US stocks declined with heavy selling in the Nasdaq following Alphabet and Tesla earnings, while oil prices and yields were higher amid the geopolitical backdrop - Newsquawk Daily Asia-Pac Market Open

• US stocks were lower with tech leading the downside following a flurry of earnings, as both Alphabet (GOOGL) and Tesla (TSLA) posted extensive losses. Alphabet was weighed on after it raised its CapEx plans, reigniting concerns around elevated spending among the tech giants, alongside negative free cash flow and further margin pressures. The higher CapEx outlook, however, supported memory names, which stand to benefit from increased tech spending. Meanwhile, Tesla (TSLA) was hit after a profit miss. Adding to the risk-off sentiment was the sharp rally in crude prices amid further geopolitical escalation. The Houthis attacked Saudi Arabian tankers in the Red Sea, and Iran is reportedly refusing to budge on its current proposal for a 10-day ceasefire, while President Trump said he was considering a massive attack greater than anything before and was close to making a decision.
• USD strength followed the rally in US yields, which saw new YTD highs in the short and belly of the curve. Oil prices' sharp rise is showing no sign of a break, with yet again no signs of imminent de-escalation. Also, likely behind USD strength was the risk-off tone in response to Alphabet earnings keeping concerns elevated over capex raises, negative free cash flow, and short-term margin pressure. Separately, the Fed's greater focus on the inflation mandate will have only gotten bigger following the latest initial claims data, which dropped to the lowest level in almost 60 years at 187k (exp. 212k).
• Looking ahead, highlights include Australian Flash PMIs, Japanese National CPI & Flash PMIs, Singapore Industrial Production, Supply from Australia.

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LOOKING AHEAD

• Highlights include Australian Flash PMIs, Japanese National CPI & Flash PMIs, Singapore Industrial Production, Supply from Australia.
• Click for the Newsquawk Week Ahead.

IRAN CONFLICT

• US President Trump said he was "considering a massive attack greater than anything before" and was close to making a decision, according to N12. He also said that Israel "would join in within two minutes if I asked," but added "we don't need anybody" to launch a new operation against Iran, while Trump did not provide a deadline for his decision.
• US President Trump said they are doing very well against Iran and that Iran would like to do something, but isn’t ready yet.
• US President Trump said the US would hold Iran responsible if the Houthis attacked ships again, describing the Houthis as a surrogate and proxy of Iran, and warned that major military punishment would be inflicted upon both Iran and the Houthis.
• US Secretary of State Rubio said Iran had intended to double its missile stockpile and appeared not to be ready to make a deal, warning it would pay the price. He said, "the price on Iran will get higher every night until they come to their senses," but expressed hope the Houthis would stop their attacks, said Iran was "begging to reach a deal," and added any nuclear agreement with Saudi Arabia would include safeguards.
• US CENTCOM has redirected 12 commercial vessels and disabled 1 to prevent ships from entering or leaving Iranian ports or coastal areas.
• Explosion was heard on Iran's Qeshm Island, while a missile reportedly struck the coastal area of the city of Souza. There were also reports that powerful explosions rocked Kuwait's Bubiyan Island, and a massive explosion was detected at a HIMARS missile launch site in Kuwait.
• Iranian Foreign Minister said there were enough mediators and there was no problem exchanging messages with the US, according to Al Jazeera. He added the problem lay in Washington's illogical approach and excessive demands, which Iran had countered with a firm stance. Iranian Foreign Minister separately commented that the mindless aggression the US advocates will only ensure that POTUS pays a heavier price for the deal he's trying to achieve.
• Iraq’s PM is in Tehran carrying a proposal for a cease-fire between Iran and the US, according to NYT, citing Iranian and Iraqi officials.
• Iran’s increasingly precise attacks — including strikes that evaded US air defences and killed American troops last week — are fueling fears inside the Pentagon that Tehran is getting help from US adversaries such as Russia and China, reports NYP.
• Houthi sources said Aramco oil facilities could become a future target if the blockade on Yemen was not lifted, according to Al Jazeera.
• Pakistan's Prime Minister Sharif held a call with Saudi Crown Prince Mohammed bin Salman, during which both leaders condemned Houthi attacks against Saudi oil tankers in the Red Sea and reaffirmed Pakistan's "complete solidarity" with Saudi Arabia. They also agreed to continue working closely to maintain regional peace, security and stability, as well as the uninterrupted flow of lawful maritime commerce through the Red Sea, the Strait of Hormuz and the wider region.
• Pakistan's Foreign Minister said he could not confirm reports of a 10-15 day period regarding US-Iran talks because the communications were confidential, but added he had not lost hope even during the darkest days of the current escalation cycle, according to journalist Mallick. Pakistan's Foreign Ministry also said that if Pakistani ships were attacked, it would be treated as an attack on Pakistan and would be met with retaliation.
• Israel was awaiting President Trump's decision on both a significant expansion of military operations against Iran and possible Israeli involvement, according to Kann News. Israeli sources said that if Trump authorised an attack, Israel was prepared to proceed and also wanted approval to strike additional targets remaining in the Israeli Air Force's target bank, including energy infrastructure.
• Israeli IDF Minister said Israel was preparing for all eventualities and warned Iran would receive a crushing blow if it attacked Israel.
• UK said its armed forces were ready to protect the country from any attack after Iran threatened to target British bases used by the US in its war with Tehran.

US TRADE

• US stocks were lower with tech leading the downside following a flurry of earnings, as both Alphabet (GOOGL) and Tesla (TSLA) posted extensive losses. Alphabet was weighed on after it raised its CapEx plans, reigniting concerns around elevated spending among the tech giants, alongside negative free cash flow and further margin pressures. The higher CapEx outlook, however, supported memory names, which stand to benefit from increased tech spending. Meanwhile, Tesla (TSLA) was hit after a profit miss. Adding to the risk-off sentiment was the sharp rally in crude prices amid further geopolitical escalation. The Houthis attacked Saudi Arabian tankers in the Red Sea, and Iran is reportedly refusing to budge on its current proposal for a 10-day ceasefire, while President Trump said he was considering a massive attack greater than anything before and was close to making a decision.
• SPX -1.21% at 7,408, NDX -1.87% at 28,455, DJI -0.97% at 51,717, RUT -0.67% at 2,940.
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TARIFFS/TRADE

• US President Trump said he will discuss AI with Chinese President XI, who is visiting on September 24th, while he added that the US is leading China and others on AI.
• White House Press Secretary said USTR would make an announcement shortly and that Greer would announce tariff measures later in the day.
• China's MOFCOM said China and the US were working towards implementing the tariff reduction plan and would maintain close communication.
• Canadian PM Carney said interactions with the US this week show a level of engagement and a breadth of engagement that reflects the seriousness of the trade relationship.

NOTABLE HEADLINES

• WSJ's Timiraos wrote, "The Fed Is Heading Into One of Its Most Unpredictable Meetings in Years."

DATA RECAP

• US Kansas Fed Manufacturing Index (Jul) 17 (Prev. 19)
• US Kansas Fed Composite Index (Jul) 9
• US Chicago Fed National Activity Index (Jun) -0.02 vs. Exp. 0.14 (Prev. -0.10)
• US Initial Jobless Claims (Jul/18) 187.0k vs. Exp. 212k
• US Continuing Jobless Claims (Jul/11) 1796.0k

FX

• USD strength followed the rally in US yields, which saw new YTD highs in the short and belly of the curve. Oil prices' sharp rise is showing no sign of a break, with yet again no signs of imminent de-escalation. The Houthis targeted two Saudi oil tankers in the Red Sea. Regarding Trump, N12 reported that US President Trump said today he is "considering a massive attack greater than anything before, I'm close to making a decision". Also, likely behind USD strength was the risk-off tone in response to Alphabet earnings keeping concerns elevated over capex raises, negative free cash flow, and short-term margin pressure. Separately, the Fed's greater focus on the inflation mandate will have only gotten bigger following the latest initial claims data, which dropped to the lowest level in almost 60 years at 187k (exp. 212k).
• EUR gave way to the firmer buck, and with the ECB meeting not providing any surprises, as the statement was largely a reiteration and stuck to the data-dependent, meeting-by-meeting and no-commitment language, despite recent energy upside, which saw a modest unwinding of hawkish bets. Nonetheless, a source report later noted that officials are said to be ready to raise rates again in September.
• GBP retreated throughout the day and tested the 1.3300 level to the downside, where it just about found a floor.
• JPY continued to weaken with USD/JPY climbing to just shy of the 164.00 level amid higher oil prices and upside in US yields, while participants look ahead to Japanese National CPI data.
• SARB left its benchmark interest rate unchanged at 7.00% in a 4-2 vote (exp. 25bps hike).

FIXED INCOME

• T-notes declined and Treasuries sold off across the curve, led by the front end, as yields advanced and oil prices continued to climb, while jobless claims fell to a multi-decade low.

COMMODITIES

• Oil prices further extended on this week’s rally amid the ongoing geopolitical escalation in the Middle East, with US President Trump said to be "considering a massive attack greater than anything before" and was close to making a decision.
• OPEC+ was reportedly likely to raise September oil production quotas by around 188k BPD at its August 2 meeting, according to Reuters citing sources.
• Saudi Aramco offered additional crude cargoes from Egypt's Mediterranean Sidi Kerir port as disruptions in the Red Sea persisted, according to reports.

GEOPOLITICAL

MIDDLE EAST

• US President Donald Trump posted that the US would approve a civil nuclear agreement with Saudi Arabia if the kingdom joined the Abraham Accords.

RUSSIA-UKRAINE

• Ukrainian President Zelensky said Ukrainian and US representatives could meet in the US in the coming days.
• US Secretary of State Rubio said he had a good and frank conversation with Russian Foreign Minister Lavrov and added the US was prepared to play a constructive role in ending the war in Ukraine.
• Russia's Kremlin said it was not overly optimistic about prospects for resolving the Ukraine conflict diplomatically, following talks between Foreign Minister Lavrov and US Secretary of State Rubio.
• EU ambassadors reached political agreement on the 21st sanctions package against Russia, according to diplomats, while they agreed to freeze the oil price cap for a 12-month period.

ASIA-PAC

NOTABLE HEADLINES

• China launched a plan to strengthen overseas antitrust compliance.

EU/UK

NOTABLE HEADLINES

• ECB kept all three key interest rates unchanged, as expected, leaving the Marginal Lending Facility Rate at 2.65%, the Deposit Facility Rate at 2.25% and the Main Refinancing Operations Rate at 2.40%. ECB reiterated it would continue to follow a data-dependent, meeting-by-meeting approach and would not pre-commit to a particular rate path. It said rate decisions would reflect the inflation outlook, underlying inflation and the strength of monetary policy transmission, while reiterating it stood ready to adjust all instruments to stabilise inflation at its 2% medium-term target. ECB reiterated it remained highly attentive to upside inflation risks, maintained that the tight monetary policy stance would continue until price stability was achieved, and repeated that policy would be tightened if the inflation outlook deteriorated significantly and persistently.
• ECB President Lagarde reiterated in her post-meeting statement that inflation risks remained tilted to the upside and growth risks were to the downside, while the ECB would set monetary policy to ensure inflation returned to target over the medium term, remained data dependent, and would not pre-commit to a rate path. Lagarde said during the Q&A that her previous comments at Sintra referring to "more balanced upside and downside risks" had been revised, with the "more balanced" wording now removed. She also said the rate decision had been unanimous, although some members questioned whether the ECB should have raised rates. Lagarde added the current policy stance was appropriately positioned to wait, and the ECB would closely monitor geopolitical developments and incoming data over the coming weeks, while substantial data would be released before the September meeting. Furthermore, when asked about her tenure, Lagarde said she would remain ECB President until at least 2027, adding "the Captain is staying on the Ship."
• ECB officials were reportedly ready to raise interest rates in September, according to Bloomberg citing sources.
• ECB policymakers were set to debate higher reserve requirements, a tiered deposit rate and fees, while Reuters sources said the politically sensitive debate over ECB losses had become increasingly fractious.

DATA RECAP

• EU Consumer Confidence Flash (Jul) -15.9 vs. Exp. -16.9 (Prev. -17.7)