MNI ASIA OPEN: IMF Revises Global Growth And Inflation Higher

NEWS

Global

Growth/Inflation (MNI): IMF Discourages Fed, ECB Cuts Amid Sticky Core Inflation
Major central banks including the Fed and ECB must hold restrictive interest rates with little progress reducing core inflation seen this year, the IMF said Tuesday. More on this below.

US

FED (MNI): Fed Seen Retaining Hawkish Bias - Ex-Officials
The Federal Reserve is expected to raise rates by 25 basis point and keep its tightening bias this week, reflecting upside risks to the FOMC's inflation projections, ex-Fed policymakers and staff told MNI, though some expect the Fed not to hike again until Nov 1.

FED (MNI): MNI INTERVIEW: Fed Eyes Hawkish Tilt Despite ‘Quiet’ Recession
The Federal Reserve is likely to maintain a hawkish tone after an expected interest rate hike this week despite an economy that is already weakening substantially, former Dallas Fed adviser Danielle DiMartino Booth told MNI. Financial markets are hoping for some kind of pause signal from Fed Chair Jerome Powell’s press conference this week but DiMartino Booth believes investors will be disappointed.

US Banks (BBG): Banc of California Is in Talks to Purchase PacWest, WSJ Says
Banc of California is in advanced talks to buy PacWest Bancorp and a transaction could be announced as soon as Tuesday, the Wall Street Journal reported, citing people familiar with the matter. Shares of Banc of California surged 20% to $15.73 at 3:12 p.m. in New York, the biggest intraday gain since 2020. PacWest slumped 25%.

US Labor (BBG): UPS Reaches Tentative Labor Deal With Teamsters to Avoid Strike
United Parcel Service Inc. reached a tentative agreement to renew a five-year labor contract with the Teamsters union, staving off a possible strike as soon as next week that could have paralyzed shipments throughout the US and beyond. The provisional deal, which needs to be ratified by the Teamster’s 340,000-strong membership in a vote next month, could be a good omen for negotiations between labor and management across several key industries. The UPS negotiations are a key test of unionized workers’ leverage at a time when wage growth is outpacing inflation.

Media (BBG): Twitter Turning Into X Set to Kill Billions in Brand Value
On Sunday, in the middle of a quiet summer weekend, Elon Musk decreed that Twitter’s product name would be changed to “X,” and that he is getting rid of the bird logo and all the associated words, including “tweet.” Musk’s move wiped out anywhere between $4 billion and $20 billion in value, according to analysts and brand agencies.

Asia

BOJ (MNI): YCC Tweak In Focus, But Downside Risks Persist
The Bank of Japan’s meeting ending on Friday is likely to see discussion on allowing more movement around its 0% 10-year-yield target or widening its 100-basis-point trading band, but there is no consensus for such a move among the BOJ Board’s nine members, MNI understands. While officials do not think yield curve control is causing the bond market distortions seen previously, a rise in inflation and falling real interest rates could argue for a move.

Europe

ECB (MNI): Bank Lending Standards Tighten Further - ECB Survey
Demand for bank loans fell again across the eurozone in the three months to June, as policy tightening by the European Central Bank appears to take a firmer grip on the economy, the latest Bank Lending Survey, published on Tuesday showed. Banks said credit standards tightened further for all loan categories, while demand for loans decreased strongly for both firms and households.

MNI ECB Preview - July 2023: Another 25bp Hike. September Remains Open
The ECB will almost certainly hike by 25bp this week after President Lagarde guided markets to another hike at the June meeting. Although economic activity data has recently weakened and several policymakers have highlighted the lagged impact on the economy of previous policy rate hikes, the labour market remains tight and inflation is still someway from target. On balance, there is little to suggest that the ECB would feel compelled to ratchet up the hiking pace, or hit the pause button – both of which represent risk scenarios for this meeting that would be major market moving events.

Italy (MNI): Italy's League To Vote Against ESM As Elections Near
Italy’s ruling coalition is set to split over ratification of a treaty to overhaul the European Stability Mechanism, with junior partners the League opting to vote against the measure but to stay in government as it manoeuvres ahead of elections, sources from both major parties told MNI.

Banks (BBG): Deutsche Bank Unveils $500 Million Buyback in Payout Push
Deutsche Bank AG will resume share buybacks of as much as €450 million ($500 million) this year, part of a pledge by Chief Executive Officer Christian Sewing to return capital to shareholders over several years. The program is expected to start in August and be completed before the end of the year, the bank said in a statement.

GLOBAL: IMF Revises Global Growth and Core Inflation Higher

• Major central banks must hold restrictive interest rates with little progress reducing core inflation seen this year, the IMF said Tuesday.
• Core prices will rise 5.1% across advanced economies in 2023, matching last year's gain, according to the Fund’s updated WEO. The report boosted the core inflation forecast 0.3pp for this year and 0.4pp to 3.1% next year vs projections made in April.
• "It is critical to avoid easing rates prematurely, that is, until underlying inflation shows clear and sustained signs of cooling," IMF research director Pierre-Olivier Gourinchas wrote in a blog post.
• Downside growth risks remain prominent amid the Ukraine invasion but the report's tone was less downbeat following the U.S. debt ceiling agreement and the WHO saying the major Covid emergency has wound down. The Fund boosted the 2023 world growth forecast 0.2pp to 3%, with the US at 1.8% (+0.2pp), China 5.2% (unch), Euro Area 0.9% (+0.1pp) and UK 0.4% (+0.7pp).

DATA

*US JULY CONSUMER CONFIDENCE 117.0; EST. 112.0 - bbg

**MNI:US MAY FHFA HPI SA +0.7% V +0.7% APR M/M; +2.8% Y/Y
*MAY S&P CORELOGIC CS 20-CITY ADJUSTED INDEX UP 1% M/M - bbg

*US JULY RICHMOND FED FACTORY INDEX -9; EST. -10 - bbg

**MNI: US REDBOOK: JUL STORE SALES -0.3% V YR AGO MO
MNI: US REDBOOK: STORE SALES -0.4% WK ENDED JUL 22 V YR AGO WK

**MNI: BELGIUM JUL BNB BUSINESS SURVEY -14.8

US DATA: Strong Conf Board Consumer Survey With Historically Low Jobs Hard To Get

• Conference Board consumer confidence was much stronger than expected in July at 117.0 (cons 112.0) after a slightly upward revised 110.1 (initially 109.7) in June, touching its highest since Aug’21.
• Strong increases were seen in both present situation and expectations measures.
• Notably, the labor market differential jumped higher to 37.2 from 32.8, its second monthly increase for the highest since February. It was driven by a small increase in the perception of jobs being plentiful but mainly a step lower in the rate of jobs being hard to get, from 12.6 to 9.7 for its lowest since Mar’22 and before that July 2000.

US TSYS: Treasuries Pare Losses On BANC-PACW News, 25bp Hike Seen Locked In Tomorrow

• Cash Tsys head towards the end of the session having pared losses after news that the Banc of California is in advanced talks to buy PacWest drove the KBW banking index to session lows and saw PACW shares at one point fall 27%. Yields sit 2-3bps higher across the curve.
• Earlier cheapening pressure had been seen after upward revisions to IMF global growth and core CPI forecasts in its updated WEO plus strong data releases with house prices beating and a strong increase in the Conference Board consumer survey. These factors had helped overcome a brief bid seen after a particularly sizeable 25k block buyer in FVU3 early on.
• The 5Y auction tailing by 0.4bps with mixed internals didn’t wildly change the narrative.
• TYU3 has lifted to 111-22+ for closer to the middle of the day’s range but is still 11+ ticks lower. It’s low of 111-17+ stopped short of support at 111-11 (61.8% retrace of Jul 7-18 rally) as the corrective pullback extends.
• Ahead of tomorrow’s FOMC decision, near-term meeting implied rates are back almost unchanged, with +24.5bp for tomorrow building to a cumulative +35.5bp for the 5.44% terminal in November having very briefly printed closer to a 50/50 chance of a second additional hike. SOFR futures have pulled back off session cheaps but SFRU3/Z4 of -133bps is still on track for the smallest close since Jul 7 as it more than reverses the post-US CPI hit from Jul 12.

FOREX: Downward Pressure On EUR Crosses Extends

• In a similar theme to Monday’s trading session, Euro weakness has extended against all others in G10 on Tuesday with the most notable moves occurring against both the Chinese Yuan and the Australian dollar.
• Euro weakness comes alongside the ECB bank lending survey as well as the soft German IFO release both working against the single currency. The ECB bank lending survey showed the fastest contraction on record for corporate loan demand, and also described the tightening impact on the Eurozone so far as 'substantial'.
• Compounding the pressure on the EUR was the poorer-than-expected IFO release, with both current assessment and headline business climate releases dropping short of expectations. EUR/USD slipped to new pullback lows of 1.1021, extending the correction and moderating the previously overbought condition in the pair. The pair is now lower for the sixth consecutive session.
• The expectations of fresh measures to support domestic demand in China are continuing to stoke broader optimism for risk sentiment across currency markets. Alongside the appreciating Chinese Yuan, the consequential impact on commodities is helping support currencies such as the AUD.
• EURAUD has extended the week’s losses to around 1.6%, substantially narrowing the gap with the July lows of 1.6234 ahead of Australian CPI data due on Wednesday, the last major data point before the July FOMC decision and press conference.
• It is also worth noting that today’s developments have worked against the short-term uptrend in EURGBP, with the break of both the 20-day and 50-day EMAs signalling a stronger reversal, opening 0.8564 initially ahead of 0.8504, the key support.

US STOCKS: PacWest Slide Hits S&P 500 Climb, Tech Outperforms Before Key Earnings

• The S&P e-mini at 4599.5 (+0.3%) has pulled back off a session high of 4608.75 that had stopped just short of resistance despite a grinding higher in real yields, with the sell-off coming after news that Banc of California was in advanced news to buy PacWest.
• The move saw PacWest shares slide 27% and banks generally come under pressure, with the KBW index hitting session lows and currently -1.6% and with regionals -1.0%.
• Indeed, financials are joint laggards along with real estate for the SPX, both at -0.7%, within which banks are -1.4% having already been underperforming having led yesterday’s increases. Gains meanwhile are led by materials (+1.8%) and IT (+1.3%).
• Next resistance for the S&P e-mini is seen at last week’s high of 4609.25 after which lies a bull channel top drawn off the Mar 13 low with an intersection at 4622.12.
• Nasdaq outperforms (+0.8%) whilst the Dow lags (+0.1%), ahead of key earnings after the close today, including major tech companies Microsoft & Alphabet. See here: https://roar-assets-auto.rbl.ms/files/54818/MNIUSEARNINGS240723.pdf

COMMODITIES: Oil Firms Further With OPEC Supply Reductions And Potential China Support

• Crude oil firmed in the second half of the session with OPEC supply reductions and potential China economic support offsetting concerns for a US recession ahead of the expected Fed rate hike this week.
• Russia’s seaborne crude flows from Baltic and Black Sea ports slumped to the lowest in seven months according to Bloomberg vessel tracking as cuts finally filter through.
• The EU has no plans to raise the Russian oil price cap from $60/b, despite Russian crude prices crossing that threshold, according to Energy Intelligence.
• WTI is +1.0% at $79.55 off a high of $79.90 that cleared yesterday’s high to open next resistance at $80.05 (Apr 18 high) before a key resistance at $81.44 (Apr 12 high).
• Brent is +1.0% at $83.57, off a high of $83.87 that cleared yesterday’s high to open $83.77 (Apr 19 high) before a key resistance at $85.47 (Apr 12/13 highs).
• Gold is +0.5% at $1964.18, helped by a softer USD offsetting the impact from higher Treasury yields, pushing closer to the bull trigger at $1987.5 (Jul 20 high).