Newsquawk European Market Wrap - 4th July 2025

• European equities sold on trade updates while Trump is set to send letters to nations regarding tariffs


• China issues final ruling on EU brandy probe, but no anti-dumping duties will be imposed if sold no cheaper than commitment price


• Attention next week turns to trade deadlines, FOMC Minutes, RBA and RBNZ

EQUITIES

• 
  European Equities began the day primed for a lower open, following a number of US trade updates overnight, and a pullback post-NFP bid. Stocks continued to slide through the morning, bringing the STOXX to session lows, after EU-China updates weighed further on sentiment, specifically on alcohol/luxury names. The first news dampening sentiment came as China was said to have cancelled the second day of its upcoming two-day summit with EU leaders at Beijing’s request, with other updates on China’s EU brandy anti-dumping investigation coming after. Brandy names RCO and RI reversed course after further details emerged on this ruling around half an hour later. To summarise, China is giving EU brandy producers a choice—sell at or above an agreed price (no duties), or sell below it (pay up to 34.9% in duties), designed to stop EU producers from undercutting local Chinese producers with cheap imports. A SCMP journalist noted its “No surprise since Beijing has linked brandy talks to progress on the EV probe”, and Remy Contreau said it was a “very favourable outcome”. European equities are poised to end the week on a weaker footing, with the broader Stoxx 600 and narrower Euro Stoxx 50 on course to post WTD losses.


• 
  Sectors are predominantly lower, with Industrials, Health Care and Financials the only sectors in the green. Consumer Products and Services sits firmly at the bottom of the pile, weighed by the earlier EU-China tensions surrounding the cancelled summit and potential brandy tariffs. LVMH, the largest constituent in the sector with a 19.9% weighting, is lower by -1.7%, despite its exposure to the drinks market via the Hennessy brand, produced in France.

FX

• 
  USD - DXY is flat and has failed to extend yesterday's upside, which was triggered by better-than-expected payrolls and ISM services metrics. Reasons for caution stem from two primary sources. Firstly, the passage of the OBBB in the House means that it will hit the President's desk later today. Whilst this has resolved concerns over the debt ceiling, it has exacerbated deficit concerns and provided little in the way of an expected growth impulse. Secondly, the trade agenda is front of mind with US President Trump noting that his administration will start sending tariff letters to 10-12 nations today with tariff rates to range from 10%-20% and 60%-70%; effective August 1st. Accordingly, in an adverse scenario, markets may return to the risk-off price action seen in April which, as ING reminds us, was characterised by CHF, EUR and JPY outperformance (in that order). Note, scheduled releases from the US are lacking today on account of the Independence Day holiday. DXY currently hovers around 97.00, tucked within yesterday's 96.68-97.42 range after hitting a multi-year low earlier in the week @ 96.37.


• 
  EUR - EUR is a touch firmer vs. the USD after softening yesterday on account of broad-based USD strength. The narrative around the EUR is becoming increasingly focused on ECB concern over the extent and pace of appreciation of the currency. Earlier in the week, the likes of GC member de Guindos touted 1.20 as a potential line in the sand, noting that moves above this level would be 'uncomfortable'. Additionally, yesterday's ECB minutes release highlighted concerns over an undershooting of the Bank's 2% inflation target; something which an increased strengthening of EUR would make more likely. The primary policy lever the ECB would likely turn to would be the interest rate channel. However, given the magnitude of rate cuts already delivered, which have failed to dent the currency, the efficacy of doing so appears limited. Instead, the fate of the currency appears to be closely tied to the relative performance of the greenback (see above for details). EUR/USD has failed to reapproach the 1.18 mark and is currently sitting within yesterday's 1.1718-1.1810 range.


• 
  GBP - GBP is flat vs. the USD and struggling to recoup much of the lost ground seen on Wednesday, which was triggered by a spike in the fiscal risk premium surrounding the UK. Since, UK PM Starmer has attempted to put forward a more robust defence of Chancellor Reeves. Subsequently, the UK 30yr yield has retraced around half of the spike higher on Wednesday. However, the grim realities facing HMT remain given that Reeves' fiscal headroom remains wafer thin and likely to evaporate. It remains to be seen whether the UK economy will have to digest tax hikes, the government will risk watering down its self-imposed fiscal rules or choose another policy path. However, markets can be certain that some fiscal risk premium will remain in the GBP until such issues are resolved. Cable is steady on a 1.36 handle and around the mid-point of its 1.3562-1.3789 weekly range.


• 
  JPY - JPY top of the G10 leaderboard with risk-sentiment on the backfoot as trade angst gathers pace ahead of next week's July 8th deadline (see USD section for the latest trade updates). Accordingly, USD/JPY has scaled back some of yesterday's USD-led gains and returned to a 144 handle, slipping back below its 50DMA @ 144.49. The move has also taken place in the context of stronger-than-expected Japanese Household Spending data. Markets currently price in around 17bps of hikes by year-end vs. circa 14bps at the start of the week. However, this hawkish re-pricing is likely more a by-product of events in the US. For now, desks are of the view that the BoJ's hands are tied in the absence of progress on a US-Japan trade deal with both sides struggling to strike an agreement on autos. If USD/JPY downside extends, 144 will be the next target with yesterday's trough still some way off @ 143.44.


• 
  Antipodeans - Both have fallen victim to the soured risk tone as the risk environment remains downbeat on account of the trade narrative (see USD section for details). Antipodean-specific newsflow remains light. However, that will change next week with both the RBA and RBNZ rate decisions due on deck. For the former, consensus looks for the RBA to deliver a 25bps rate cut on account of softer-than-expected growth and inflation data. Focus will be on hints over additional easing with markets currently pricing in a total of 77bps of loosening by year-end. AUD/USD is steady on a 0.65 handle and tucked within yesterday's 0.6537-87 range. For the RBNZ, markets assign a circa 75% chance of an unchanged rate with inflation now within the Bank's inflation target band. NZD/USD is currently respecting yesterday's 0.6030-93 range.

FIXED

• 
  Bunds are firmer and hit a WTD high of 130.76 in the morning, with strength spurred amid a rebound from Thursday’s base and given the downbeat risk tone. Europe is focused on relations with China given their intention to cancel the second day of an upcoming two-day China-EU leaders summit. A decision, China says, is due to growing tensions between Beijing and Brussels. An update, alongside recent reports around the EU potentially having to settle for a near-term “political” deal with the US and Trump announcing an intention to begin sending tariff letters today, has weighed on the risk tone and propped up fixed.


• 
  Gilts also in the green, drivers much the same as above. Action has lifted Gilts to a 92.79 peak, just above the 92.74 early-doors high on Thursday. In UK specifics, S&P Global commented that the UK’s inability to make cuts to welfare spending underscores the “very limited” room for manoeuvre. As a reminder, Gilts got down to 91.63 on Wednesday.


• 
  USTs are firmer, picking up marginally from the data-induced pressure on Thursday’s payrolls, with T-Notes trading within a narrow 111-07 to 111-16 band amid light newsflow due to US Independence Day. Newsflow this morning has mainly been on trade, and the tone between the EU and China has deteriorated. On tariffs, President Trump set to start sending tariff letters, and 10-12 nations will receive one today. Trump said the duties will range from 10-20% and 60-70% and will be effective from August 1st.

COMMODITIES

• 
  Crude complex saw slight losses in choppy trade with macro newsflow quiet and US markets closed for the US Independence Day holiday. Nonetheless, traders are cognizant of risks ahead via the OPEC+ confab on Sunday (although some recent reports suggested it could be moved to Saturday - no confirmation), and the Trump EU tariff deadline on July 8th, and the broader reciprocal tariff deadline on July 9th. OPEC+ is expected to approve a further 411k bpd output hike for August, in line with the pace of increases agreed for May, June, and July. WTI Aug resides in a USD 66.04-67.18/bbl range while its Brent counterpart trades between USD 67.75-68.89/bbl.


• 
  Precious Metals see mixed trade, with palladium narrowly lagging following a week of hefty gains. Spot gold holds a mild upward bias despite a steady dollar.


• 
  Base Metals sees copper subdued and underperforming the broader base metals space, and downside could be a function of the risk tone across the markets. It was also reported that India is focused on a dedicated copper chapter, in free trade pact talks with Chile and Peru for a fixed quantity of copper concentrate, and encourages foreign companies to set up smelters and refineries in India.

ENERGY HEADLINES

• Saudi Aramco said to be considering the sale of 4-5 gas fired plants which could raise USD 4bln in a fundraising drive, according to Reuters sources.


• 
  OPEC+ has moved its policy meeting to July 5th, according to Reuters sources.


• Russian Foreign Minister Lavrov says following discussions with Saudi Arabian Foreign Minister that believes members of OPEC+ will abide by their pledges

TRADE/TARIFFS

• 
  China's Commerce Ministry issues a final ruling on the EU brandy probe: anti-dumping duties and price undertakings on import-related brandies from the EU will be implemented for a 5yr period from 5th July 2025, duties up to 34.9%.


• 
  Chinese Commerce Ministry says no anti-dumping duties will be imposed if brandy products sold no cheaper than commitment price; anti-dumping duties will levied in the event of a breach of the price commitment.


• Cognac industry sources say the Chinese ruling is "rather good" news for the industry, cited by Reuters; means no-anti dumping duties if companies stick to the min. import price.


• Indonesian tariff negotiator says Indonesia has offered near-0% tariffs to 20 main US exports; defence procurement is not part of Indonesia-US tariff negotiations, according to the minister.


• French industry minister rejects settling for 10% tariffs with the US, called it a"not a good deal", via Bloomberg TV.


• EU spokesperson says the EU-China summit programme is still being finalised.


• China-EU EV negotiation nearing completion, according to state media; key is whether EU can show political willingness to solve issue


• India proposes retaliatory duties at WTO against US tariff on auto parts. 25% import tariff on vehicles and some auto parts by US amounts to safeguard measures.


• 
  India Trade Official says trade talks with US are on, Indian team has returned. Negotiations are not contingent on dates, should get sustained preference on India's interest.

EUROPEAN DATA

• German Industrial Orders MM (May) -1.4% vs. Exp. -0.1% (Prev. 0.6%)


• EU HCOB Construction PMI (Jun) 45.2 (Prev. 45.6)


• French HCOB Construction PMI (Jun) 41.6 (Prev. 43.1)


• German HCOB Construction PMI (Jun) 44.8 (Prev. 44.4)


• Italian HCOB Construction PMI (Jun) 50.2 (Prev. 50.5)


• UK S&P Global CONSTRUCTON PMI (Jun) 48.8 vs. Exp. 48.4 (Prev. 47.9)


• EU Producer Prices YY (May) 0.3% vs. Exp. 0.3% (Prev. 0.7%)


• EU Producer Prices MM (May) -0.6% vs. Exp. -0.5% (Prev. -2.2%)

EUROPEAN NEWS

• European Commission says it will not pause the implementation of AI rules and will not offer a grace period for companies

CENTRAL BANKS

• 
  ECB's Villeroy says he is looking closely at FX volatility; do not see inflationary impacts from US tariffs, EUR appreciation has a clear disinflationary effect and creates the risk of inflation undershooting target. Growth is too slow; it is a EZ problem, not just France.

GEOPOLITICS

• IAEA pulled its inspectors out of Iran over safety concerns, no reason to feel confident that inspectors will be back in Tehran any time soon, via WSJ's Norman.


• "Hamas signals flexibility and expresses willingness to provide guarantees to stop arms smuggling...even considering a temporary exile of a limited number of senior officials" to end the war, via Kann News.


• Hamas said "it would submit its response to the proposal this evening. According to the source, the Palestinian factions agree that a ceasefire must be reached in order to settle the internal situation", according to Journalist Kai.


• Lebanon's Hezbollah has reportedly begun a major strategic review, including scaling back its role as an armed movement without disarming completely, according to Reuters sources; discussions not finalised yet.


• Hamas's response will be delivered later today to Israel, Egypt, and the United States via Qatar, via Jerusalem Post's Stein; source estimates it will be positive.


• Saudi Foreign Minister, on the possibility of normalising ties with Israel, says the priority is a ceasefire in Gaza.


• 
  Israeli Defence Minister says the nation's military mission is to prepare an "enforcement plan" to make sure Iran cannot return to threaten Israel. The military must be prepared, both in intelligence and operations, to ensure the air force maintains superiority over Tehran.


• Iranian sources say that preparations are underway for a meeting between Iran's FM and Steve Witkoff in Oslo next weekend. The meeting is not finalised yet, according to France24's Azimi.


• 
  "US official to Al-Arabiya: The Iranian nuclear project has not been completely destroyed", according to Al Arabiya.


• Germany said to be preparing EUR 25bln tank order to ramp up NATO brigade, according to Bloomberg.


• German gov't says there are talks to purchase the Patriot air defence system from the US, to provide it to Ukraine.


• 
  Russian Kremlin says President Putin told US President Trump that they expect to agree on a date for a 3rd round of talks with Ukraine.


• 
  Russian Kremlin says it is currently impossible to achieve Russia's goals in Ukraine through diplomacy, according to Sky News Arabia.

NOTABLE NORTH AMERICAN NEWS

• 
  Google (GOOGL) hit by EU antitrust complaint from independent publishers about its AI overviews, via Reuters citing a document.

NOTABLE APAC NEWS

• Japan's GPIF posts -3.41% return (loss of ~JPY 8.8tln) for Jan-Mar quarter.


• TSMC (TSM) said to delay construction of a second chip plant in Japan and prioritize constructing/expanding the US facility in Arizona ahead of potential US tariffs, according to WSJ sources.

04 Jul 2025 - 15:02- MetalsResearch Sheet- Source: Newsquawk