EU Midday Digest - 28 Jul 2026

Bank of Canada’s policy rate held at 2.25% as global credit expands at the fastest pace since 2008.

Overnight & European Session

European equities opened higher, with the Euro Stoxx 600 at 6,296 (+0.21%), while Asian markets stayed subdued – the Nikkei 225 slipped to 62,365 (-3.95%). The VIX rose to 18.92% (+1.34%), reflecting lingering uncertainty after a mixed earnings backdrop. In FX, the euro slipped to 1.1362 per US$ (-0.29%) and the pound fell to 1.3281 per US$ (-0.53%), while the dollar index edged up to 102 (+0.12%). Commodity prices retreated, with Brent crude at US$ 86.42 (-2.20%) and gold at US$ 4,020 (-1.35%). The divergence between a modest equity rally in Europe and a sharp equity pull‑back in Japan underscores the split between a relatively upbeat Eurozone outlook and lingering concerns over Asian growth and monetary tightening.

Key Themes Today

• Rates: Central banks are signaling a cautious stance. The Bank of Canada kept its overnight target at 2.25% and its Bank Rate at 2.5% (Bank of Canada press release, 28 Jul 2026). In Australia, the Reserve Bank of Australia’s Governor noted that “the economy is cooling as anticipated” but stopped short of confirming any further cash‑rate hikes (RBA Statement on Monetary Policy, 28 Jul 2026). Meanwhile, Singapore’s Monetary Authority surprised markets by tightening policy via a tighter Singapore dollar band, citing rising oil prices as an inflationary driver (CNBC, 27 Jul 2026). The mixed signals suggest that rate‑sensitive assets will remain volatile, with the euro‑dollar pair likely to test the 1.14 level and the Australian dollar hovering near 0.6983 US$.
• Credit Growth: The Bank for International Settlements reported an 11% year‑on‑year rise in cross‑border bank credit – the strongest since Q1 2008 (BIS Statistical Release, 28 Jul 2026). Credit to emerging‑market and developing economies (EMDEs) expanded by US$ 42 bn in Q4 2025, lifting the annual growth rate to 7% (BIS Statistical Release, 28 Jul 2026). This surge in foreign‑currency lending, especially in US dollars and euros, supports liquidity in EMDEs but also raises exposure to potential dollar‑strength rebounds, as seen in the DXY’s 0.12% rise.
• AI‑Driven Growth: BIS research highlighted that the AI boom is “propelling a large, increasingly debt‑financed investment surge” and is reshaping trade patterns (BIS Publication, 28 Jul 2026). Supporting this view, Bloomberg noted Hong Kong’s exports surged to a record level in June, driven by global AI demand (Bloomberg, 28 Jul 2026). The convergence of AI‑related capital flows and robust export performance suggests a sector‑specific upside for technology‑heavy equities, while also complicating central banks’ inflation assessments due to the mixed supply‑demand effects of AI adoption.
• Commodities & FX: Gold slipped to US$ 4,020 (-1.35%) as traders priced in a potential US rate hike (Bloomberg Markets, 27 Jul 2026). Brent crude fell to US$ 86.42 (-2.20%), reflecting weaker demand amid easing Middle‑East tensions. The stronger dollar (DXY 102) and modest yen depreciation (USD/JPY 163.91) put pressure on commodity‑exporting currencies, especially those with high import bills for oil. For EMDE investors, the combination of rising dollar‑denominated credit and softer commodity prices could tighten financing conditions and weigh on inflation‑sensitive assets.
• Stablecoin Dollarisation: BIS analysts warned that stablecoins are creating a new “dollarisation” channel in EMDEs, mirroring historic foreign‑currency deposit patterns (BIS Publication, 28 Jul 2026). Data on over 130 economies show that stablecoin inflows are growing faster than traditional dollar deposits, raising concerns about monetary control and potential capital‑flight risks. Policymakers in emerging markets may need to consider regulatory frameworks that address this parallel dollar‑access route, especially as credit growth continues to accelerate.

What to Watch

Key intraday catalysts include the release of Canada’s CPI for June (2.8% y/y, down from 3.2% in May) (Statistics Canada, 28 Jul 2026) and the upcoming US PCE price index, which will inform Federal Reserve expectations – no consensus level identified. The European Central Bank’s next policy decision and the Eurozone CPI data (no consensus level identified) will be pivotal for the euro’s 1.1362 level. In the bond market, the 10‑year US Treasury at the 4.35% resistance will be a litmus test for the “reflation” narrative; a clean break could reinforce the case for further rate hikes. On the equity side, earnings from major US corporates such as Coca‑Cola (KO) and United Parcel Service (UPS) are slated for release later today, offering sector‑specific direction. Finally, the market’s focus remains on whether the Fed will raise rates in the upcoming meeting – a decision that would cement the dollar’s trajectory and reverberate through EMDE credit and commodity pricing.