MNI ASIA OPEN: China Politburo Headlines Offer Stimulus Hopes

NEWS

US

US (BBG): Economists See Odds of US Recession at 50% or Less in New Survey
A strong majority of business economists now say the odds of the US entering a recession in the next 12 months are 50% or less, according to a National Association for Business Economics survey. Some 71% of respondents reported such an outlook in results of the poll, published Monday. That marks a sharp turnaround from NABE’s previous survey in April, which showed an almost even split between those forecasting a downturn and those who were not.

CANADA (BBG): Canada Fulfils G-20 Pledge to Ban Some Fossil-Fuel Subsidies
Canadarevealed new rules to ban some fossil fuel subsidies, targeting those that unfairly advantage oil and gas, solely support sector activities or endorse consumption of fuels that worsen climate change. Environment Minister Steven Guilbeault billed the move as the first fulfillment among Group of 20 nations of a 14-year-old old climate promise. “This is a fundamental shift from what we’ve done in this country for decades,” he told a news conference on Monday.

Asia

CHINA (MNI): Chinese Politburo Headlines Address Areas Of Concern
(MNI London) - The Politburo noted that it will enact a plan to resolve local government debt risks alongside strengthening counter-cyclical adjustments, as well as increasing support for the property market and actively boost domestic demand. Elsewhere, it once again vowed to keep the exchange rate “basically stable,” while stressing the need to boost investor confidence and outlining a desire for policy support to be forceful, but targeted. This comes after a warning that the economic recovery will be “torturous.” Market moves have been fairly contained, albeit risk-positive, as the more forceful tone re: well-defined areas of worry is generally welcomed by markets.

CHINA-RUSSIA (MNI): Patrushev And Wang Meet In Johannesburg
Russia's RIA news agency has reported that the Secretary of the Russian Security Council, Nikolai Patrushev, has met with China's top diplomat, Wang Yi, in Johannesburg at a gathering of BRICS national security officials to discuss, "how to bolster their two countries' security." The meeting of national security officials comes ahead of the 15th BRICS Summit in Johannesburg Aug 22-24. Interactions between Russia and China will be scrutinised in the leadup to the summit as analysts continue to evaluate the political fallout from the recent Wagner Group rebellion and the Russian withdrawal from the Black Sea grain initiative - two events which may have caused concern in Beijing.

Europe

Fiscal (MNI): MNI INTERVIEW: Loose Fiscal Policy Could Push ECB Rates Higher
A commitment to improve the eurozone’s fiscal balance by around 0.5% of gross domestic product next year is insufficient and could force the European Central Bank to raise rates higher than otherwise as well as push up government financing costs, European Fiscal Board Chairman Niels Thygesen told MNI.

ECB (MNI): MNI INTERVIEW: Inflation Should Slow In Time For Sept ECB Pause
Proof that euro area average core inflation is heading downwards could arrive in September, supporting a pause in the hiking cycle, a senior German economist and government adviser told MNI in an interview. European member states’ annual inflation rates will also be within pre-crisis ranges by 2025, even as reinvestments from the European Central bank’s pandemic bond buying programme continue until the end of next year, said Klaus Adam, University of Mannheim economics professor, Bundesbank research professor and advisor to the Germany finance ministry.

Germany (MNI): MNI INTERVIEW: Consumption, Energy Costs To Damp German Growth
Germany will avoid recession over coming quarters, but weak consumption and high energy prices will continue to dampen growth even as inflation stabilises and real wages recover, one of the country’s leading economists told MNI in an interview.

Spain (MNI): People's Party Begins Talks To Form Government
Alberto Núñez Feijóo, President of the centre-right People's Party (PP), has told reporters that he has opened coalition talks. Feijóo: “Starting today, I've been talking to parties with the aim of achieving a stable government in Spain… already spoke with [far right] Vox and [regional parties] Coalicion Canarias, UPN and PNV.” The prevailing view is that PP will be unable to find the seats to form a government. Should Feijóo fail to form a government, the center-left PSOE will be granted an opportunity to form a government. A centre-left government will likely hinge on Prime Minister Sanchez' willingness to concede to demands from Catalan separatists. If the PSOE fails to form a government a second snap election will likely take place late this year or early 2024.

ISRAEL (MNI): Knesset Approves "Reasonableness" Bill In Second & Third Reading
The Knesset approved the "reasonableness" bill in second and third readings after rejecting all 140 opposition reservations. The bill was passed by 64 votes to zero after opposition MKs left the chamber in protest against the judicial overhaul. Defence Minister Yoav Gallant, who was pushing for a last-minute compromise, toed the coalition's line and voted in favour of the bill. The legislation becomes law despite widespread protests and intense last-minute attempts to broker a compromise. The bill strips courts off the right to scrutinise the "reasonableness" of government decisions, including appointments of officials.

US/ISRAEL (MNI): White House Criticises Judicial Reform Vote
The White House has released a statement implicitly criticising today's Knesset vote which passed the first bill of Israeli Prime Minister Benjamin Natanyahu's judicial reforms. The statement expressed that "President Biden has publicly and privately expressed his views that major changes in a democracy to be enduring must have as broad a consensus as possible. It is unfortunate that the vote today took place with the slimmest possible majority." The episode has provoked a strong but measured response from the Biden administration which repeatedly warned Netanyahu to build a consensus before holding a vote on the legislation. Biden even took the unusual step of directly calling on Netanyahu to moderate his domestic agenda.

SOFT COMMODITIES (BBG): Russia Escalates Attacks on Danube in Risk for Ukraine Grain
Wheat and corn prices surged after Russia attacked one of Ukraine’s biggest Danube river ports, ramping up the risks facing Kyiv’s last major grain export route and global food trade. A drone attack overnight hit the Danube port of Reni, according to people familiar with the matter, who asked not to be named discussing sensitive information. Ukraine’s southern operational military command earlier said on Facebook that a grain hangar at a Danube port had been ruined, without specifying which one or giving details.

DATA

MNI: U.S. JUL FLASH MANUF PMI 49.0 (FCST 46.2); JUN 46.3
MNI: U.S. JUL FLASH SERVICE PMI 52.4 (FCST 54.0); JUN 54.4

The S&P Global US Composite PMI was softer than expected in the preliminary July report at falling to 52.0 (cons 53.0) from 53.2. Manufacturing was stronger than expected at 49.0 (cons 46.2) after 46.3 with the surprise instead lead by services at 52.4 (cons 54.0) after 54.4. This discrepancy on the month was seen clearly with service job creation lagging but against a pick up in output charge inflation.

US TSYS: Flow-Led Bear Flattening With 2024 Rate Cuts Also Trimmed

• Cash Tsys head towards the end of the session with a bear flattening as the front end underperforms in a move that was kickstarted by sizeable flow just before 1200ET with an almost 43k block in TUU3.
• Some of those losses were pared heading into the 2Y auction, which saw a small tail with details generally stronger than the five-auction average but weaker than June’s, before some two-way trade which leaves 2YY +5.2bps and 10YY +1.8bps.
• Today’s limited data has helped the flattening at the margin, with continued service price pressures in the S&P Global US preliminary PMI along with softer than expected business activity. Weaker activity was also seen in European PMIs which has helped counter some potential impetus from China stimulus.
• The long-end sell-off has been further limited by technicals, with TYU3 setting a low of 111-31+ as it probed support at 112-00 (Jul 20 low), with cumulative volumes still lagging at currently just shy of 1M. A more concerted push could open 111-22+ (50% retrace of Jul 7-18 rally) after which lies 111-11 (61.8% retrace of the same move).
• Fed implied rates only creep up 0.5bp for the next two meetings coming so close to Wednesday’s decision (+24.5bp priced). There have been larger increases further out though with the Nov terminal now seen after a cumulative +34.5bps (+1.5bp) and 2024 cuts trimmed with 59bp from terminal to Jun’24 (from 62bp) and 132bp from terminal to Dec’24 (from 137bp).

US TSYS: 2Y Auction – Stronger Than Average But Weaker Than June

• The $42B 2Y auction sees a small 0.3bp tail (high yield 4.823% vs when-issued 4.820%), after some volatility in 2s having pared some flow-led losses all within an hour of the auction. Only limited further reaction in 2s, currently +4.3bps on the day.
• It’s similar to the 0.5bp tail averaged over the past five auctions but that was skewed by March’s 3.9bp tail, with the Jun and May auctions trading through by 1bp and 1.5bp respectively.
• Bid-to-cover 2.78 is above the five-auction average 2.70 but below June’s 2.86.
• Indirect take 65.45% vs five-auction average 62.55% but below June’s 68.49%
• Primary dealer take 13.79% vs five-auction average 17.29% and June’s 13.34%
• Direct take 20.77% vs five-auction average 20.16% and June’s 18.17%.

FOREX: EUR Underperforms Amid Weak PMIs, China Politburo Stokes Broader Optimism

• The single currency underperforms all others in G10 on Monday following a softer-than-expected set of flash PMI figures. Manufacturing was a particular weakpoint, with Germany's figures the standout. Germany's July flash manufacturing PMI fell to 38.8 vs. Exp. 41.0 (Prev. 40.6) – pulling down ECB terminal hike pricing and prompting broad Euro weakness
• EURUSD slipped to a low of 1.1066 in Europe, the lowest level since Jul12, narrowing the gap with key support at 1.1055, the 50% retracement for the early July upleg. Price spent the majority of the US session consolidating around the 1.1075 mark.
• More notable was the weakness for Euro crosses, with the likes of EURNZD and EURCAD dropping as much as 1% on the session. These moves have been spurred on by details emerging from the heavily anticipated China Politburo meeting, from which an optimistic tone has resulted.
• The Politburo noted that it will enact a plan to resolve local government debt risks alongside strengthening counter-cyclical adjustments, as well as increasing support for the property market and actively boost domestic demand.
• GBP was the other laggard on the session with some similarly disappointing data to its European counterparts. Cable printed as low as 1.2798 before moderately improving ahead of the APAC crossover. A lower close today would be the seventh consecutive lower close for the pair - a losing streak last equalled in August last year. Attention will be on the 50-day EMA which intersects at 1.2714.
• German IFO data marks the highlight of the European docket on Tuesday before consumer confidence and Richmond manufacturing data in the US. All eyes will then be on Australian CPI Wednesday and the FOMC July decision & press conference.

US STOCKS: Energy And Bank Stocks Lead Gains, Solid Earnings Docket Tomorrow

• The S&P e-mini holds most of its gains, currently +0.5% and within 4 pts of its latest high of 4592.50.
• SPX gains are led by energy (+2.1%) after another strong day for WTI futures on tighter supply and potential stimulus in China following the Politburo meeting. Financials follow (+1.1%) driven by a strong day for banks (+2.2%) with the separate KBW indicating regionals are outperforming at +2.5% for fresh highs since Mar 10.
• Earnings: This week is the busiest of the quarter, with 35% of the S&P 500's market cap set to report. Tomorrow’s highlights include Microsoft, Alphabet and Visa. See our earnings calendar here: https://roar-assets-auto.rbl.ms/files/54818/MNIUSEARNINGS240723.pdf.
• Th S&P 500 e-mini contract is trading below last week's high of 4,609.25. A clear channel breakout of a bull channel interesting at 4616.73 is required to strengthen bullish conditions and open the March 29 '22 high at 4,631.00. A corrective pullback would initially target the 20-day EMA at 4,498.10 for support.

COMMODITIES: Crude Oil Clears Resistance Levels On Twin Supply and Demand Boost

• WTI has seen further solid gains today from a combination of tighter supply and potential stimulus in China following the long-awaited Politburo meeting.
• On the supply side: Saudi and Russia are showing signs of the pledge supply cuts while Kazakhstan’s daily oil production fell to 1.67mbbl on July 23 from 1.78m bbl on July 20 according to ministry data. The reason for the current drop is not apparent but follows a reduction due to power cuts earlier in the month.
• Further, flow from Nigeria’s Forcados oil terminal has been halted since July 12 due to a leak at the facility with repair work reported late last week expected to take between five and 10 days.
• WTI is +2.3% at $78.85 having cleared $77.38 (76.4% retrace of Apr 12 – May 4 bear leg) and $78.10 (Apr 24 high) to open $80.05 (Apr 18 high).
• Brent is +2.2% at $82.85 having cleared both $81.75 (Jul 13 high) and $82.06 (76.4% retrace of Apr 12 – May 4 bear leg) to open $83.77 (Apr 19 high).
• Gold is -0.3% at $1955.52, yielding earlier gains as USD strength built and Treasury yields climbed through the session. It pushes it closer to support at $1949.6 (50-day EMA)