MNI ASIA OPEN: Inflation Expectations Down-Revised

US

US DATA (MNI): FOMC Can See End-2024 Core PCE Forecast With 0.2% M/M Clips
Core PCE inflation of 0.08% M/M in May is the first reading of the year that is consistent with inflation at or below the 2% inflation target.

• It helps leave inflation on a good track to meet the FOMC’s recently upward revised core PCE forecast of 2.8% Y/Y for 4Q24 from the June SEP.
• Indeed, inflation would average exactly 2.80% Y/Y with a monthly rate of 0.20% M/M from June onwards, implying a less troublesome 2.4% annualized over 2H24.
• That run rate would be close to the 2.3% that the median FOMC participant sees for end-2025 core PCE inflation – see chart.

NEWS

US (MNI): Biden Has No Plans To Drop Out Of Presidential Race
CNN's Kayla Tausche reporting on X that President Biden does not plan to drop out of the presidential race and, "remains committed to a second debate in September," per a White House adviser.

• The report comes amid intense calls from across the Democratic establishment and liberal media for Biden to withdraw from the race due to concerns that his performance at the first presidential debate may have irreversibly shifted the dial towards former President Donald Trump. Considering the extent of Biden's cognitive struggles at the debate, it is difficult to see any pathway to winning re-election, if he remains in place.

POLITICAL RISK (MNI): White House Tries To Contain Debate Fallout
The news cycle for the coming days will be dominated by President Biden’s performance in the first presidential debate. Since the publication of MNI's debate review this morning, the odds of Biden withdrawing from the race spiked to around 43% and the roughly 20% swing away from Biden has proven durable.

• The clamor from high-profile Democrats calling on Biden to step aside has intensified, but we have also seen efforts from the White House and Biden-backers to manage the fallout.
• Biden will participate in a campaign event in North Carolina today before flying to New York, where he will deliver remarks. Biden’s comments will be scrutinized closely for any sign of a change in strategy. As will Press Secretary.

POLITICAL RISK (MNI): Trump Allies Assure Japan & SK On Cooperation In Any 2nd Term:
Reuters reporting that according to five people familiar with the talks, allies of US presidential hopeful Donald Trump have sought to assure Japan and South Korea that the efforts of the Biden administration to boost trilateral relations will remain in place should Trump win another term in the White House. Fred Fleitz, a former chief of staff in Trump's National Security Council said that on trips to Japan in June, "I reassured them that the alliance will be strong, that Trump recognizes we have to work closely with our allies to defend their interests,".

FRANCE (MNI): Latest Ifop Poll-RN Still Short Of Majority, Even At Top End Of Range:
The 28 June rolling Ifop legislative election poll shows a marginal gain for the right-wing nationalist Rassemblement National (RN) compared to yesterday's survey, while the leftist New Popular Front (NFP) and centrist Ensemble have both lost some ground. Ifop, 28 June, RN: 36.5% (+0.5), NFP: 29.0% (-0.5), Ensemble: 20.5% (-0.5), LR/DVD: 7.0% (+0.5%).

SECURITY (MNI): Putin Hints At Resuming Production Of Short/Med Range Nuclear Missiles
Reuters carrying comments from Russian President Vladimir Putin stating that Russia, "needs to resume production of short and medium-range missiles," at a meeting of the Russian Security Council. Reuters notes that the Security Council meeting was focused on the, "moratorium on deployment of intermediate-range missiles" with Putin stating: "Russia will then take a decision on where to deploy short and medium-range missiles."

US TSYS Month/Quarter-End Positioning Outweighs Dovish Data React

• It appeared month/quarter-end positioning outweighed Friday's dovish reaction to Core PCE inflation that was on balance a little softer than expected in May, printing 0.08% M/M vs consensus of 0.1% that had tilted higher with an average unrounded 0.13% M/M.
• Treasury futures tracked higher after UofM Inflation expectations were revised lower: 1Y inflation expectations: 3.0% (cons 3.2, prelim 3.3) in June final after 3.3% in May; 5-10Y expectations: 3.0% (cons 3.1, prelim 3.1) in June after 3.0% in May.
• Support was short lived, however, as rates as well as equities reversed course, extended lows heading into the London close. No obvious headline driver, trading desks widely cited month end, positioning squaring ahead of the first round of French elections (June 29-30).
• Treasury futures extended lows: TYU4 taps 109-27 (-13) with attention on a firm short-term support at 109-26+, the 50-day EMA. A clear break of this average would signal scope for a deeper retracement, towards 109-00+, the Jun 10 low.
• Curves bear steepening: 2s10s +5.384 at -37.376 (lest inverted since the beginning of the month), 5s30s +4.490 at 17.151.
• In-line with the steepening, projected rate cut pricing through year end looks steady to mildly higher vs. pre-data levels (*): July'24 at -10% w/ cumulative at -2.5bp at 5.302%, Sep'24 cumulative -18.6bp (-17.5bp), Nov'24 cumulative -27.6bp (-26.6bp), Dec'24 -47.3bp (-45.3bp).
• Look ahead: shortened Fourth of July holiday week next week, FOMC minutes on Wednesday, Thursday closed, June employment data next Friday.

OVERNIGHT DATA

US DATA (MNI): Core PCE A Little Softer Than Expected In May
Core PCE inflation was on balance a little softer than expected in May, printing 0.08% M/M vs consensus of 0.1% that had tilted higher with an average unrounded 0.13% M/M.

• The April upward revision when rounded on screens was tiny in an unrounded sense, from 0.249% to 0.259% M/M. Further, yesterday’s Q1 upward revision came entirely in January. The marginally softer May print meant that the Y/Y ended up printing very much in line at 2.57% Y/Y (cons 2.6% but there had been some chance of a 2.7 post-Q1 revisions) for its lowest since Mar 2021.
• 3-mth core PCE inflation eased from 3.5% to 2.7% annualized, whilst the 6-mth edged a tenth lower to 3.2% but remains above the 1.9% seen at end-2023. This continued relative stickiness for the 6-mth rate does indeed mark a fourth-consecutive month with it higher than the Y/Y figure although most recent trends are becoming more favorable again.
• Supercore PCE inflation of 0.096% M/M helped with this soft core PCE print, in the middle of the limited estimates we’d seen beforehand of 0.0-0.22% M/M. 3-mth supercore PCE eased from 3.6% to 3.3% annualized, whilst the six-month only eased a tenth to 4.1%. There was however one area of notable strength in the supercore details, with healthcare services rebounding with 0.71% M/M after 0.06%.

US DATA (MNI): PCE Income-Spending Gap Suggests Nascent Consumer Caution
May's PCE report showed a pickup in disposable income and a slight uptick in overall spending in May, though subdued consumption (especially for services) and an unexpected jump in the household savings rate suggests some caution by consumers in mid-quarter.

• Real disposable income rose by the fastest in 16 months at +0.5%, following on from 3 cumulatively flat months. Nominal income growth came in at 0.5% M/M (0.48% unrounded), vs 0.3% prior - bringing the 3M/3M annualized rate of growth to 5.7%, down from 6.2% prior but still very elevated by historic standards. That in turn was driven by a bounceback in employee compensation to 0.6% M/M from 0.2% prior, with wages and salaries +0.7%, leaving disposable income growth at +0.45% M/M, up from 0.25% prior.

US DATA (MNI): U.Mich Inflation Expectations Revised Lower, In Stable Range
U.Mich consumer sentiment was stronger than expected in the final June report, leaving a smaller than first thought decline to 68.2 (cons 66.0, prelim 65.6) from the 69.1 in May.

• Inflation expectations were revised lower:
• 1Y inflation expectations: 3.0% (cons 3.2, prelim 3.3) in June final after 3.3% in May.
• 5-10Y expectations: 3.0% (cons 3.1, prelim 3.1) in June after 3.0% in May.
• The revisions see the 5-10Y figure at its third consecutive 3.0% reading, still firmly in its typical 2.9-3.1% range seen in most months since mid-2021.

US DATA (MNI): Chicago Business Barometer™ - Advanced to 47.4 in June
The Chicago Business Barometer™, produced with MNI increased 12.0 points to 47.4 in June. This is the first monthly rise after sixth consecutive monthly falls, making this month’s reading the highest since November 2023 with the index seeing the largest monthly increase since September 2020.

CANADA DATA (MNI): Canada May GDP To Slow After Broad-Based April Gain
Statistics Canada Flash Estimate for May GDP +0.1% MOM. Increases in factories, real estate, and finance were partially offset by decreases in retail and wholesale trade.

• April GDP +0.3% MOM, the fastest rate since January and matching consensus, April GDP +1.1% YOY.
• Three quarters of sub-sectors grew, with the April increase led by wholesale trade as increases in motor vehicles and parts wholesales coincided with increased manufacturing and imports.
• Construction moderated the April gain after rising the fastest since Oct 2022 in March. The sector -0.4% MOM, driven by residential construction -2.3%.
• The BoC said the economy is in excess supply and has room to grow without creating inflationary pressure.

MARKETS SNAPSHOT

• Key market levels of markets in late NY trade:
• DJIA down 102.43 points (-0.26%) at 39063.19
• S&P E-Mini Future down 14 points (-0.25%) at 5531.75
• Nasdaq down 53.1 points (-0.3%) at 17804.67
• US 10-Yr yield is up 7 bps at 4.3568%
• US Sep 10-Yr futures are down 11.5/32 at 109-28.5
• EURUSD up 0.0006 (0.06%) at 1.071
• USDJPY up 0.08 (0.05%) at 160.84
• WTI Crude Oil (front-month) down $0.38 (-0.46%) at $81.36
• Gold is down $2.41 (-0.1%) at $2325.40
• European bourses closing levels:
• EuroStoxx 50 down 8.58 points (-0.18%) at 4894.02
• FTSE 100 down 15.56 points (-0.19%) at 8164.12
• German DAX up 24.9 points (0.14%) at 18235.45
• French CAC 40 down 51.32 points (-0.68%) at 7479.4

US TREASURY FUTURES CLOSE

• 3M10Y +8.57, -100.336 (L: -110.948 / H: -100.14)
• 2Y10Y +5.581, -37.179 (L: -43.038 / H: -36.961)
• 2Y30Y +7.622, -21.211 (L: -28.926 / H: -21.098)
• 5Y30Y +4.503, 17.164 (L: 12.431 / H: 17.388)
• Current futures levels:
• Sep 2-Yr futures down 0.875/32 at 102-3 (L: 102-02.12 / H: 102-07)
• Sep 5-Yr futures down 5.5/32 at 106-16.5 (L: 106-16 / H: 106-29)
• Sep 10-Yr futures down 11.5/32 at 109-28.5 (L: 109-27 / H: 110-16)
• Sep 30-Yr futures down 1-06/32 at 118-4 (L: 118-02 / H: 119-20)
• Sep Ultra futures down 2-0/32 at 125-0 (L: 124-29 / H: 127-09)

US 10Y FUTURE TECHS: (U4) Monitoring Support

• RES 4: 111-31 1.382 proj of the Apr 25 - May 16 - 29 price swing
• RES 3: 111-17+ 1.236 proj of the Apr 25 - May 16 - 29 price swing
• RES 2: 111-13 High Jun 25 / High Mar 25
• RES 1: 110-25/111-01 High Jun 14 and the bull trigger
• PRICE: 109-31 @ 1410 ET Jun 27
• SUP 1: 109-26+/109-00+ 50-day EMA / Low Jun 10 and key support
• SUP 2: 108-27+ Low Jun 3
• SUP 3: 108-16 Trendline drawn from the Apr low
• SUP 4: 107-31 Low May 29 and a key support

A bull cycle in Treasuries remains in play and this week’s move lower is considered corrective. Attention is on a firm short-term support at 109-26+, the 50-day EMA. A clear break of this average would signal scope for a deeper retracement, towards 109-00+, the Jun 10 low. For bulls, a resumption of gains and a break of 111-01, the Jun 14 high, would resume the uptrend and open 111-17+, a Fibonacci projection.

SOFR FUTURES CLOSE

• Sep 24 +0.005 at 94.850
• Dec 24 +0.005 at 95.145
• Mar 25 steady at 95.430
• Jun 25 steady at 95.675
• Red Pack (Sep 25-Jun 26) -0.035 to -0.005
• Green Pack (Sep 26-Jun 27) -0.055 to -0.04
• Blue Pack (Sep 27-Jun 28) -0.07 to -0.06
• Gold Pack (Sep 28-Jun 29) -0.08 to -0.075

SOFR FIXES AND PRIOR SESSION REFERENCE RATES

SOFR Benchmark Settlements:

• 1M -0.00587 to 5.33717 (-0.00806/wk)
• 3M -0.00696 to 5.32460 (-0.01795/wk)
• 6M -0.00824 to 5.25471 (-0.02087/wk)
• 12M -0.01449 to 5.04004 (-0.01161/wk)

• Secured Overnight Financing Rate (SOFR): 5.34% (+0.00), volume: $1.888T
• Broad General Collateral Rate (BGCR): 5.32% (-0.01), volume: $732B
• Tri-Party General Collateral Rate (TGCR): 5.32% (-0.01), volume: $719B
• (rate, volume levels reflect prior session)

• Daily Effective Fed Funds Rate: 5.33% (+0.00), volume: $83B
• Daily Overnight Bank Funding Rate: 5.32% (+0.00), volume: $244B

FED Reverse Repo Operation - Usage Surge Over $600M

• Month/quarter end sees RRP usage surge over $600B to $664.570B (highest level since January 10) vs. $531.692B Thursday; number of counterparties jumps to 93 from 75 prior. Today's usage compares to $327.066B on Monday, April 15 -- the lowest level since mid-May 2021.

EGBs-GILTS CASH CLOSE: OAT Spreads Off Wides Ahead Of French Elections

European curves continued to steepen Friday, with Gilts outperforming Bunds.

• Bunds and Gilts rallied sharply in early afternoon on benign US PCE inflation data, but weakness resumed heading to the European cash close and the month and quarter-end.
• June flash inflation data for France/Spain/Italy was in line, spurring limited market reaction.
• The UK curve twist steepened, with Germany's bear steepening.
• 10Y OAT/Bund spreads came off Thursday's 12-year wide close and an intraday level near 85bp to close at 80bp ahead of the weekend's first round of French legislative elections.
• Periphery spreads closed mixed, with BTPs outperforming.
• Beyond the weekend's French elections (MNI preview here), next week's schedule includes German and Eurozone flash inflation, the ECB's Sintra forum, and the UK election.

Closing Yields / 10-Yr Periphery EGB Spreads To Germany

• Germany: The 2-Yr yield is up 2.6bps at 2.833%, 5-Yr is up 4bps at 2.482%, 10-Yr is up 5.2bps at 2.5%, and 30-Yr is up 5.5bps at 2.691%.
• UK: The 2-Yr yield is down 1.5bps at 4.221%, 5-Yr is up 1.3bps at 4.024%, 10-Yr is up 4.2bps at 4.172%, and 30-Yr is up 4.9bps at 4.659%.
• Italian BTP spread down 0.5bps at 157.2bps / Spanish up 1.3bps at 91.9bps

FOREX: USD Index Little Changed Following US PCE, AUDJPY Rises 0.45%

• Overall, currency adjustments in G10 have remained limited, owing to the two-way price action following US PCE and the subdued risk appetite as markets assess the upcoming risks associated with this weekend’s French election. 
• Slightly softer PCE data saw treasury yields decline across the curve, initially weighing on the dollar and boosting the Japanese yen. USDJPY sunk as low as 160.26 following the release, from overnight and cycle highs of 161.27.
• However, US yields rapidly reversed higher and as such the Yen came back under pressure, a dynamic that appeared to build momentum into the month-end WMR fix. EURJPY rallied as much as 100 pips in the two hours preceding the fixing window and AUDJPY remains as one of the best performing crosses on the day, up 0.45% and extending above 107.00.
• EURUSD remains in consolidation mode, holding a narrow 37 pip range as markets weigh the risks of holding positions into the first round of French legislative elections this weekend. The trend outlook is bearish and short-term gains are considered corrective. Moving average studies have crossed and are in a bear-mode set-up highlighting a downtrend. 1.0675, 76.4% of the Apr 16 - Jun 4 bull leg, was recently pierced and a clear break of this level would signal scope for a move towards 1.0601 Low Apr 16 and a key support. Initial firm resistance is 1.0775, the 50-day EMA.
• French elections and China PMIs kick things off next week, with German inflation data and US ISM Manufacturing PMI also scheduled for Monday.

MONDAY DATA CALENDAR

Date	GMT/Local	Impact	Flag	Country	Event
01/07/2024	2300/0900	**		AU	S&P Global Manufacturing PMI (f)
01/07/2024	2350/0850	***		JP	Tankan
01/07/2024	0030/0930	**		JP	S&P Global Final Japan Manufacturing PMI
01/07/2024	0130/1130	**		AU	Retail Trade
01/07/2024	0145/0945	**		CN	S&P Global Final China Manufacturing PMI
01/07/2024	0630/0830	**		CH	Retail Sales
01/07/2024	0715/0915	**		ES	S&P Global Manufacturing PMI (f)
01/07/2024	0745/0945	**		IT	S&P Global Manufacturing PMI (f)
01/07/2024	0750/0950	**		FR	S&P Global Manufacturing PMI (f)
01/07/2024	0755/0955	**		DE	S&P Global Manufacturing PMI (f)
01/07/2024	0800/1000	***		DE	North Rhine Westphalia CPI
01/07/2024	0800/1000	***		DE	Bavaria CPI
01/07/2024	0800/1000	**		EU	S&P Global Manufacturing PMI (f)
01/07/2024	0830/0930	**		UK	BOE M4
01/07/2024	0830/0930	**		UK	BOE Lending to Individuals
01/07/2024	0830/0930	**		UK	S&P Global Manufacturing PMI (Final)
01/07/2024	1200/1400	***		DE	HICP (p)
01/07/2024	1345/0945	***		US	S&P Global Manufacturing Index (final)
01/07/2024	1400/1000	***		US	ISM Manufacturing Index
01/07/2024	1400/1000	*		US	Construction Spending
01/07/2024	1530/1130	*		US	US Treasury Auction Result for 26 Week Bill
01/07/2024	1530/1130	*		US	US Treasury Auction Result for 13 Week Bill
01/07/2024	1900/2100			EU	ECB's Lagarde speech at ECB forum on Central Banking