FRANCE DATA: July IP Higher Than Cons Due to Energy / Water; Manufacturing Soft
July France industrial production was stronger than expected, at -1.1% M/M (-1.4% consensus). This followed the strong June (3.7%, revised from 3.8%). However, it appears as though it is energy and water / sewerage driving the upside surprise here with manufacturing softer-than-expected.
- Underlying manufacturing was weaker than the headline print this time, at -1.6% M/M, the lowest sequential reading since May 2024. On a 3m/3m comparison, the sector remains up, at 1.5% (2.6% prior).
- Capital goods production was the mover behind manufacturing, at -4.8% M/M following the very strong +7.0% from June. In July, production fell "in the manufacture of transport equipment (-10.7%) after jumping in June (+16.3%). The decline in this sector was mainly due to the decline in aeronautical and space construction, following a peak in production in June", Insee comments. However, this category in index terms was still the second highest it has been post-Covid, so there could be further pull back next month.
- Durable consumer goods meanwhile were strong again in July, posting their fourth consecutive increase in production, at 1.7% M/M (2.1% prior). Non-durable consumer goods were -0.2% M/M (0.3% prior), while intermediate consumer goods came in at 1.0% M/M (0.6% prior).
- Outside of manufacturing "electricity, gas, steam and air-conditioning supply" rose 1.8%M/M after 5.0%M/M last month (almost matching the high since 2022 in index terms seen in December 2024). Water and sewerage fell 0.9%M/M after the 3.5% rise in June which in index terms is still 2.7% above the Jan-May level. We think that most analysts would have expected further pull back in these categories and these were the main drivers of the upside IP surprise.
- On a yearly comparison, IP was 1.3% (0.7% cons, 2.2% prior, revised from 2.0%).
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AUSSIE 10-YEAR TECHS: (U5) Recovers With Treasuries
- RES 3: 96.501 - 76.4% of the Mar 14 - Nov 1 ‘23 bear leg
- RES 2: 96.207 - 61.8% of the Mar 14 - Nov 1 ‘23 bear leg
- RES 1: 95.960 - High Apr 7
- PRICE: 95.710 @ 14:34 BST Aug 8
- SUP 1: 95.415/95.300 - Low May 15 / Low Jan 14
- SUP 2: 95.275 - Low Nov 14 (cont) and a key support
- SUP 3: 94.707 - 1.0% 10-dma envelope
Aussie 10-yr futures received a boost from the US Treasury rally that followed a poor NFP print. This keeps Aussie 10-year futures toward the top end of the recent range. To the upside, next resistance is at 96.207, a Fibonacci retracement point. Next support undercuts at 95.420 (pierced), the Feb 13 low, ahead of 95.275, the Nov 14 low and a key support. Clearance of this level would strengthen a bearish condition.
SECURITY: Trump To Sign Trilateral Peace Accord With Armenia/Azerbaijan Shortly
US President Donald Trump is shortly due to sign a trilateral peace agreement with Armenian Prime Minister Nikol Pashinyan and Azerbaijani President Ilham Aliyev at the White House. LIVESTREAM The event will provide another opportunity for Trump to style himself as peacemaker, after touting success in brokering peace deals between Rwanda/Congo, Cambodia/Thailand, and India/Pakistan.
- The accord aims to resolve a decade-long dispute over the sovereignty of Nagorno-Karabakh - a breakaway Azerbaijani province that was under de facto Armenian control from the dissolution of the Soviet Union until a 2020 war.
- Trump described the meeting on Truth Social as a “historic peace summit,” noting that the US will also sign “Bilateral Agreements [to] fully unlock the potential of the South Caucasus Region.”
- White House spokeswoman Anna Kelly told reporters that Trump would sign deals with both Armenia and Azerbaijan on energy, technology, economic cooperation, border security, infrastructure and trade.
- A White House official said: "It's about the entire region, and [the leaders] know that that region is known to be safer and more prosperous with President Trump."
- Reuters reports that the US will have development rights to build transportation links in the strategic Zangezur Corridor, a mountainous stretch of Armenian territory between Azerbaijan and its Nakhichevan exclave.
- Politico notes: “But whether this is just a photo opportunity or a lasting end to a conflict that has undermined stability in a region dominated by Russia and Iran will depend on whether the US can address several key challenges.”
FED: Balance Sheet Runoff Continues At Steady $20B/Month Pace (2/2)
Fed asset holdings were little changed in the past week. SOMA runoff totaled $2.8B (composed of $4.2B less nominal Tsy holdings and $1.4B more TIPS), with emergency lending/liquidity facilities $0.7B lower.
- Over the last 4 weeks, the $20B/monthly expected QT pace was roughly adhered to: MBS fell $18B, with Treasury net holdings down around $2B (a fall in TIPS holdings offsetting a slight rise in nominals).
- Discount window usage accounted for the fall in lending facility usage this week; takeup is now down to $4.9B, down $1.3B in the last month and down from the 1-year high of $6.4B set in July which looks to have been a temporary blip higher.
