[France] July PMI: Manufacturing Declines Amid Stable Overall Economy

Tesla’s earnings missed estimates for the 4th consecutive quarter as revenue from car sales declined 7%. The company’s energy generation and storage revenue doubled and services revenue rose 21%, but the latter couldn’t make up for the EV sales decline. As a result, Tesla earned $1.48bn in Q2, down from $2.7bn a year earlier, and lower than the $1.69bn income penciled in by analysts. Shares slashed almost 8% in the afterhours trading, and will probably sit right on an important Fibonacci support, the major 38.2% retracement on April to July rebound. A slide below this level will technically send the share price into a bearish consolidation zone and increase the chances of deeper downside pressure, unless Elon Musk comes up with new and exciting ideas/updates about robotaxis, humanoid robots, etc.

Over at Google, the parent Alphabet did well last quarter. The company’s Q2 revenue topped estimates, cloud-computing sales rose by a better-than-expected 29%. But the number looked meagre compared to Amazon Web Services’ 38%. The search engine printed a 14% growth in revenue – believed to be partly due to AI – but it was not enough. Google reported the smallest earnings beat since early 2023 and the share price fell 2% in the afterhours trading.

As such, two of the Magnificent 7 stocks failed to create euphoria when they reported their Q2 results yesterday. The less-than-ideal set of earnings comes at a time when investors are questioning whether the AI rally has gotten ahead of itself. Elsewhere, UPS tanked 12% to the lowest since July 2020 as its earnings missed estimates. Wage inflation and soft package demand weighed on the Q2 results, GM fell more than 6% despite a profit beat and despite raising its profit outlook on truck demand. Another delay in its electric pickup plant didn’t please investors. Spotify was the only bright spot in the earnings crowd, as their shares jumped 12% as the paid subscriptions grew more than expected. But it was not enough. The S&P500 and Nasdaq both closed yesterday’s session with small losses, and the futures are both in the negative this morning. Nasdaq futures are down by almost 1% at the time I am talking here.

In Europe, the news weren’t much better. LVMH saw its ADRs decline almost 5% after announcing that revenue in China-region fell 14% in Q2 – in line with a broad-based weakness in other luxury houses across Europe as well.

The situation in China doesn’t enchant commodity traders either. Copper futures are down by 20% since the May peak, while US crude cleared the 200-DMA without much problem despite a 3.9-mio fall in US oil inventories last week – that could’ve slowed down the selloff, but did not. The next target for the bears stands near $77pb, the last major Fibonacci retracement on June to July rebound – that was tested but not broken yesterday. Trend and momentum indicators are comfortably negative suggesting that the $77pb support could be broken to clear the way for a deeper selloff to the $75pb level.

In the FX, the US dollar index was slightly stronger yesterday even though a weaker-than-expected Richmond manufacturing index, a more than 5% decline in existing home sales and a solid 2-year bond auction suggested a favourable environment for the Fed doves. The US 2-year yield sank to 4.45% and the 10-year yield stabilized near 4.25%. The EURUSD fell below 1.0850 as Cable slipped below 1.29. The rapid rise in speculative net positions warn that the bullish positioning in sterling looks stretched, but big names like Amundi turned bullish in sterling as its FX head said that he expects gains to extend to $1.35. Goldman Sachs also predicts further gains on brighter economic outlook and political stability. And the expectation that the Bank of England (BoE) could cut rates less than major peers also offers support. A minor support is seen near 1.2870, and a major support to the latest rebound stands at 1.2760, the major 38.2% Fibonacci retracement that should distinguish between the actual positive trend and a medium term bearish reversal.

On the flip side of the word, the USDJPY fell below the 155 mark on rising bets that the Bank of Japan (BoJ) could go ahead and hike its policy rate next week. An unexpected decline in the July manufacturing PMI to the contraction zone certainly could’ve spark a certain selloff but it didn’t, meaning that the trend weighs heavier than the data into next week’s BoJ decision. In Canada, the Loonie suffers from a sharp fall in oil prices and dovish Bank of Canada (BoC) expectations. The BoC is expected to announce a 25bp cut when it meets today. A sufficiently week decision could send the USDCAD above the 1.38 level as the Federal Reserve (Fed) cut expectations are mostly priced in by now.

Zooming out, are getting closer to the time for the other central bank doves to catch up with the Fed doves, and that process could slow down the depreciation of the US dollar against most majors. That’s perhaps why yesterday’s weak data from the US failed to encourage a further weakness in the US dollar index and kept the pair above the 200-DMA. But in the medium run, expect the US dollar to reverse the ytd positive trend and give the global monetary policy easing era a healthier outlook.

HCOB Flash Germany PMI was released on July 24:

HCOB Flash Germany Manufacturing PMI at 42.6 (Expected: 44, June: 43.5), a 3-month low.

HCOB Flash Germany Services PMI Business Activity Index at 52.0 (Expected: 53.3, June: 53.1), a 4-month low.

HCOB Flash Germany Composite PMI Output Index at 48.7 (Expected: 50.7, June: 50.4), a 4-month low.

HCOB Flash Germany Manufacturing PMI Output Index at 42.2 (June: 45.1), a 9-month low.

Germany's private sector economy slipped back into contraction at the start of the third quarter, weighed down by a worsening performance across the country's manufacturing sector, the latest HCOB 'flash' PMI survey compiled by S&P Global showed. There was also a further weakening of the labour market amid a broad-based decrease in employment.

On the inflation front, the rate of increase in service sector output prices slowed to the weakest since April 2021. Input costs and output prices in manufacturing meanwhile continued to fall. The economy returned to contraction under the combined effect of a further decline in manufacturing production and slower growth in services business activity. July saw the headline HCOB Flash Germany Composite PMI Output Index move below the 50.0 no-change threshold for the first time in four months.

Meanwhile, new orders fell at the fastest pace in three months. This aligns with the accelerated declines in the backlog of orders and the volume of purchased materials. With firms completing orders at a faster rate than they received them, staffing capacity was scaled back for the second month in a row. July also saw services firms cut staffing levels to end a six-month sequence of job creation in the sector. The overall decrease in employment was the steepest seen since August 2020.

Lastly, there was a slight improvement in business expectations from the month before, with the degree of optimism broadly in line with the historical series average. The increase in overall sentiment was driven by a rebound in services confidence, with manufacturing growth expectations moderating to a four-month low.

The price of Bitcoin may hover around the $66,000 zone until September, and if so, will provide investors with ample opportunities to accumulate, according to a crypto trader.

“We will spend considerable time here and accumulate,” pseudonymous crypto trader Emperor wrote in a July 23 X post after explaining that the $66,000 price level has been “broken multiple times and then retested as support.”

Bitcoin breached the $66,000 level on July 20 for the first time in 37 days and has been hovering around that area ever since, according to CoinMarketCap data. At the time of publication, Bitcoin is trading at $65,602.

Emperor suggests that the consolidation period allows traders to look for buying opportunities when the price dips below $66,000.

“Best bet right now is to be ready to buy the levels on dips you feel comfortable with and accumulate till September,” Emperor suggested to their 394,300 X followers.

However, CryptoQuant contributor Axel Adler noted that Bitcoin holders have not been selling recently, which could boost the asset's price.

“The latest on-chain data shows a substantial decrease in the number of deposit addresses for Bitcoin across all exchanges, reaching a low of 25,000,” CryptoQuant contributor Axel Adler wrote in a July 23 analyst note.

Adler explained that the “decreased willingness” to sell Bitcoin could reduce its supply, and if demand keeps rising, it might drive the price up.

“The reduction in deposit addresses to 25,000 is a critical signal that may indicate a shift in the strategy of holding Bitcoin among investors,” Adler added.

Bitcoiners appear to be holding despite concerns Mt. Gox creditors could sell off their Bitcoin once they receive it.

Over $9.4 billion in Bitcoin is owed to about 127,000 Mt. Gox creditors. Some observers have been concerned that some creditors will want to take profits after waiting for more than 10 years to recover their funds.

However, CryptoQuant co-founder Ki Young Ju noted that despite distributions having begun, there hasn’t been activity indicating sell pressure yet.

“There has been no significant spike in hourly spot trading volume dominance or BTC outflows on Kraken since then,” Ju wrote in a July 23 X post.

“We need to wait for the Asian time zone, but it’s a positive sign so far,” he added.

On Wednesday, July 24, the German GfK Consumer Confidence Indicator garnered investor interest.

An improving consumer confidence environment could boost consumer spending. Higher consumer spending could fuel demand-driven inflation and challenge expectations of a September ECB rate cut.

Gold prices rose on Wednesday as investors awaited the release of key U.S. economic data for a better picture of the Federal Reserve‘s interest rate cut trajectory.

In the UAE, gold prices gained AED1.5 with 24-carat gold rising to AED292.75 per gram, while 22-carat gold inched up to AED271.25. Twenty-one-carat gold reached AED262.50 while 18-carat gold reached AED225.

Globally, spot gold gained 0.34 percent to $2,416.82, as of 5:11 GMT. Meanwhile, U.S. gold futures rose 0.42 percent to $2,417.50.

Gold prices rose as investors awaited the release of the second-quarter gross domestic product (GDP) reading on Thursday and the June personal consumption expenditures (PCE) price index data on Friday, which will provide additional clues on the timing of the next rate cut.

Analysts said that any increase in the data sets may impact gold prices and the dollar index in the short term. However, gold’s outlook remains positive as the Fed inches closer to a rate cut decision.

Markets now expect the U.S. central bank to cut rates twice this year, in September and December, as resilient U.S. consumer demand has raised concern despite inflation easing.

Gold prices rose to an all-time high of $2,483.60 last week amid rising expectations of interest rate cuts this year. Lower interest rates reduce the opportunity cost of holding non-yielding assets like gold.

India slashed import duties on gold and silver from 15 percent to 6 percent on Tuesday in an effort to raise retail demand and reduce smuggling in the world’s second-biggest bullion consumer. Greater demand for gold in India could boost global prices. However, that could widen India’s trade deficit and put pressure on its weak rupee.

The precious metals market was mixed as gold prices rose. Spot silver rose 0.11 percent to $29.25. Meanwhile, palladium lost 0.42 percent to $921.95 while copper declined 0.31 percent to $4.13. Platinum, however, gained 0.27 percent to $945.90.

In a recent report, Sprott Asset Management said that photovoltaic panel usage forecasts have risen, raising the demand for silver above the current supply.

Asian stocks fell on Wednesday after lacklustre earnings from U.S. tech behemoths Tesla and Alphabet dented risk appetite, while the yen surged to a seven-week high ahead of a central bank meeting next week where a rate hike remains on the table.

The U.S. dollar was broadly steady, with traders watching out for an inflation reading on Friday and Federal Reserve meeting next week. The Bank of Japan is also due to meet next week, where a 10 basis point hike is priced at a 44% chance.

MSCI's broadest index of Asia-Pacific shares outside Japan was 0.35% lower, while Japan's Nikkei fell 1%. Taiwan financial markets are closed due to a typhoon.

Nasdaq futures slid 1%, while S&P 500 futures were 0.6% lower after Tesla reported its smallest profit margin in more than five years, weighing on other EV stocks.

Shares of Google-parent Alphabet slipped in after-hours trade even as the firm beat revenue and profit targets.

"The bar was set so high for Alphabet that a modest earnings beat couldn't push the stock higher. So, the market has no news to buy into," said Kyle Rodda, senior financial market analyst at Capital.com.

"It also speaks to concerns that tech stocks are too richly valued here. We will have to see how the other tech giants report and how the markets react."

The dour mood is set to move to Europe, with Eurostoxx 50 futures down 0.65%, German DAX futures down 0.44% and FTSE futures 0.3% lower ahead of a slew of earnings from companies in the region.

Investor focus will be on European luxury stocks after the world's biggest luxury group reported slowing sales growth as Chinese shoppers lower their spending.

Chinese stocks were subdued in choppy trading, with the Shanghai Composite index flat, while the blue-chip CSI300 index was 0.26% lower after recording its largest one-day decline since mid-January on Tuesday.

On the macro side, investors await U.S. GDP data on Thursday and PCE data - the Fed's favoured measure of inflation - on Friday to gauge the expectations of interest rate cuts this year.

Markets are pricing in 62 basis points of easing this year, with a cut in September priced in at 95%, the CME FedWatch tool showed.

A growing majority of economists in a Reuters poll said the Fed will likely cut rates just twice this year, in September and December, as resilient U.S. consumer demand warrants a cautious approach despite easing inflation.

"The U.S. consumer has remained extremely strong ... but you're starting to see a degree of fragility underlying some of the data," said Luke Browne, head of asset allocation for Asia at Manulife Investment Management.

The Japanese yen spiked to its highest in seven weeks of 154.36 per dollar after surging nearly 1% on Tuesday, having languished near a 38-year low of 161.96 at the start of the month. It was last up 0.56% at 154.75.

Traders suspect Tokyo intervened in the currency market in early July to yank the yen away from those lows, with estimates from BOJ data indicating authorities may have spent roughly 6 trillion yen ($38.62 billion) to prop up the frail currency.

The bouts of intervention have led speculators to unwind popular and profitable carry trades, in which traders borrow the yen at low rates to invest in dollar-priced assets for a higher return.

The yen was broadly higher, with the Japanese unit touching more than a one-month high against the pound , the euro and a two-month high against the Australian dollar .

The dollar index , which measures the U.S. currency against six rivals, was little changed at 104.41. The index is down 1.3% this month.

In commodities, oil prices rose on easing U.S. crude inventories. Brent crude futures for September rose 0.28% to $81.24 a barrel, while U.S. West Texas Intermediate crude for September gained 031% to $77.2per barrel.

($1 = 155.3600 yen)