MNI ASIA OPEN - China Tariffs Could Go This Week

NEWS

ECB (MNI): Preventing Fragmentation To Help ECB Hike - De Guindos
The European Central Bank's commitment to fight fragmentation should not interfere with, but rather enable, a greater focus on the overall monetary policy stance, bank Vice President Luis de Guindos said Monday. Speaking at the Frankfurt Euro Finance Summit, he said preventing fragmentation allows the ECB to adjust its monetary policy stance at the appropriate pace and stabilise inflation at target. Looking at policy, de Guindos said the ECB had already announced its intention to raise rates by 25 bps in July, with another hike in September -- when a larger hike could be appropriate if the medium-term inflation outlook persists or deteriorates.

US (MNI): Biden Could Roll Back China Tariffs As Soon As This Week
Building on earlier headlines from DJ, Bloomberg reports that President Biden may announce a rollback of some US tariffs as soon as this week, but equally that the decision is not final and the timing could slip according to people familiar with the deliberations. It could also come with a new probe into industrial subsidies that could target strategic areas such as technology.

US/MEXICO (MNI): Biden, Trudeau, Lopez Obrador To Discuss USMCA At December Summit
Mexican President Andres Manuel Lopez Obrador has told reporters today that he will discuss the United States-Mexico-Canada Trade Agreement (USMCA) with US President Joe Biden and Canadian Prime Minister Justin Trudeau. Lopez Obrador said in a press conference: "We'll have a summit to discussterms of the trade agreement treaty... in Mexico."

US (MNI): Generic Congressional Ballot Continues To Tighten
Evidence is growing that the Supreme Court decision on Dobbs vs Jacksons Women's Health to revoke Roe vs Wade will influence November's midterms, to some extend. Since the ruling, the generic congressional ballot has tightened, with all"post-Dobbs" polling data showing an improved Democrat performance in theHouse of Representatives.* According to Real Clear Politics, the GOP currently have a 2% lead on thegeneric ballot. This represents the finest margin since June 2 and a considerable tightening since the 3.4% of the day before the "Dobbs" ruling.

DATA:

CANADA (MNI): BOC Says Record 78% Of Firms See +3% Inflation Over 2 Yrs
Bank of Canada surveys of companies and households published Monday show record views of wage and price inflation over the next two years, and some firms say a recession may eventually result from higher interest rates. The consumer price index will advance more than 3% over the next two years according to 78% of firms surveyed by the central bank, up from the prior record 70%. Firms also expect record wage gains of 5.8%. "Some firms noted that an eventual recession, which they often attributed to higher interest rates, would support or be needed for a return of inflation to 2%," the Bank's target, the Business Outlook Survey said.

Eurozone (MNI): EZ Factory Gate Inflation Sees Modest May Slowdown
Eurozone factory-gate inflation slowed modestly in May, decelerating to +36.3% Y/Y from37.2% in April. Consensus across economists was looking for a softer 0.5pp slowdown. This is the first deceleration in annualised PPI since May 2020. On the month, PPI rose 0.7%, having risen 1.2% m/m in April. It was the smallest monthly uptick since February 2021. Despite continued inflation in intermediate goods (+1.7%), non-durable consumer goods (+1.3%) and durables (+0.9%), capital goods rose by only +0.6% and energy sector goods saw prices contact by 0.2% month-over-month, providing the key downwards pressure on the headline print.

MNI RBA Preview - July 2022: Everything Points To 50

EXECUTIVE SUMMARY

• The analytical community is unanimously behind the idea that the RBA will deliver further tightening at its July meeting, with 25 of the 26 surveyed by BBG looking for a 50bp hike and just one looking a 75bp step. The STIR space currently prices in ~43bp of tightening come the end of the Bank’s July meeting, which equates to just under a 75% chance of a 50bp hike.
• Domestic data flow & recent comments from Governor Lowe indicate that a 50bp hike will be implemented.
• Market pricing surrounding RBA tightening continues to look aggressive.
• Expect the Board to reiterate its guidance that it “expects to take further steps in the process of normalising monetary conditions in Australia over the months ahead.” Q2 CPI data (due 27 July) is set to provide the next major yardstick when it comes to assessing the velocity of any future RBA tightening,
• Click to view full preview.

FOREX: AUD Stages Minor Bounce Pre-RBA

• The late rally last week in the JPY has slowed, putting USD/JPY back above the Y135.50 level. Last week's highs at 137.00 remain the key upside target, but a more solid recovery in equity markets will likely be needed to put the pair on more stable footing.
• The greenback traded similarly softer, although recent ranges are being largely respected thus far. The EUR fared better, seeing some support following comments from ECB's Vasle, who sees more hikes as likely in Q4 after the September decision.
• AUD was a notable outperformer ahead of this week's RBA decision, at which the bank are seen raising rates by 50bps to 1.35%. The Australian STIR space currently prices in ~43bp of tightening come the end of the Bank’s July meeting, which equates to just under a 75% chance of a 50bp hike. AUD/USD has bounced off last week's cycle lows, but remains well south of last week's best levels.
• Elsewhere, price action has generally been thin on the ground, with US markets broadly closed due to the July 4th holidays.
• Outside of the RBA rate decision on Tuesday, a number of BoE speakers are due, with Tenreyro speaking following the publication of the bank's financial stability report.

COMMODITIES: Copper Hits Significantly Oversold Territory

• Crude oil prices have increased almost 2% today, helped by US drillers running low on drilled but not completed wells which could take longer to continue to increase production going ahead, whilst Kazakhstan's oil output is down 22% from May with planned maintenance. News that Ecuador oil output has rebounded 90% after political protests saw a small dip that was quickly reversed.
• CFTC money manager net longs for WTI and Brent were trimmed last week to the lowest since mid-May.
• WTI is +1.96% at $110.55, clearing resistance at $110.09 (20-day EMA) and opening $114.05 (Jun 29 high) required to see a resumption of the recent bullish trend.
• Brent is +1.68% at $113.50 as it moves further away from support at $108.03 (Jul 1 low) but continues to sit off $116.24 (Jun 29 high)
• Gold is -0.24% at $1807.13 after a quiet session, sitting squarely between resistance at $1830.5 (20-day EMA) and support at $1784.6 (Jul 1 low).
• Copper meanwhile continues its slide, down a further -2.5% to $8048 for a 30% decline from its all-time high in early March as copper enters a bear market with global economic activity decelerating sharply. The RSI shows the metal as being ‘significantly oversold’.