MNI ASIA OPEN - Data May Imply UK Inflation at Turning Point

NEWS:

Asia

JAPAN (MNI): Weak Commodities Lower Yen Intervention Appetite
Weakening commodity prices have taken pressure off Japanese authorities to support the yen, however, a rapid decline towards JPY150 against the U.S. dollar could lead them to reconsider, MNI understands. Japanese authorities are not as concerned with the yen's decline compared to the last time the currency weakened to a similar level, which prompted the Ministry of Finance to direct the Bank of Japan to buy JPY in September 2022 (see: MNI BRIEF: Japan Buys Yen For First Time Since 1998). Authorities would prefer to continue voicing concern rather than taking direct action, MNI understands.

AUSTRALIA (MNI): RBA Pauses Despite Still Sticky CPI
The Reserve Bank of Australia called time again on interest-rate hikes, leaving the cash rate steady at 4.10%, despite recent monthly headline and core inflation prints well above its 2-3% target range and a historically tight labour market. Consensus among the market and commentators was evenly split leading into the decision, making today’s call one of the most contentious since the RBA began hiking rates in May 2022. Following the call, the overnight index swap rate lowered its peak rate expectations (see chart), with 4.45% now priced in by December, compared to the previously anticipated 4.5% by November.

Europe

UK (MNI): Price Data Imply UK Inflation At Turning Point
UK inflation has hit a turning point and falling prices may not be as sticky as some fear, a former Bank of England economist told MNI, although he noted that policymakers are still right to worry that the high inflation the country has experienced could become self-reinforcing.

Greece (BBG): Mitsotakis Vows Early Repayment of Greece’s Bailout Loans
Prime Minister Kyriakos Mitsotakis pledged to repay two years of bailout loans ahead of schedule in a confident signal to financial markets at the start of his second term in office. “We will be able before the end of the year to actually repay ahead of time,” Mitsotakis said Tuesday during an interview with Bloomberg Television in Athens. “It’s a commitment to investors.”

UKRAINE (NYT): Ukraine Will Not Receive F-16s For Its Counteroffensive
NATO countries will not send F-16 fighter jets to Ukraine in time for its current counteroffensive, the alliance’s highest ranking military officer has said, comments that in effect dash Kyiv’s long-shot hopes of using the jets against Russian forces in the coming months. While any deliveries of the jets were not expected until the fall, at the earliest, the remarks by Adm. Rob Bauer, the chair of NATO’s military committee and its most senior officer, offered the clearest indication yet that Western allies will not expedite the supply of F-16s as Ukraine presses ahead with its long-awaited military campaign.

RUSSIA/UKRAINE (MNI): Russia: No Basis For Renewing Grain Deal
Comments from the Russian Foreign Ministry hitting wires stating that there is, "no basis for renewing the [Black Sea] grain deal" ahead of a July 18 expiration date. According to Interfax, the Russian MFA says Russia is, "doing everything so that all ships covered by grain deal can leave Black Sea before deal expires," but has made repeated threats to torpedo an extension of the initiation, claiming the terms are favourable to Ukraine. It was later reported by Reuters that Russia has restated a demand for its state agricultural bank to be reconnected to SWIFT, rather than a subsidiary or an alternate payment channel established between the Russian agricultural bank and JP Morgan.

NATO (MNI): Hungarian FM-If Turkey Approves Sweden Bid We Will Not Delay Ratification
Hungarian Foreign Minister Péter Szijjártó states that he has talked with his Turkish counterpart Hakan Fidan in the past few days, and reiterates that 'if there is a shift in Turkey's stance on Sweden's NATO membership ratification then Hungary will keep its promise of not delaying ratification.' The comments are more upbeat that those from Turkish President Recep Tayyip Erdogan, who on 3 July seemed to pour cold water on the prospect of ratification any time soon following protests in Stockholm that saw copies of the Quran burned in public.

FOMC Minutes Preview: July 2023

We've published a preview of tomorrow's FOMC minutes (released 1400ET/1900UK on Jul 5), focusing on Fed rate hike messaging since the Jun 13-14 meeting.

This includes MNI's Hawk-Dove matrix, sell-side outlooks for the minutes, and MNI's interview last month with Atlanta Fed Pres Bostic.

See PDF in link below:

FedMinutesPrevJul2023.pdf

DATA

MNI: GERMANY MAY TRADE BLNCE EUR 14.4B (FCST 17.3B); APR 16.5B

CANADA DATA: Mfg PMI Dips Further In Sombre June Report

• The S&P Global mfg PMI saw minimal change in June at 48.8 (consensus unclear with some erroneous entries) from 49.0 in May. It nudged close to the recent low of 48.6 from March and is further away from the very brief return to >50 in April.
• The press release was pessimistic: "Concurrent falls in output, new orders and employment were all recorded. [] Reports of subdued market demand, both at home and abroad, were widespread, with clients reportedly hanging back from committing to new business given the uncertain economic outlook".
• Only modest increases for input and output prices: "Amid reports that vendors were less busy, and with less room to raise prices, average input costs increased during June only modestly. A similar development was seen for output charges, which rose modestly but at a rate down on those seen during much of 2021 and 2022."

US TSYS: TY Futures Back Near Unchanged On Independence Day

• TYU3 trades in the higher half of a narrow 8+ tick range for currently just 1 tick richer on the day at 111-31.
• The earlier session low of 111-25+ probed support at the same level from Jun 30, mostly through the London session before pulling higher later when more firmly into US hours to leave it back in yesterday’s range. A more concerted push lower could open 111-14+ (Mar 9 low) after which lies the key 110-27+ (Mar 2 low).
• Volumes are unsurprisingly thin with the US out for Independence Day (cumulative volumes 180k), ahead of tomorrow’s snap back to more normal trading activity ahead of the FOMC minutes before the usual data releases in the build up to Friday’s payrolls report.

EGBs-GILTS CASH CLOSE: Steeper As Hike Pricing Is Pared Back

Peripheries underperformed in European trade as the UK and German curves steepened Tuesday, in a quieter session with the US markets closed for holiday.

• Despite thinned liquidity, there was decent price action. ECB and BoE terminal hike pricing pulled back the most in 4 sessions (by 3 and 1bp respectively), though there was little data / speakers driving (Bundesbank chief Nagel had little new to say).
• The UK curve bull steepened modestly, with Germany's twist steepening.
• BTP spreads widened the most since early May, with Italian yields rising as Bunds strengthened - no particular catalyst evident for either move.
• Short-end GGBs pared losses after Greek PM Mitsotakis pledged early repayment of 2 years of bailout debt by year-end. But Greek 10s still underperformed on the periphery.
• Wednesday brings the ECB's consumer expectations survey, French and Spanish industrial data, and Services/Composite PMIs (mostly Finals).

Closing Yields / 10-Yr Periphery EGB Spreads To Germany

• Germany: The 2-Yr yield is down 3.9bps at 3.221%, 5-Yr is down 1.6bps at 2.601%, 10-Yr is up 1.6bps at 2.453%, and 30-Yr is up 5.3bps at 2.448%.
• UK: The 2-Yr yield is down 2.4bps at 5.319%, 5-Yr is down 2.9bps at 4.688%, 10-Yr is down 2.4bps at 4.416%, and 30-Yr is down 2.3bps at 4.422%.
• Italian BTP spread up 4.9bps at 174.6bps / Greek up 7.2bps at 134.1bps

FOREX: Independence Day Keeps Lid on Volumes, General Activity

• Sanguine Independence Day trade kept currency markets generally muted, with futures volumes indicating market activity running at about 50% of usual daily average.
• Prices generally respected recent ranges, however EUR and USD underperformed most others in G10. Strength across oil and commodity markets helped boost the likes of AUD and CAD, which extended recent corrective recoveries.
• The overarching trend outlook for AUDUSD remains bearish following recent weakness and the extension of the reversal that started Jun 16. The pair has traded below the 20- and 50-day EMAs, suggesting scope for a deeper retracement. A continuation lower would open 0.6562, 76.4% of the May 31 - Jun 16 rally, Initial firm resistance is at 0.6721, the Jun 27 high. The latest bounce is likely a correction.
• Regional PMI data takes focus across Asia-Pacific hours, with Australia, Japan, China and India all seeing June PMI updates. European territories and US follow later in the day, alongside Eurozone PPI, the latest consumer sentiment survey from the ECB and May factory orders. ECB's Nagel, Visco, Villeroy and de Cos are set to speak ahead of the FOMC minutes.

US STOCKS: Stalling For A Second Day Amidst Holiday-Thinned Trade

• The S&P E-mini has seen a particularly narrow range of just 7.5pts today in holiday-thinned trade, currently -0.04% at 4490.5 to fade European equities closing lower (FTSE 100 -0.16%, DAX -0.26%).
• It’s the second consecutive day of no notable change having consolidated Friday’s shunt higher into month/quarter-end despite month-end extensions indicating a need for a rotation into bonds.
• Friday’s increase pushed above its bull trigger at 4493.75 (Jun 16 high) with a high of 4498 (Jun 30 high) after which lies 4532.08 (2.236 proj of May 4-19-24 price swing). Tomorrow’s return to more typical market activity could provide more of a test of this clearance with the FOMC minutes eyed.

COMMODITIES: Crude Oil Spurred Day After Saudi And Russia Cuts

• Crude has consistently climbed today for solid gains the day after the pledged Saudi Arabia 1mbpd output cut into August from yesterday providing some support to offset ongoing economic growth fears. Announced yesterday, the news was further supported by the announced 500kbpd cut to Russia exports in August.
• The day’s gains go against more bearish technical developments though.
• WTI is +2.05% at $71.22, still off resistance at $72.72 (Jun 21 high) whilst support is seen at $66.96. Particularly thin holiday trade sees the most active trade in CLQ3 options at $75/bbl calls.
• Brent is +2.1% at $76.25, still off resistance at $77.25 (Jun 21 high) whilst support is seen at $71.43 (May 31 low).
• Gold is +0.15% at $1924.77 having again pulled back after a trip past $1930 before it could more meaningfully test resistance at the 20-day EMA of $1933.9. Gains are considered corrective with support at $1893.1 (Jun 29 low).