MNI ASIA OPEN - Fed May Abstain From IOER Tweak

US

US (MNI): Fed Leery of Money Fund Rescue, Reinhart Says
The Federal Reserve is likely to abstain from raising rates paid on reverse repos or excess reserves despite potential financial stability risks as money-market funds drown in surfeit liquidity, former Fed Board division of monetary affairs chief Vincent Reinhart told MNI.

US (MNI) 'Rampant' Inflation on Main Street in May, NFIB Says
The small business recovery stumbled in May as price gains fuelled uncertainty and business owners struggled to fill open roles, the National Federation of Independent Business said Tuesday.

The percentage of businesses raising average selling prices rose four points over April to a net 40%, the small business group said, the highest reading since 1981. Price hikes were most common in wholesale (65%), retail (53%), and manufacturing (47%). Roughly 43% of owners plan to raise prices in the near future, up seven points from April.

EUROPE

UK (MNI): DMO Head Sees UK Borrowing Coming Down Quickly
The downward trend in UK public sector borrowing is clear and Robert Stheeman, head of the UK Debt Management Office is reassured that the investor base has held up throughout the Covid pandemic.

EUROZONE (MNI): EZ GDP Sees Modest Upward Revision In Q1
The euro area economy contracted less than previously estimated in Q1 2021, but still recorded two consecutive periods of negative growth, confirming the bloc is in a technical recession. Euro Area GDP contracted by 0.3% q/q and 1.3% y/y in the period, both revised higher from the flash readings of -0.6% and -1.8% respectively, Eurostat said Tuesday

ASIA

JAPAN: BOJ Amamiya Urges Shift To LIBOR Alternatives
Bank of Japan Deputy Governor Masayoshi Amamiya called for financial institutions to shift LIBOR-related contracts to alternative contracts by the end of September or face a 'chaotic situation' attempting to amend legacy contracts nearer year end.

DATA

US: JOLTS OPENINGS RATE 9.286M IN APR
JOLTS QUITS RATE 2.7% IN APR

NY FED WEEKLY ECONOMIC INDEX +10.8% IN WK ENDED JUN 05

JOLTS Blowout Points To Labor Supply, Not Demand As Key Issue
Today's JOLTS report showed a large upside surprise in job openings in April (9.286M, a million more than expected and comfortably the highest of all-time).

This will lend some credence to the notion that the recent disappointing nonfarm payrolls reports don't fully capture the strength of the rebound in the labor market - and that the economy is facing a supply rather than a demand problem.
St Louis Fed Pres Bullard may well be bringing the chart below from the JOLTS report to the FOMC table next week, as he has claimed (including in an MNI Interview last month: https://marketnews.com/mni-interview-feds-bullard-...) the "unemployed-to-job opening" ratio is indicative of a much tighter labor market than headline unemployment stats would suggest.
By this metric (1.1 unemployed people per opening), the labor market's getting close to as "tight" as it was pre-COVID (0.8 in Feb 2020), and below the pre-GFC lows (1.4).

JOLTS Quit Rate Suggests Higher Labor Costs
The likely eventual consequence of a rising supply-demand mismatch for labor as seen in today's JOLTS report is rising employment costs. The quarterly Employment Cost Index - which is seen as one of, if not the, highest standard indicators of overall labor costs (JPM called it their "desert island" labor market indicator) - could be set to move sharply higher in the coming quarters:https://marketnews.com/nascent-wage-pressure-showi....

The JOLTS Quit Rate for Private Industries hit a record 3.1% in April, suggesting workers are comfortable leaving their current jobs in favor of other opportunities -and this is consistent with a rise in the ECI for private industries to well above 3% Y/Y (vs 2.8% in Q1).
This would mark levels not seen since the pre-GFC era, and provide further ammunition for those suggesting that the labor market may be tighter than it appears on the surface.

US DATA: Small Biz Surveys Also Point To Rising Employment Cost Pressures
Today's NFIB small business survey also pointed to higher employment costs going forward.

The percentage of small business owners who said they plan to increase labor compensation rose to 22% from 20%; the percentage saying that the "quality of labor" was their biggest problem rose to 26% from 24%.
Both marked the highest levels since January 2020 - so another indication that the labor market is getting closer to pre-pandemic levels.

CANADA: Canada's merchandise trade balance shifted into an unexpected surplus in April, as the global automobile microchip shortage pulled down imports faster than exports, government figures showed on Tuesday.

Statistics Canada's reported April trade surplus of CAD594 million followed a revised March deficit of CAD1.3 billion. Economists predicted a CAD1 billion deficit.

US TSYS SUMMARY: Curves Flatten, 10YY On Track For Lowest Close Since March

• The US curve traded flatter, with the belly of the curve outperforming and pressing 10y yields lower by over 4bps. Both the 2y10y and 2y30y curves flattened by 4bps apiece.
• The initial catalyst for Treasury strength came as a number of the world's largest websites including Amazon and the New York Times were knocked offline by a failure at the CDN provider Fastly.
• Equities saw some shaky prints following the opening bell, with a late recovery failing to mount any serious test on the all time highs printed in early May.
• Markets also eye the upcoming US CPI print, with Thursday's Y/Y print seen heating up to 4.7% from 4.2%.
• The 3y auction came and went with little consequence. The auction saw decent enough demand, with the bid/cover inline with the 5-auction average and the lowest stop in over three months. Dealer take slipped, with the primary dealer take-up the lowest in over a year at 27.55% of the issue.
• Focus Wednesday turns to wholesale inventories and trade sales data as well as the 10y auction.

FOREX:  Marginal USD Gains, G10 FX Broadly Unchanged For Week

• The greenback edged higher throughout early trade on Tuesday, holding on to gains throughout the US session. The dollar index is roughly 0.2% higher, erasing a similar magnitude of losses from Monday.
• Albeit marginal, dollar gains come against the backdrop of lower US yields, with potential squaring of positions in treasuries ahead of the important US inflation data due Thursday.
• NZD was the worst performer, retreating half a percent. The Kiwi was aided lower by a quick dip in Equities and despite major indices recovering swiftly, currencies appeared largely unphased, trading in narrow ranges. In a particularly light day for tier one data, EMFX was also quiet with EM currency indices broadly unchanged on the day.
• A 30 point daily range in EURUSD is evidence of the lack of activity ahead of the ECB. EURUSD has shown potential signs of a technical correction and attention is on the 50-day EMA at 1.2102 that also represents a key area of support. On the upside, primary resistance has been defined at 1.2266, May 25 high.
• Top of Wednesday's agenda is the Bank of Canada rate decision and accompanying statement, although this is largely expected to be a placeholder for a live July meeting. Markets will eagerly anticipate the release of US CPI on Thursday as well as the ECB policy statement and accompanying press conference.