It’s a mixed picture for futures this morning, with the S&P 500, Dow, and TSX modestly higher after both the Dow and TSX closed at fresh record highs yesterday. Meanwhile, Nasdaq futures are lower after data storage companies Sandisk and Western Digital issued weaker-than-expected revenue outlooks, overshadowing otherwise strong quarterly results. Shares are down more than -9% and -14%, respectively, in premarket trading. The reaction is notable given Sandisk’s -47% decline in July, yet the stock remains the S&P 500’s best performer this year, up about 468% at the time of writing. Investors continue to demand exceptionally strong results from companies leveraged to AI infrastructure spending.
Emerging-market carry trades have remained popular despite the recent U.S.-Japan intervention to strengthen the yen, as some investors have shifted away from using the yen as a funding currency and instead borrowed in lower-yielding currencies such as the euro and Swiss franc. This diversification has reduced the risk of a repeat of the carry-trade unwind seen in 2024, while strong interest rate differentials continue to support demand for higher-yielding EM currencies. Although the prospect of further Bank of Japan rate hikes and additional currency intervention has made yen-funded trades less attractive, major banks still see room for carry trades to perform, provided investors carefully select both funding currencies and target markets while monitoring local economic and policy risks.
Encouraging signs. The UK and German services sectors, which account for the majority of economic activity in both economies, showed signs of stabilization in July, although the recoveries remain uneven. The UK Services PMI rose to 52.1, returning to expansion for the first time since April as new orders rebounded, input cost inflation eased with lower energy prices, and business confidence reached its highest level since before the Iran war, despite employment declining for a 22nd consecutive month. In Germany, the Services PMI improved to 49.8, signaling only a slight contraction as new business returned to growth for the first time in five months and job losses eased, although export demand remained weak and price pressures picked up. Both surveys suggest easing Middle East tensions and lower inflation are supporting a slow recovery in services activity, although officials have noted that ongoing geopolitical risks and energy price volatility continues to cloud the outlook.
It doesn’t stop there for Germany though. German factory orders rose a stronger-than-expected 3.1% in June, marking a second consecutive monthly increase and adding to evidence that Europe’s largest economy may be entering a sustained recovery. Growth was driven by demand for mechanical engineering products and data processing, electronic, and optical equipment, while broader economic indicators, including GDP growth, business activity, and confidence, have also improved amid increased fiscal spending and government reforms. Data also points to domestic demand strengthening despite ongoing uncertainty related to the Middle East conflict, although higher energy prices and historically low water levels on the Rhine River remain headwinds for manufacturers.
European automakers risk falling behind in the global EV race by focusing too much on defending market share in China and Europe, even as Chinese manufacturers target fast-growing emerging markets across Latin America, Southeast Asia, India, the Middle East, and Africa. As China’s domestic auto market matures with slowing sales and weak consumer demand, its automakers are leveraging low-cost manufacturing and strong EV capabilities to expand exports, whereas many European brands have been slower to adapt. Experts believe European manufacturers should use their Chinese production bases as export hubs for emerging markets, combining European design with China’s manufacturing scale, rather than relying on protectionist policies or legacy gasoline models. Companies that have embraced local partnerships and electrified exports from China, such as Audi, Mini, and Smart, have been more successful, highlighting a potential roadmap for competing for global vehicle demand.
While the Canadian dollar appears undervalued over the long term, strategists continue to favour the U.S. dollar as cyclical factors point to further CAD weakness. Canada’s economy is facing softer growth, elevated household debt, and lingering housing market vulnerabilities, which should keep the BoC more constrained than the Fed and widen interest rate differentials in favour of the U.S. As a result, strategists argue that the Canadian dollar is likely to remain one of the weakest currencies in the G10 despite higher oil prices, with limited catalysts for a sustained recovery.
Not to put a damper on your summer, but if you are starting to think about back-to-school shopping, experts (and parents) recommend keeping backpacks as light as possible. While many schools provide lockers, more kids (specifically teens) are choosing not to use them, instead carrying everything they need on their backs all day. Add laptops, textbooks, water bottles, sports equipment, and other daily “essentials”, and backpacks can quickly become much heavier than intended. It’s a good reminder to avoid overpacking to reduce strain and lower the risk of injury. Rather than relying on a strict weight limit, parents should watch for signs such as kids leaning forward, struggling to walk, or shoulder straps digging into their skin, and regularly remove unnecessary items. Teachers also encourage families to limit backpacks to essential items rather than using them as general storage and recommend cleaning out backpacks weekly to prevent clutter.
Diversion: Way to de-escalate
