade uncertainty.

Some traders and industry executives had expressed hopes the world’s largest metal consumer would reconsider its tariffs, particularly for Indonesia, given the role that Chinese companies have played in expanding nickel and stainless steel production in Indonesia, today among the top suppliers of both.

Beijing, however, has now ruled that lifting the measures would risk hurting its industry at home, according to a statement posted on the commerce ministry website on Monday. The levies — which cover stainless steel billet and hot-rolled coil from the European Union, the UK, South Korea and Indonesia — will remain in place for another five years.

When they were introduced in July 2019, China’s tariffs surprised the industry, given almost all stainless steel products from Indonesia in particular come from local ventures of large Chinese companies including Tsingshan Holding Group Co. Together, the two nations produce close to three-quarters of the world’s stainless steel.

But China’s slowing economy has hit demand, and both countries are threatened by the Trump administration’s aggressive tariff policies. Both nickel traded on the London Metal Exchange and stainless steel in Shanghai hit their five-year lows earlier this year amid sluggish demand and squeezed production margins. Tsingshan has been compelled to start suspending some stainless steel production at the Indonesia Morowali Industrial Park on the island of Sulawesi.

The levies on Indonesian producers will remain unchanged at 20.2%, China’s statement said. The trade ministry also kept a 43% duty on all stainless-steel products from EU and UK companies and 103.1% for most South Korean companies, according to the statement. Levies on products by Posco Holdings Inc, which has a price commitment with the Chinese government, will be kept at 23.1%.

In the domestic stainless market, privately owned Tsingshan and rival Jiangsu Delong Nickel Industry Co compete with state-owned titan China Baowu Steel Group Co.

Source: Theedgemarkets

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Gerik

Economic

Stock Market Reaches New Peaks Amid Softening Rate Outlook

The S&P 500, Nasdaq Composite, and Dow Jones Industrial Average all closed last week at all-time highs, buoyed by increasing market confidence that the Federal Reserve will soon initiate interest rate cuts. The S&P 500 climbed 3.5% for the week, while the Nasdaq added over 4.1%, driven largely by waning inflation fears and a retreat in global tariff threats. This rally marks a 23% rebound from the market’s low on April 8, highlighting bullish investor sentiment even as economic indicators show signs of cooling.

Investor positioning suggests a growing belief that a rate cut could come as early as September. The CME FedWatch Tool shows a 93% chance of a rate cut by then, sharply up from 70% last week, reflecting a fast-changing policy outlook.

Fed’s Mixed Messaging Spurs Debate

Federal Reserve officials have recently offered a mixed view of upcoming policy action. Fed Governor Michelle Bowman noted that the labor market "appears less dynamic" and emphasized rising downside risks to employment. In contrast, Fed Chair Jerome Powell maintained a cautious stance, stressing the Fed is "well-positioned to wait." This divergence has left markets speculative but hopeful that softness in consumer demand and labor could prompt more dovish action by late summer.

EY’s Chief Economist Greg Daco expects a September rate cut, predicting further economic deceleration and weaker consumer spending as the quarter unfolds.

June Jobs Report in the Spotlight

This week’s economic focal point will be Thursday’s June nonfarm payrolls report, which analysts expect to show 116,000 new jobs added — a deceleration from May's 139,000. The unemployment rate is forecast to tick up to 4.3%, from 4.2% previously, suggesting further signs of slack in the labor market. Wage growth is expected to cool modestly to 3.8% year-over-year.

This jobs data will be critical for both the Federal Reserve’s interest rate path and investor confidence, especially as markets are closed Friday for Independence Day.

Tariff Pause Deadline Adds Geopolitical Risk

Investors are also closely monitoring President Trump’s July 9 deadline for resolving various global trade negotiations. The current 90-day pause on new tariffs is set to expire, and although deals with the UK, Canada, and potentially others are progressing, uncertainty remains—particularly concerning Europe and China.

The administration’s trade strategy has created planning instability, but for now, markets are betting on extensions or modest agreements to prevent major disruption.

Capital Flows Reflect Strategic Shifts

Despite US equity highs, global capital flows suggest cautious repositioning. As of late June, more than $100 billion has flowed into European equity funds—triple the amount from the same period last year—while US funds saw net outflows of nearly $87 billion. This underscores growing investor concern over US political volatility and a pivot toward perceived European stability.

The stock market’s momentum reflects optimism over easing monetary policy and calming trade tensions, but the foundation remains fragile. The June jobs report, upcoming service and manufacturing indices, and tariff decisions will all test the durability of current investor confidence. Markets may continue to climb in the short term, but unexpected softness in labor data or tariff escalations could prompt swift corrections. Investors are advised to stay cautious and closely monitor economic and political signals over the coming two weeks.

Source: Yahoo Finance

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Gerik

Economic

Tariff Relief Comes into Effect for British Exports

The UK government has officially confirmed the enactment of a bilateral trade deal with the United States that reduces tariffs on selected British exports. The deal, signed earlier this June between U.S. President Donald Trump and UK Prime Minister Keir Starmer, enables British automakers to export vehicles to the U.S. under a significantly reduced tariff quota of 10%, down from 27.5%. Simultaneously, the existing 10% tariffs on aircraft engines and related parts have been entirely eliminated.

This agreement represents one of the few concrete outcomes among the many framework discussions Trump’s administration has been pursuing as part of its global tariff reset initiative. For the UK, this is a notable win for its automotive and aerospace sectors, which rely heavily on transatlantic trade access.

Steel and Aluminum Tariffs Remain a Flashpoint

Despite the progress on autos and aviation, the more contentious issue of tariffs on British steel and aluminum remains unsettled. While the UK has temporarily avoided the blanket 50% tariffs that the U.S. has imposed on several trading partners earlier this month, that protection could expire after July 9 unless a supplementary deal is reached.

The British government emphasized that it is actively negotiating further to bring down tariffs on core steel products to 0%, suggesting ongoing dialogue but also highlighting the precarious nature of the current pause.

Strategic Significance and Broader Trade Climate

This partial agreement arrives amid Trump’s broader tariff campaign targeting dozens of countries under the justification of renegotiating imbalanced trade relationships. The U.S. is pushing for as many as 90 deals during a temporary moratorium set to expire on July 9. While many of these talks have yielded vague "frameworks," the UK’s deal stands out as one of the more specific and enforceable pacts.

Nonetheless, the unresolved metals issue is emblematic of the administration’s pattern — headline trade wins accompanied by unfinished negotiations and ambiguity. The risk for UK exporters is that without a finalized agreement, they may still be exposed to sudden tariff hikes, undermining the predictability necessary for supply chain planning and capital investment.

The effective implementation of the tariff reduction deal is a welcome development for British carmakers and aviation suppliers, offering immediate cost relief and export incentives. Yet, with the steel and aluminum chapter still open and July 9 drawing closer, the UK must remain diplomatically agile. As Trump’s trade team continues its fast-paced, often unilateral tariff diplomacy, even successful partners like the UK are not exempt from future shifts in U.S. trade posture.