PMI figures make for likely patient ECB approach later today

• European stocks rise on US-EU trade hopes.
• PMI figures make for likely patient ECB approach later today.
• Tesla and Alphabet stocks diverge after earnings.

European markets are gaining traction in early trade today, building off the back of yesterday’s optimism surrounding trade talks between the US and EU. With yesterday seeing the US announce a trade deal with their fourth highest import market, Trump’s administration has now managed to check the likes of Japan, Indonesia, and the Philippines off their list in the space of a week. The benefits to such an agreement for equity markets are evident, with the Nikkei reaching record highs despite the ongoing political uncertainty that surrounds PM Ishiba’s longevity in the role. The DAX highlighted the prospective implications for European stocks in the event of a breakthrough in negotiations, with the index up almost 1% despite a concerning decline in the German Gfk consumer climate survey for August. Notably, while each of the trade deals seen thus far include some level of tariffs (EU likely to push for 15% like Japan), this does provide the basis for a temporary but controlled rise in inflation that may allow the Fed to cut rates sooner in the event of additional near-term trade deals. Today sees Trump pay Powell & co a visit at the Federal Reserve, and while the pressure continues to build on the Fed to cut rates, they may not be so far off if we do see Trump continue to strike deals like we have seen over the past week.

This morning has been dominated by a raft of PMI surveys released throughout Europe, with welcome improvements in the manufacturing sector across France, Germany, and the wider eurozone. Coming ahead of today’s ECB meeting, the rise in manufacturing, services, and composite eurozone PMI readings provide little reason to believe the ECB will take on an overly dovish stance. For many within the ECB, the prospect of a surge in fiscal spending and a trade deal with the US (and China) will mean that the focus around easing could shift to the question of whether we could see inflation undershoot the 2% target enough to force their hand once again. Recent commentary from ECB executive board member Schnabel highlighted a perceived “high bar” for additional cuts, with the euro gaining ground ahead of today’s meeting.

On the earnings front, yesterday’s Alphabet and Tesla earnings after the close should bring some volatility around the open for US stock markets. In Tesla, the Mag7 looks to be a company which is anything but a growth stock after exhibiting a 16% decline in total auto sales and 12% drop in YoY revenues. Global competition from the likes of BYD has hurt margins, and with the company set to lose the support of Biden’s now expiring EV tax credits, investors are left dreaming of future profitability driven by the likes of the robotaxi service revenues and a far from certain surge in global demand for Optimus robots. Nonetheless, we have known Tesla to be a recent Mag7 outlier, and the strength of search within Alphabet’s earnings in the face of growing AI competition has helped lift the stock 3% in the pre-market.