5 things to start your day: Europe

Good morning. It's a busy day for data, with a slew of inflation readings due today. The US dollar is set for a second monthly loss. Chinese

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Good morning. It's a busy day for data, with a slew of inflation readings due today. The US dollar is set for a second monthly loss. Chinese EV makers suffer a setback in Europe. Here's what people are talking about.

Disinflation?

Investors have a lot to digest data wise as they ponder the path forward for European interest rates. With CPI data from the euro zone, France and Italy due today, the recent disinflationary trend will be in focus. Especially after German inflation slowed to the European Central Bank's target in August — supporting the case for another rate cut next month. For inflation in the bloc itself, analysts see a retreat to 2.2%. That said, there's a cautious voice. Governing Council member Joachim Nagel said the ECB should be wary of easing policy too rapidly given inflation hasn't yet returned sustainably to 2%. Read implications for the euro (below) from our strategist Mark Cranfield.

Risky French debt

Over in France, we get a slew of economic data including economic growth and consumer spending, on top of inflation figures. A very small band of investors is starting to come back to the French debt market after three months of volatility turned off most funds. Jupiter Asset Management and hedge fund Mount Lucas Management are among those looking past the country's political turmoil and its swelling pile of public debt, to buy long-term French government bonds. They look to be wagering that the selloff since surprise elections were called in June has been overdone.

Dollar's fall

The dollar is poised to end this month with a whimper as the Federal Reserve looks to be getting closer to its easing cycle. The Bloomberg Dollar Spot Index has dropped almost 2% so far in August, headed for a second monthly decline. Fed officials have been clear that they're finally ready to start cutting interest rates for the first time since 2020 as inflation cools. As a result, nearly all major currencies tracked by Bloomberg have rallied against the greenback this month. For more clues on the currency's path, we get a slew of data today including personal income and spending, PCE price data and University of Michigan consumer sentiment.

Nvidia, again

And we are back on Nvidia with a fresh piece of news. The world's biggest chipmaker has discussed joining a funding round for OpenAI that would value the AI startup at more than $100 billion, said people familiar with the matter. Apple and Microsoft are also in talks to participate. If the discussions move forward, it would mean the three most valuable tech companies are all backing OpenAI, maker of the groundbreaking ChatGPT chatbot. Microsoft was already OpenAI's biggest funder. Elsewhere in the industry, Dell reported better-than-expected revenue due to an increase in the sales of its servers to handle AI workloads.

Chinese EV setback

Chinese automakers registered fewer electric cars across Europe in July, as new tariffs amplified the impact of a broader slump in EV sales. Brands including SAIC Motor Corp.'s MG and BYD Co. accounted for 9.9% of EV registrations in the region, down from 10.2% in July 2023, according to researcher Dataforce. Overall demand for EVs continued to weaken after Germany, Europe's largest auto market, removed incentives late last year. Chinese automakers and their European counterparts that import battery-electric cars into the European Union have been scrambling to adjust to the introduction of new tariffs on July 5 that raised duties on Chinese-made EVs to as high as 48%.

Coming up

Apart from euro-zone and French inflation, Italy and Poland release CPI data. Unemployment readings for the euro zone, Germany and Italy are also due. As for central bankers, the ECB's Isabel Schnabel speaks.

What we've been reading

This is what's caught our eye over the past 24 hours. UK watchdog sees case for Reeves to ramp up public investment Nomura hires traders for currency, emerging markets business Brookfield courts sovereign funds to join Grifols takeover bid Most-hated credit trade turns into a big winner for hedge funds China mulls allowing refinancing on $5.4 trillion in mortgages Harris pledges to turn page but few specifics in first interview Intel is said to explore options to cope with historic slump

And finally, here's what Mark is interested in this morning:

Euro-Sterling's wild ride this month may be ending with the cross close to the levels where it began. But with trader positioning in the options complex looking for a stronger euro, the currency pair is vulnerable to a selloff as investors lose patience. Indeed, it wouldn't take much to trigger a slide which accelerates as euro-sterling heads toward fresh lows for this year. Part of the explanation for euro bulls holding out is monetary policy risks which lie ahead. Investors are looking into September when the European Central Bank will meet one week before the Bank of England. Traders seem to be hedging for an outcome where the nuances between forward guidance offered by the two rate setters is more favorable for the common currency than the pound. However, as foreign-exchange dealers go into a new profit and loss month next week, some players may be willing to test the downside, hunting for stale positions which are vulnerable to getting flushed out. Indeed, forex traders aren't renowned for their patience, especially with next week's US employment report dropping well ahead of the Federal Reserve's policy meeting. And Germany's month-on-month CPI numbers this week came with a negative inflation print, which may influence the easing cycle in Europe. Moreover, implied volatility has drifted back into a neutral zone after spiking higher earlier in August, which suggests there is room for traders to jump on a downside move should the euro slip next week. Mark Cranfield is a macro strategist for Bloomberg's Markets Live team, based in Singapore.

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