1026 GMT - The dollar could weaken by year-end as the Federal Reserve probably won't raise interest rates as markets anticipate, MUFG Bank analysts say in a note. New Fed Chairman Kevin Warsh's tough rhetoric on inflation fueled bets the Fed could lift rates. However, the Fed is likely to keep rates on hold, the analysts say. "U.S. inflation appears close to peaking and should moderate through the remainder of the year thereby easing pressure on the Fed to respond forcefully." Disinflationary pressures should build on lower energy prices and the fading effects of last year's tariff increases, they say. The potential for improved growth outside the U.S. should also weigh on the dollar, they say. (renae.dyer@wsj.com)
0956 GMT - China's economy and the more traditional sectors in the equities market may face further pressure before conditions get better, Julius Baer analyst Richard Tang says. Investors appear to have low expectations for any stimulus measures from Beijing aimed at reviving domestic demand, as policymakers are focused on boosting artificial-intelligence development and strengthening economic security instead, he says. Tang expects the divergence between the real economy and the stock market to persist. AI infrastructure trades will maintain their outperformance in 2H while non-AI firms, including legacy internet companies, will likely see continuing weakness. "We believe the earliest timing for old technology [stocks] to catch up in performance will likely be 4Q," he adds. (jason.chau@wsj.com)
0950 GMT - U.S. Treasury yields rise in European trade reflecting the market's continued expectation of Federal Reserve rate hikes, while the dollar is slightly lower as the U.S. and Iran make renewed diplomatic efforts for a peaceful resolution. "Although tensions escalated during the last few days, sentiment improved after reports emerged that both sides agreed to resume negotiations over the Strait of Hormuz," Exness' Dat Tong says in a note. The development revived hopes that the interim peace agreement could be preserved, reducing demand for safe-haven assets such as the dollar, the senior financial markets strategist says. The 10-year U.S. Treasury yield rises 1.4 basis points to 4.385%, according to Tradeweb. The DXY dollar index declines 0.1% to 101.267. (emese.bartha@wsj.com)
0927 GMT - European Central Bank policymakers could provide some support to the euro if they keep alive the prospect of interest rate rises at the ECB's forum in Sintra, Portugal from Monday to Wednesday, ING's Francesco Pesole says. "The preference emerging from the many ECB speakers this week may well be to keep markets leaning toward a hawkish bias so that inflation expectations remain in check," he says in a note. ING expects another rate rise in September. While the euro faces a hit from any renewed dollar appreciation, ECB rate rise signals should limit losses, he says. The euro rises 0.1% to $1.1399. ING sees the euro remaining above $1.1300 with a gradual recovery towards $1.1500 in July. (renae.dyer@wsj.com)
0912 GMT - Candriam moves its view on U.S. Treasury duration to a modest positive grade from neutral, implemented through the front end of the curve, Nicolas Jullien, global head of fixed income, says in a note. "This is the first time we are taking a long view on nominal rates this year, and this follows a period in which we have deliberately waited for the sell-off to create a more attractive entry point," he says. Candriam considers that the main support comes from valuations, where it sees a meaningful overshoot. "Markets are pricing a Federal Reserve [interest rate] hike before the end of the year, which we see as exaggerated," Jullien says. The two-year U.S. Treasury yield rises 1.9 basis points to 4.105%, according to Tradeweb. (emese.bartha@wsj.com)
0908 GMT - Candriam stays modestly positive on Bunds, while preferring duration to non-core spread exposure, Nicolas Jullien, global head of fixed income says in a note. Bund yields marginally above 3% "still offer some value, especially in a scenario in which geopolitical tensions ease and oil prices retrace," he says. Conversely, an adverse energy shock could push yields back toward recent highs, so the position remains measured, Jullien says. He adds that the oil price remains the dominant driver of euro rates. The 10-year Bund yield last trades at 2.854%, up 0.4 basis points, according to Tradeweb.(emese.bartha@wsj.com)
0905 GMT - The cost of default protection for euro denominated credit falls as U.S. and Iran pause attacks, easing concerns about renewed conflict. "Despite short term violations of the ceasefire, we believe that U.S. and Iran will agree to a deal," Jefferies economist Mohit Kumar says in a note. The iTraxx Europe Crossover index of euro high-yield credit default swaps falls 1 basis point to 247bps, S&P Global Market Intelligence data show. (miriam.mukuru@wsj.com)
0834 GMT - Sterling could weaken against the euro despite its recent resilience after U.K. Prime Minister Keir Starmer announced his resignation last week, ING's Francesco Pesole says in a note. Andy Burnham is widely expected to succeed Starmer. In recent days Ed Miliband has emerged as the frontrunner to become treasury chief rather than more centrist candidate Wes Streeting, he says. Sterling's resilience suggests markets are pricing in a smooth leadership transition or don't see material risk of fiscal slippage under Miliband, he says. The euro could rise to 0.8700 pounds this summer from 0.8630 pounds currently as it looks undervalued, political risks might resurface and the Bank of England is unlikely to raise interest rates as markets expect, he says.(renae.dyer@wsj.com)
0833 GMT - Gross government bond supply in the eurozone is expected to decline to 115 billion euros in July from 140 billion euros in June, as eurozone countries are less likely to launch new syndicated transactions, the Investment Institute by UniCredit's Francesco Maria Di Bella says in a note. Year to date, eurozone debt agencies have issued 830 billion euros in government bonds, representing more than 60% of the funding target for 2026, the fixed income strategist says. Net supply has so far exceeded 300 billion euros, amounting to around two thirds of the expected full-year total, he says. (emese.bartha@wsj.com)
0828 GMT - A Supreme Court ruling this week on President Trump's attempt to fire Federal Reserve governor Lisa Cook poses a potential headwind to the dollar, ING's Francesco Pesole says in a note. If the ruling supports Trump's bid, that could "reignite some Fed independence concerns which could weigh substantially on a dollar," he says. However, in January justices signaled skepticism over Trump's claim that he could immediately remove Cook on allegations of mortgage fraud. The DXY dollar index falls 0.1% to 101.241.(renae.dyer@wsj.com)
0804 GMT - Germany's business community is counting on constructive talks between the European Union's trade chief Maros Sefcovic and China's commerce minister Wang Wentao on Monday, says Volker Treier, chief of foreign trade at the DIHK German Chamber of Commerce. Europe must build a united front, given companies are being hurt by competitive distortions from China and weak Chinese demand, he says. "China should address this weak demand with determination in order to regain the trust of European suppliers." A rapid end to Chinese export restrictions on critical raw materials should be at the top of the agenda, Treier says. Stricter steel-import restrictions and the conclusion of further trade agreements aimed at supply-chain diversification are also important, he adds. (edward.frankl@wsj.com)
0747 GMT - The euro could take a while to recover meaningfully against the dollar, Commerzbank's Michael Pfister says in a note. The market is unlikely to bet on more interest-rate rises by the European Central Bank as euro-area inflation probably peaked in May, he says. Data on Wednesday are expected to show inflation eased slightly in June following a fall in energy prices. The dollar also looks set to remain elevated as there is no decisive event for the market to price out expectations for Federal Reserve interest rate rises, he says. "It is therefore likely to be quite some time before the prewar level of 1.18 for euro-dollar comes back into focus." The euro rises 0.2% to $1.1407. (renae.dyer@wsj.com)