MNI ASIA OPEN: Higher Dots Seen Coming

NEWS

US

US (MNI) Higher Dots Seen Coming Alongside Fed Pause- Ex Officials
The Federal Reserve will likely boost "dot plot" estimates for policy interest rates at year-end, former officials and staffers told MNI, even with members widely expected to leave borrowing costs unchanged Wednesday.

US (MNI): US Treasury Cash Rebuild To Force Early QT End
Massive new borrowing by the U.S. Treasury after Washington's debt ceiling resolution will likely cause a sharp drawdown of bank reserves, forcing an early end to the Fed's QT program as soon as the third quarter, former New York Fed staffer Dominique Dwor-Frecaut told MNI.

US Banks (BBG): BofA CEO Says Bank Would Look at FDIC-Brokered Deal If Offered
Bank of America Corp. Chief Executive Officer Brian Moynihan said in an interview on CNBC that the company would consider an acquisition of another lender through a deal brokered by the Federal Deposit Insurance Corp. “We’ll take a look at it but that’s going to come down to circumstances,” Moynihan said Monday from the World Medical Innovation Forum in Boston. “The good news is, the industry’s strong, in great shape, and I think a lot of the worries are probably overstated.”

US Banks (BBG): Goldman CEO Sees Sticky Inflation Pushing Fed to Raise Rates
Goldman Sachs Group Inc. Chief Executive Officer David Solomon said the Federal Reserve could still push interest rates higher as inflation remains stubbornly persistent. “Inflation is a little bit stickier, and I do think, in the distribution of outcomes, there’s a reasonable chance that rates go higher,” Solomon said in an interview Monday with CNBC. “If they do that, it’s probably going to make the economic environment a little more challenging.”

US Politics (MNI): Trump Retains Support Of GOP Base Despite Federal Indictment
A flurry of surveys conducted in the wake of former President Donald Trump's second indictment has suggested that most Republicans believe the charges levelled against Trump are politically motivated, and short of a conviction, are unlikely to significantly alter the Republican primary equation

Europe

UK (MNI): MNI POLICY: BOE Hikes Whilst Seeking New Inflation Model
The failure of the Bank of England’s standard model to predict the recent upsurge in prices has left policymakers applying a rough and hard-to-quantify upside skew to projections for inflation as they hike rates whilst Bank staff struggle to incorporate a new wave of modelling and research into their projections.

UK (MNI): BOE Mann Worried By Services, Core Goods Inflation
A string of factors suggesting that inflation will run stronger than policymakers had previously expected and may not return easily to target, with her comments suggesting she sees the need for further policy tightening, Bank of England Monetary Policy Committee member Catherine Mann said Monday.

EU (MNI): Frugals Open To EU Debt Compromise, Spanish Presidency Key
The so-called “frugal” group of European Union countries are open to compromise to break a deadlock over reform of the EU’s fiscal rules, though much will ride on the ability of Spain, the incoming holder of the bloc’s rotating six-month presidency, to negotiate a deal even as it faces national elections, officials said.

EU Regulation (BBG): Google to Get Hit With EU Antitrust Charges for Ad Tech Abuses
Google is set to be hit with a formal antitrust complaint from the European Union that could lead to massive new fines and strike at the heart of the advertising technology that drives most of the US firm’s revenue. The so-called statement of objections, to be announced as soon as Wednesday, will mark another escalation in a long-running saga that’s already led to a trio of EU penalties totaling more than €8 billion ($8.6 billion.)

Asia

Japan (MNI): Upside Inflation Risks Build Before New Forecast
The Bank of Japan may express concern about rising upside risks to inflation at its meeting later this week but it is likely to keep its policy settings on hold, as it continues to monitor data ahead of revised forecasts due the following month. The BOJ could modify the wording of its assessment of inflation to reflect a higher-than-previously-anticipated pass-through of higher costs by companies to consumers. The BOJ’s current median price view announced in April is for 1.8% inflation this fiscal year, with core prices dipping below 2% towards the middle of the period.

Global

Oil (BBG): Oil Extends Losses as Goldman Forecast Clouds Market Outlook
Oil extended losses as Goldman Sachs Group Inc. cut its price forecast for the third time in six months. West Texas Intermediate fell near $67 a barrel after Goldman trimmed its year-end price estimate to $86. The bank’s concerns about swelling crude supplies are weighing on a market outlook already clouded by weak demand signals.

Politics (MNI): Yellen To Lead US Delegation To Summit For New Global Financial Pact
The US Treasury Department has confirmed that Treasury Secretary Janet Yellen will lead the US delegation to the Summit for a New Global Financial Pact in Paris, France, June 22-23. Treasury Department: "While in Paris, Secretary Yellen will further partnerships with developing and emerging economies to strengthen the world economy and address shared challenges like climate change.

DATA

US (MNI): US Consumer Inflation Expectations Mixed In May -NY Fed
U.S. consumers said last month they expected slightly lower inflation in a year's time, the New York Federal Reserve said in a report that also showed slightly more pessimism about credit conditions. The Fed bank's May Survey of Consumer Expectations reported respondents see inflation one year from now at 4.1%, down from 4.4% in the April survey and the lowest since May 2021. Inflation three years from now was seen at 3.0%, compared to 2.9% the previous month, while five years from now it was expected to be at 2.7%, versus 2.6% in the prior month.

US (MNI): US Notched $240B May Budget Deficit, $1.165T YTD
The Treasury Department on Monday reported a USD1.165 trillion budget deficit in the first eight months of the fiscal year, with a USD240 billion deficit in the month of May. The May deficit comes after April's USD176 billion surplus. Receipts in May were USD307 billion, down USD82 billion, or 21%, compared with the year-ago month. Outlays were USD548 billion, up USD93 billion, or 20%, compared with May 2022.

US TSYS: A Mixed Session Ending Modestly Richer Ahead Of US CPI

• Treasuries have seen a volatile session, in part having lurched higher and then more than reversing on questionable Taiwan headlines from The Messenger early on.
• Subsequent attention was then on the twin note auctions, with the 3Y progressing smoothly before the 10Y saw another tail following its recent trend along with soft internals.
• A brief cheapening aside on the latter, the broad trend since then has been one of paring earlier losses, which have accelerated in latest trade for a still mild bull steepening on the day (2YY -2.3bps, 5YY -1.9bps, 10YY -0.4bps and 30YY -0.4bps) after a twist steepening for most of the session.
• TYU3 shifts towards the higher end of the day's range at 113-17 (up 4+ ticks) as volumes start to pick up closer to recent averages in increased activity of late but still lagging at 1.13M ahead of tomorrow’s CPI report and the FOMC decision on Wed. It doesn’t trouble resistance at 114-06+ (Jun 6 high) whilst the key bear trigger at 112-29+ (May 26/30 lows) remains exposed.

EGBs-GILTS CASH CLOSE: Gilt Yields Jump With Data And Event Risk Looming

Gilts easily underperformed across global core instruments Monday, with UK yields up nearly double-digits in parallel across the curve. The German curve twist steepened ahead of the ECB decision on Thursday.

• Amid a fairly quiet session for data and headlines, it was difficult to identify a trigger for large moves in the afternoon, which saw yields spike from 2pm UK time onward. The move was made slightly more baffling by a sharp drop in oil prices alongside.
• There was not much new from BoE's Mann this afternoon, whose comments unsurprisingly leaned hawkish (pointing out her concerns that services inflation remained "sticky"), but desks reported some squaring of long positions in Gilts.
• The latter came in the context of risks looming large for the rest of the week, including data (US CPI Tuesday) and event (Fed, ECB, BoJ decisions) flashpoints.
• Periphery spreads mostly tightened against a risk-on backdrop with equities gaining through most of the session.
• The exception was Greece, which underperformed in the wake of Fitch's decision Friday to to affirm Greece’s BB+; Outlook Stable sovereign credit rating status.

Closing Yields / 10-Yr Periphery EGB Spreads To Germany

• Germany: The 2-Yr yield is down 0.2bps at 2.914%, 5-Yr is down 0.1bps at 2.421%, 10-Yr is up 1.1bps at 2.388%, and 30-Yr is up 3.4bps at 2.55%.
• UK: The 2-Yr yield is up 9.5bps at 4.636%, 5-Yr is up 9.7bps at 4.347%, 10-Yr is up 9.9bps at 4.338%, and 30-Yr is up 9bps at 4.572%.
• Italian BTP spread down 6.8bps at 166.9bps / Greek up 4.2bps at 132.8bps

FOREX: Early Greenback Weakness Reverses Course, GBP and CHF Underperform

• With market participants keenly awaiting the latest inflation data from the US on Tuesday, just a day before the June FOMC decision, there was a distinct lack of follow through on early currency moves on Monday. As such, initial greenback weakness swiftly reversed course with the USD index turning positive as we approach the APAC crossover after prior intra-day losses of around 0.35%.
• In similar vein, perhaps the best performing G10 currencies late last week, GBP and CHF, were among the weakest to start this week with potential short-term positioning dynamics in play amid the considerable amount of event risk this week.
• The pullback in GBPUSD places the pair around 90 pips off the multi-week high posted this morning at 1.2599. It’s worth noting that there was little sign of a pick-up in volumes behind the initial sell-off with only light activity noted on the slip from 1.2560 to 1.2535, however the pair did slide all the way to 1.2487 lows.
• Resistance at 1.2545, the Jun 2 high, was cleared last week, and today’s early gains have resulted in a print above 1.2592, 50.0% of the Mar 8 - May 10 bull run. A clear break of this level would expose key resistance at 1.2680, the May 10 high. Initial firm support has been defined at 1.2369, the Jun 5 low.
• USDCHF also extended its recovery on Monday as 0.90 appears to have put a short-term floor in the price action. As a reminder, last week’s more hawkish comments from the SNB prompted a sharp bout of CHF strength that has now completely unwound. EURCHF has notably risen to a one-month high just below the 0.98 handle.
• A quick note that the Chilean peso has fallen a sharp 2.5% on Monday as markets provide a short-term reaction to the freshly announced program to increase their USD reserves.
• Tuesday brings UK unemployment data and German ZEW, however, the focus for global markets remains squarely on US CPI with consensus still buying into the Fed skip narrative for now.

US STOCKS: Equities Break Higher As Resistance Cleared

• Having pushed through Friday’s aforementioned high of 4369.50, ESA has quickly gained to a new high of 4378.25 before retreating only modestly.
• Resistance next sits at the round 4400 and then 4427.19 (1.618 projection of the May 4-19-24 price swing).
• As opposed to earlier gains which looked in lockstep with intraday Treasury gains, this move looks more in isolation, potentially on those technical factors.
• Within the SPX, 0.6% gains are led by IT (+1.7%) and consumer discretionary (+1.7%), the former in turn led by semi-conductors although with NVIDIA lagging after last month’s surges.
• Losses meanwhile are concentrated in energy (-1.4% - unsurprising with WTI’s further slide back notably below $70) and less so utilities/real estate (-0.4%). That said, financials only trading -0.3% mask larger pressures on banks of -0.9%, in turn smaller losses than the KBW index at -1.5% but more in line with its regional version at -1.1%.
• Recent headline from Barclays helps play into the weaker banks theme already established on the day: *BARCLAYS SEEING US DELINQUENCIES RISING SLIGHTLY ON THE MARGINS - bbg

COMMODITIES: Crude Slumps Further As Production Cuts Take A Back Seat

• Crude markets have fallen heavily today, weighed down by economic concerns and weaker demand growth expectations as the OPEC voluntary production cuts have largely been dismissed by the financial markets. Earlier, Goldman lowered its forecast Brent in Dec’23 by $9 to $86/bbl.
• The concern for a US recession is driving WTI quicker than Brent taking the front month spread down to -4.7$/bbl.
• WTI is -4.53% at $66.99, again probing $67.03 (May 31 low) after which lies a key support at $63.90 (May 4 low). The day’s most active strikes for the CLN3 have been $70/bbl calls closely followed by $65/bbl puts.
• Brent is -4.0% at $71.79 having pushed through $73.58 (Jun 8 low) to open $71.50 (May 31 low).
• Gold is -0.2% at $1957.36 as it struggles to gain traction amidst USD strength. It remains above support at $1932.2 (May 31 low).