MNI China Daily Summary: Wednesday, July 3

MNI BRIEF:BOJ Q1 Output Gap Hits 16th Negative Reading In Row

MNI: PBOC Sets Yuan Parity Higher At 7.1312 Weds; -0.34% Y/Y

MNI: PBOC Net Drains CNY248 Bln Via OMO Weds; Rates Unchanged

CHINA PBOC CONDUCTS CNY2 BILLION VIA 7-DAY REVERSE REPOS WEDS

CHINA SETS YUAN CENTRAL PARITY AT 7.1312 WEDS VS 7.1291

PPI a Tenth Softer than Exp; Further NEIG HICP Disinflation to Come?

MNI: EUROZONE MAY PPI -0.2% M/M, -4.2% Y/Y

Services PMI points to wage bills increasing operating expenses

RPT-MNI: Canada Sticks To Fiscal Anchors, Spends Chunk Of Windfall

MNI BRIEF: Poilievre Calls QE 'Scam' And Would Limit BOC Remit

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Forecast 25bp BOC Cut In July, With A Further 50bps Of Easing In Q4

CANADA
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  • The 25bp cut marks the first step on the path back to neutral. The BoC's desire for further easing of inflation pressures sets a relatively low threshold to future cuts, despite its desire to keep all options on the table, and history shows the Bank has a tendency to move twice in a row.
  • As such, we look for another 25bp cut in July, with another 50bps of easing in Q4 bringing the overnight rate to 4.00% by year-end.
  • On rates, TD continue to see notable edge in their steepener lean in Canada near-term. TD feel continued momentum in Canada is very likely as the dovish regime in Canada is now in motion without question.
  • The combination of highly levered households and the ongoing drag from mortgage renewals leaves scope for economic divergence between CA and US, and accordingly the BoC and Fed. TD like USDCAD higher not just on Fed/BoC divergence but also from their quant model perspective.
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  • The 25bp cut marks the first step on the path back to neutral. The BoC's desire for further easing of inflation pressures sets a relatively low threshold to future cuts, despite its desire to keep all options on the table, and history shows the Bank has a tendency to move twice in a row.
  • As such, we look for another 25bp cut in July, with another 50bps of easing in Q4 bringing the overnight rate to 4.00% by year-end.
  • On rates, TD continue to see notable edge in their steepener lean in Canada near-term. TD feel continued momentum in Canada is very likely as the dovish regime in Canada is now in motion without question.
  • The combination of highly levered households and the ongoing drag from mortgage renewals leaves scope for economic divergence between CA and US, and accordingly the BoC and Fed. TD like USDCAD higher not just on Fed/BoC divergence but also from their quant model perspective.