MNI ASIA OPEN - Waller Adds to Chorus Calling for 75bps in July

NEWS

FED (MNI): Fed’s Waller Sees Another 75BP Hike In July
The Federal Reserve will probably need to raise interest rates by another unusually aggressive 75 basis points in July as inflation is likely to stay elevated, Fed Governor Christopher Waller said on Saturday. "In my view, and I speak only for myself, if the data comes in as I expect I will support a similar-sized move at our July meeting," Waller said in prepared remarks for delivery at a conference in Dallas. "The Fed is 'all in' on re-establishing price stability." The Fed raised interest by 75 bps for the first time since 1994 this week, pushing the federal funds rate target to a range of 1.5% to 1.75%. It also revised up its 2022 PCE inflation forecast to 5.2% from 4.3%. Fed Chair Powell indicated he saw either a 50 bp or 75 bp move at the July meeting.

FED (MNI): Tackling Inflation Supports Confidence In Dollar - Powell
Tackling inflation and bringing prices back down to the central bank's 2% target will support confidence in the dollar, Federal Reserve Chair Jerome Powell Friday said Friday, but he warned that rapid changes in the global monetary system could impact the international role of the dollar over time. "The Federal Reserve's strong commitment to our price stability mandate contributes to the widespread confidence in the dollar as a store of value. To that end, my colleagues and I are acutely focused on returning inflation to our 2 percent objective," Powell said in remarks for a Fed board conference on the international roles of the dollar.

FED (MNI): Fed: Monetary Policy Rules Call for Rates in 4%-7% Range
Simple monetary policy rules called for a fed funds rate in the 4% to 7% range in the first quarter of 2022 and have risen since then as inflation climbed, the Federal Reserve said in its report to Congress on Friday ahead of Chair Jerome Powell's semiannual testimony next week. The Fed also cautioned that the usefulness of these rules are "limited in unusual economic circumstances" and don't take into account the effect of balance sheet tightening.

FED (MNI): Kashkari Could Back Another 75BP Fed Hike In July
Minneapolis Federal Reserve President Neel Kashkari said Friday he could back another 75bp interest-rate hike in July given inflation pressures, but that it may be more prudent to move by 50bps instead. "Uncertainty about how much tightening will be needed leads me to be cautious about too much more front-loading,"

FED (MNI): 75BP Hike Adds To Policy Uncertainty - Fed's George
Kansas City Fed President Esther George dissented against this week's FOMC decision to hike rates by 3/4 of a percentage point because she worried about adding to policy uncertainty as the Fed embarks on both rate hikes and balance sheet runoffs. "I viewed that move as adding to policy uncertainty simultaneous with the start of balance sheet runoff," George said in a statement Friday.

US (MNI): US Shelter CPI Rising to 7% By April -CoreLogic
Owners' equivalent rent, which makes up a third of U.S. CPI, will likely rise to 7% on the year by next April based on current single-family home rental price trends, Selma Hepp, an economist with real estate data provider CoreLogic, told MNI. That acceleration in the rent measure will likely keep CPI elevated through the spring, she said in an interview this week. OER for the 12 months ending in May was 5.1%, the largest increase since 1991.

US (MNI): New York Fed's DSGE Model Predicts Bumpy Landing
The New York Federal Reserve's dynamic stochastic general equilibrium (DSGE) model updated on Friday shows the probability of a soft landing-defined as four-quarter GDP growth staying positive over the next ten quarters-is only about 10 percent. Chances of a hard landing-defined to include at least one quarter in the next ten in which four-quarter GDP growth dips below -1 percent, as occurred during the 1990 recession-are about 80%. This is because with a flat Phillips curve it sees the so-called sacrifice ratio as being elevated.

US (BBG): Wall Street Alarms Bell as 60/40 Set for Worse Quarter Than 2008
Wall Street pros are famously still at loggerheads over the fate of the trillion-dollar 60/40 complex -- only this time the balanced investment strategy is posting losses on a scale that’s shocking even its biggest critics. With stocks and Treasuries tumbling anew thanks to the Federal Reserve’s increasingly hawkish policy direction, the time-honored method of allocating 60% to equities and 40% to fixed income has plunged about 14% so far this quarter. That’s a worse quarterly showing than in depths of the global financial crisis and during the once-in-a-century pandemic rout, according to data compiled by Bloomberg.

EUROPE (BBG): Macron Set to Lose Absolute Majority as Far-Right Surges
President Emmanuel Macron is projected to suffer a major blow, with his centrist alliance failing to keep its outright majority in the French parliament, following an unexpected surge in support for the far-right in Sunday’s election. The group of parties headed by Macron, called Ensemble!, is set to win 200 - 260 seats out of 577 in the final round of the legislative ballot according to projections by five pollsters. The second-largest group in parliament is on track to be Nupes, a leftist coalition led by Jean-Luc Melenchon, which is set to get 149 - 200 lawmakers, according to the pollsters. The far-right National Rally is projected to get 60 - 102 seats, while the center-right Republicans and their allies are set to get 60 - 80. At least 289 seats are needed for an absolute majority.

EUROPE (MNI): Italy Set To Narrowly Meet Targets For EU19Bln EU Tranche
Italy is set to narrowly meet its June 30 deadline to pass targets set under the Europe's NextGenerationEU programme, unlocking the next EUR19 billion tranche of funds, though some of the investment projects included as objectives are still to receive public money despite formal approval, two sources close to the matter told MNI.

CANADA (MNI): Canada Mortgage Debt Tops CAD2 Tln As BOC Tightens
Canadian mortgage debt topped CAD2 trillion in April, the government statistics office said Friday, more evidence of the frothy housing market that had given the BOC some hesitation about how fast it can raise interest rates without shocking consumers.

DATA:

**MNI: US MAY INDUSTRIAL PROD +0.2%; CAP UTIL 79.0%
US MAY MFG OUTPUT -0.1%

US APR IP REV TO +1.4%; CAP UTIL REV 78.9%

FOREX: USD Index Recovers 1%, JPY Continues Post-BOJ Selling

• The greenback traded on a much surer footing on Friday, with the USD Index reversing the majority of the dollar downtick seen Thursday.
• Initial weakness in equities extended the supportive USD price action during NY trade, weighing on the likes of the Euro and GBP. EURUSD faded to 1.0445 during this period, however, caught a bid as equities regained their poise approaching the close and looks to settle just south of 1.05.
  • On the tech front – indicators remain bearish and the recent reversal lower signals a resumption of the primary downtrend with attention remaining on 1.0350, May 13 low.
• Following the BoJ rate decision overnight, JPY is the weakest currency in G10 as the central bank doubled down on their easy policy stance, effectively allowing markets to resume the selling pressure on the JPY. USDJPY printed 135.43, nearly 400 points above Thursday’s lows, before pulling back slightly into the close around the 135.00 mark.
  • This week reinforces the bull trend and maintains the positive price sequence of higher highs and higher lows. Moving average studies also point north, reinforcing bullish conditions. The focus is on the 136.04, a Fibonacci projection.
• Risk sentiment remained shaky with initial downward pressure on global equity futures and a persistent grind lower in crude futures amid oil demand concerns. As a result, AUD (-1.62%) continues to slide, putting AUD/USD firmly below the $0.7000 handle. Additionally, AUDNZD has broken a couple of previous lows at 1.1033 exacerbating the relative AUD underperformance.
• On Monday, US holiday for Juneteenth National Independence Day. Despite a quiet data calendar, there may be potential comments from ECB’s Lagarde and Lane. Additionally, BOE’s Mann Panels an MNI Connect Event. Also Fed’s Bullard is due to discuss inflation and interest rates.

US TSYS: Falling Breakevens Help Cap Yield Gains

Treasuries traded weaker Friday, with a renewed rise in short-end yields bear flattening the curve.

• In a week dominated by big swings in Treasury yields and big equity declines, oil stole the show Friday, with WTI dropping 6.8% on the session.
• This helped 5Y and 10Y TIPS-implied breakevens fall to the lowest levels since February. In turn, that helped cap yield gains in an otherwise risk-on session, with the Nasdaq rallying in the afternoon.
• The 2-Yr yield is up 5.8bps at 3.1512%, 5-Yr is up 4.2bps at 3.326%, 10-Yr is up 2.9bps at 3.2237%, and 30-Yr is up 3.4bps at 3.2812%.
• Fed communications (George, Bullard, Kashkari) generally leaned hawkish where they leaned at all (nothing new from Chair Powell), helping pull short-end yields off session lows.
• Data (industrial production, leading index) added to the recent string of concerning reports but didn't draw any market reaction.
• With a market holiday Monday, attention will swiftly turn to Powell's congressional testimony next Weds and Thurs.

MNI BOE Review: 60% probability of a 50bp hike in August

• The forward-looking language was strengthened in four main ways, we discuss these in the full document.
• Markets are going even further by fully pricing a 50bp August hike with around a 25% probability of a 75bp hike. We think the debate for the MPC will be between 25bp and 50bp, and see very little chance of a larger than 50bp hike, irrespective of what other central banks do. Relative to the Fed and the ECB, the BOE’s position is different. These reasons are also discussed in the full report.
• Markets are going even further by fully pricing a 50bp August hike with around a 25% probability of a 75bp hike. We think the debate for the MPC will be between 25bp and 50bp, and see very little chance of a larger than 50bp hike, irrespective of what other central banks do. Relative to the Fed and the ECB, the BOE’s position is different.
• For the full document including the summaries of 22 sell-side analyst views see the full document here.