MNI ASIA OPEN: Fed Hikes To 22-Year High And Leaves Room For More

NEWS

North America

FED (MNI): Fed Hikes Rates To 22-Year High, Leaves Room For More
The Federal Reserve raised interest rates to their highest level in more than two decades Wednesday and kept the door open to additional monetary tightening by offering little in the way of changes to its policy guidance. The FOMC unanimously raised the federal funds rate to 5.25-5.5%, the highest level since 2001, and reaffirmed its commitment to assess cumulative effects and lags of tightening “in determining the extent of additional policy firming that may be appropriate to return inflation to 2% over time.” Officials said they remain highly attentive to inflation risks.

CANADA POLITICS (MNI): Trudeau Ditches Canada Housing Minister On Inflation Pain
Canadian Prime Minister Justin Trudeau removed his housing minister during a wider mid-term cabinet shuffle Wednesday amid anger about the cost of living and failure to boost supply in what the IMF has called the world’s most stretched market. Ahmed Hussen was dropped after less than two years as Minister of Housing and Diversity and Inclusion, replaced by Sean Fraser as Minister of Housing, Infrastructure and Communities.

US POLITICS (BBG): DeSantis Plans Major Economic Speech Next Week as Part of Reset
Florida Governor Ron DeSantis is preparing to give a major economic address next week, according to people familiar with the plans, the latest in a series of measures to steady his shaky 2024 presidential bid. DeSantis and his team have spent the last several days drafting remarks that touch on inflation, China, US manufacturing and energy policy, according to the people familiar.

Asia

CHINA (MNI): China Seen Holding Off From Big Fiscal Stimulus
China will hold off from major fiscal stimulus for the second half of the year, with authorities concentrating on making existing programmes more efficient in order to encourage market forces, given that the economy remains on track to meet its 5% growth target for 2023, advisors and analysts told MNI.

JAPAN (MNI): Govt Keeps Japan Economic View; Ups Corp Sentiment
Japan's government has kept its main economic assessment steady for the third straight month, but upgraded its assessment on corporate sentiment and public investment, the Cabinet Office said on Wednesday. The government also left its assessment on major economic components, such as exports, industrial production and private consumption, and on overseas economies, repeating, “the Japanese economy is recovering at a moderate pace.”

CLIMATE (RTRS): Powerful Typhoon Doksuri Lashes Philippines, Threatens Taiwan and China
At least one person died as powerful typhoon Doksuri lashed the coastline of the northern Philippines with gale-force winds and torrential rain on Wednesday, bursting banks of rivers and leaving thousands without electricity. The storm, labelled as a super typhoon by China's Meteorological Administration, is nearly 900 km (560 miles) across and is expected to sustain strength (winds of up to 175 km per hour) as it continues towards Taiwan and the Chinese mainland.

Europe

ECB (MNI): MNI INTERVIEW: Bulgaria Accession To Add Hawkish Voice To ECB
Bulgaria is on track to join the euro area in 2025 and will add another hawkish voice to the Governing Council of the European Central Bank, a former deputy prime minister and advisor to the Bulgarian president told MNI. Bulgaria was forced to scrap plans to join the currency bloc in 2024 earlier this year, after 2022 saw it fail to meet key Maastricht criteria, and with headline inflation hitting 15%.

EU Gas/Russia (MNI): MNI INTERVIEW: Russian Gas Key Despite Euro Storage Build Up
Interruptions to Russian gas supplies and a cold winter would push up European energy prices fast despite diversification towards other producers and a build up in the continent’s storage towards 90% capacity by September from 82% now, Michael Schmoltzer, Chair of Hydrogen Regulatory Taskforce at Gas Infrastructure Europe, told MNI.

Greece (BBG): Authorities Evacuate Hundreds as Wildfire Threatens Central City
Greek authorities are evacuating part of the central city of Lamia as high winds and heat increased the threat posed by wildfires across the country. Residents in the north of the city of 52,000 people were told to move south as a blaze endangers homes.

Soft Commodities (BBG): Wheat Retreats From Five-Month High With No New Ukraine Attacks
Wheat traded in Chicago retreated after hitting a five-month high on Tuesday as traders weigh signs of ample supplies against tensions in the Black Sea. Grains prices spiked over the past week after Russia withdrew from a safe-corridor deal allowing Ukraine to ship grain by sea. Still, with no major port strikes Wednesday, wheat futures plunged as much as 6.4% to $7.1150 a bushel in Chicago, the biggest intraday decline since November. Better-than-expected findings during a US crop tour also weighed on the market.

Other

MNI BRIEF: Australia June CPI Prints At 6%, Services Up To 6.3%
Australia’s consumer price index rose 6.0% y/y over the June quarter, decelerating from the March quarter’s 7% increase, while trimmed mean annual inflation printed at 5.9%, compared to the previous period’s 6.6% read, according to the Australian Bureau of Statistics data released Wednesday. The lower prints mark the second consecutive quarter of lower annual inflation from the peak of 7.8% recorded in the December 2022 quarter. However, services inflation – a key factor for the Reserve Bank of Australia’s monetary policy decisions – gained 6.3%, up from March’s 6.1% read, its highest read since 2001.

DATA

US New Home Sales Disappoint As May Surge Revised Lower

• New home sales were lower than expected at 697k in June (cons 725k) after a downward revised 715k (initially 763k). The -2.5% M/M drop in June fared better than the -5% forecast, but the disappointment came as May's initial +12.2% jump was cut to +6.6%.
• Whilst the report takes the gloss off the latest surge in new home sales, they continue to show a far stronger rebound than that seen in existing home sales, with new home sales back at pre-pandemic levels vs existing sales some 20% below. New home sales continue to benefit from higher relative supply.

MNI: US MBA: MARKET COMPOSITE -1.8% SA THRU JUL 21 WK
* US MBA: REFIS -0.4% SA; PURCH INDEX -3% SA THRU JULY 21 WK
* US MBA: 30-YR CONFORMING MORTGAGE RATE UNCHANGED AT 6.87%

US EIA: CRUDE OIL STOCKS EX SPR -0.6M TO 456.8M JUL 21 WK
US EIA: DISTILLATE STOCKS -0.24M TO 117.9M IN JUL 21 WK
US EIA: GASOLINE STOCKS -0.79M TO 217.6M IN JUL 21 WK
US EIA: CUSHING STOCKS -2.61M TO 35.7M BARRELS IN JUL 21 WK
US EIA: SPR +0M TO 346.8M BARRELS IN JUL 21 WK
US EIA: REFINERY UTILIZATION WEEK CHANGE -0.9% TO 93.4% IN JUL 21 WK

US TSYS: Powell Drives Rally With Data Dependency Teeing Up Upcoming Releases

• Front-end cash Tsys hold 6bps richer than just before the initial FOMC statement for -3bps on the day. After an unusually small reaction to the statement, 2Y yields saw an intraday rally of 10bps early into the press conference and have since then only partly pared some of the gains.
• The presser leaned slightly dovish with reiteration of signs of progress for instance in labor market balance, played up the potential impact of tighter credit conditions and didn’t outwardly lean on some recent comments from other Fed staff that lags could be shorter than usual.
• It 2YY -3.1bp at 4.843%, 5YY -4.2bp at 4.108%, 10YY -2.2bp at 3.863% and 30YY +0.8bp at 3.937%.
• TYU3 trades 12 ticks higher on the day at 111-31+ off a high of 112-05+ that stopped comfortably short of 112-17+ (Jul 24 high).
• FOMC-dated OIS suggests little net change in near-term meeting expectations, with +5bp for Sep and a cumulative +11bp for Nov to a terminal 5.44% with markets seeing an almost 50/50 chance of the second hike that the median FOMC participant pencilled in with the June dots. Cuts have built since the presser, but only to where they ended yesterday with 60bps from terminal to Jun’24.
• With Powell emphasising data dependency, tomorrow sees an important docket with the 1^st release for Q2 GDP, preliminary durable goods for July, jobless claims and other second tier releases (along of course with the ECB decision) before Friday's Q2 ECI and monthly PCE reports.

FOREX: USD Index Moderately Lower Following FOMC Press Conference

• As the FOMC press conference progressed, the greenback traded on the backfoot and the USD index (-0.32%) extended to fresh session lows as Powell remained non-committal around the September decision.
• The Japanese yen has outperformed Tuesday which prompted USDJPY to slide back briefly below 140 and narrow the gap with initial resistance at 139.75.
• In similar vein, EURUSD makes gradual progress to the topside, printing a fresh high for the day at 1.1107 before creeping back below the 1.11 handle as we approach the APAC crossover. The pair remains way off the week’s highs around 1.1147.
• The Australian dollar remains one of the poorest performers across G10, after the lower-than-forecast CPI print for Q2. Importantly, the trimmed mean and weighted median releases were softer than expected, helping drag AUDUSD back toward first support at 0.6725, the 200-day moving average. EURAUD has unwound a solid portion of the weakness seen to begin the week, that had largely stemmed from the poorer European data and stimulus hopes in China.
• Focus quickly turns to the ECB with its rate decision and press conference on Thursday. Beyond indicating a willingness to tighten further, if necessary, the ECB is unlikely to pre-commit to an additional policy rate hike in September. Attention will also be on the Advance reading of Q2 GDP from the US, before Friday’s Bank of Japan meeting.

US STOCKS: Nudging Higher After Fed-Induced Volatility

• The S&P e-mini heads towards the end of the session nudging 0.1% higher, sitting at the high of the day’s range see with notable volatility through the FOMC press conference.
• A rally in US rates early into the presser helped ESU3 jump ~30 points to a session high of 4610.75 in a test of 4609.25 (Jul 20 high) after which lay a bull channel top at 4627.50.
• It then abruptly unwound the rally in a move that stood out compared to the relatively mild paring of gains at the same time in fixed income. Some attributed the sell-off to Powell not seeing inflation get back at 2% until about 2025 although that seemed to be pushing it and indeed the contact has since rallied back to ~4600.
• A near unchanged day for SPX (-0.02% at the close) came with two distinct leaders and laggards, with communication services +2.65% and IT -1.3%. Alphabet played an important role, rising +5.7% on the day after yesterday’s post-close earnings beat expectations, whilst Amazon slipped -0.9% after Politico reported the US Federal Trade Commission is finalizing an antitrust lawsuit against it.
• Banks have also seen a strong day though with PACW bouncing back strongly with a 27% gain after yesterday’s slump on the BANC advanced talks of buying it. It saw the KBW index rising 1.9% with regional banks +4.1%.

COMMODITIES: Crude Oil Unfazed By FOMC, Holds Decline After EIA Data

• Crude oil largely looked through the FOMC decision and press conference, having already pushed lower after the updated weekly EIA petroleum data showed a smaller than expected crude draw with an unexpected drop in refinery utilisation. Gasoline and distillate stocks have gained slightly after small draws with weekly implied demand just slightly higher.
• Specifically, Crude stocks -600 vs Exp -2,123, Gasoline stocks -786 vs Exp -1,591 and Distillate stocks -245 vs Exp -822
• Saudi Arabia is expected to extend the 1mbpd oil supply cut again into September according to a Bloomberg survey. 15 of 22 traders, analysts and refiners surveyed by Bloomberg predict it will continue into September.
• Russia will increase its crude exports in September on the back of higher refinery maintenance according to Reuters sources.
• WTI is -1.1% at $78.77 having earlier just remained within yesterday’s $79.90 after which lies key resistance at $81.44 (Apr 12 high).
• Brent is -1.0% at $82.81, pulling back off a high of $83.84 touching yesterday’s $83.85 after which lies key resistance at $85.47 (Apr 12/13 highs).
• Gold is +0.4% at $1973.03 after two-way trade albeit in a relatively tight range around the FOMC decision and presser. Resistance remains at the bull trigger of $1987.5 (Jul 20 high).