EU CONSUMER STAPLES: Suedzucker; guidance cut

• After consolidating the Monday selloff overnight, the USD index (-0.52%) has resumed its weakening trend on Tuesday, extending the pullback from last week’s highs to ~1.6% in recent trade, further eroding the cautious recovery that had been seen across the first half of July. An extension lower for US yields appears to be assisting the move, helped by Treasury Secretary Bessent providing a more optimistic tone regarding Powell’s short-term future as the Fed Chair.
• Outside of the scandies, gains have been led by the Japanese Yen and Swiss Franc in G10, helping USDJPY extend its post upper house election pullback. USDJPY downside momentum built through initial support of 146.92 (Jul 16 low), printing down to a session low of 146.31. Short-term pivot support to monitor next is 145.85, the 50-day EMA.
• Bessent’s mention of Japan talks going “very well” and that the election may be the impetus to getting a deal done will have also provided tailwinds for the yen. His comments follow Japan’s chief trade negotiator meeting with the US Commerce Secretary on Monday ahead of the looming August 01 deadline.
• Elsewhere, advances for the likes of GBP, AUD, NZD and CAD have all mirrored the adjustment for the DXY. For EURUSD, spot has traded back above 1.1750, narrowing the gap back to cycle highs at 1.1829, the Jul 1 high and the bull trigger.
• The swift reversal and subsequent resumption of weakness keeps a bearish trend intact for USDCAD. Downside momentum appears to have picked up below some daily lows around 1.3650 today and further declines would refocus attention on key support at 1.3540, the Jun 16 low.
• GBP has relatively underperformed, however, cable has still risen back above the 1.35 handle which further negates the prior bearish technical breaks last week. This dynamic keeps EURGBP trading towards its most recent highs and attention firmly on the April 11 high at 0.8738.

The bull flattening move in EGBs and Gilts continued for a second session Tuesday.

• Once again, there was no single trigger for the bullish move in global core FI which overall looked like a continuation move from Monday's constructive session.
• Some pointed to the rally in Treasuries as spilling over into the European space. The biggest move of the day coincided with US Treasury Secretary Bessent's suggestion that there was no reason for Fed Chair Powell to leave office before the end of his term in 2026, helping US long-end yields lower.
• In data, UK public sector net borrowing was higher than expected, while the ECB's Q2 Bank Lending Survey saw credit demand from firms pick up but overall momentum remaining weak.
• As noted, both the UK and German curves bull flattened on the day, with Gilts slightly outperforming.
• Periphery / semi-core EGB spreads were mixed, with BTPs underperforming and OATs outperforming.
• Wednesday's calendar includes Eurozone consumer confidence data but the week's focus remains the ECB decision Thursday.
• MNI's ECB preview has been published (PDF here) - alongside the expected hold, this week’s communication is expected to be as non-committal as possible, maintaining flexibility and buying time for a fresh forecast round in time for the Sep 11 meeting. The balance of risks will be important in determining any market reaction.

Closing Yields / 10-Yr EGB Spreads To Germany

• Germany: The 2-Yr yield is down 1.2bps at 1.812%, 5-Yr is down 1.6bps at 2.152%, 10-Yr is down 2.3bps at 2.59%, and 30-Yr is down 2.2bps at 3.117%.
• UK: The 2-Yr yield is down 2.7bps at 3.842%, 5-Yr is down 3.8bps at 3.997%, 10-Yr is down 3.4bps at 4.569%, and 30-Yr is down 2.8bps at 5.4%.
• Italian BTP spread up 0.7bps at 84.4bps  / French OAT down 0.3bps at 67.6bps

In continued media Q&A from the Bilateral Meeting with Trump and the President of the Philippines. 

• Reporter: There’s no tax on tips, overtime or social security. How important is it to have no tax on home sales capital gains to unleash the housing market in this country?
• Trump: We’re thinking about that. We’d also unleash you just by lowering the interest rates. If the Fed would lower the rates we wouldn’t even have to do that. We are thinking about no tax on capital gains on houses. I’m very impressed you asked that question because nobody knew that. How did you find that out?