MNI ASIA OPEN - Two FOMC Voters Open To Skipping June Hike

NEWS

FED (MNI): Jefferson Says Fed Rate `Skip' Allows Time To Assess Data
Skipping an interest-rate hike would allow the Fed to better assess how much additional tightening is needed to bring inflation under control and shouldn't be seen as having hit peak rates, Governor Philip Jefferson said Wednesday, one of the strongest signals yet policymakers may coalesce around leaving rates unchanged until July.

FED (MNI): Harker Supports A Skip At June Meeting
Philadelphia Federal Reserve President Patrick Harker on Wednesday said he advocates skipping an interest-rate hike at the next meeting and stressed the end to the tightening campaign isn't certain. "We can take our time," Harker said at an event hosted by OMFIF. "I'm definitely thinking about skipping any increase in this meeting, barring what we see in [the data in] the next few days."

FED (BBG): Fed’s Bowman Says Real Estate Rebound Hurts Inflation Fight
Federal Reserve Governor Michelle Bowman said rebounding home prices could impact the US central bank’s work to lower inflation, which Boston Fed President Susan Collins said remains “simply too high.” “While we expect lower rents will eventually be reflected in inflation data as new leases make their way into the calculations, the residential real estate market appears to be rebounding, with home prices leveling out recently, which has implications for our fight to lower inflation,” Bowman said Wednesday at a Fed Listens event in Boston.

FED (BBG): Fed’s Beige Book Shows Hiring, Inflation Cooling Across US
The US economy showed signs of cooling in recent weeks as hiring and inflation eased slightly, the Federal Reserve said in its Beige Book survey of regional business contacts. “Employment increased in most districts, though at a slower pace than in previous reports.” the Fed said Wednesday in the report, published two weeks before each meeting of the policy-setting Federal Open Market Committee. “Prices rose moderately over the reporting period, though the rate of increase slowed in many districts.”

US (MNI): Democrat Leader Jeffries Says He Will Support Debt Limit Bill
Manu Raju at CNN reported a short time ago: "In closed meeting with WH officials this morning, Hakeem Jeffries strongly urged the divided Democratic caucus to back the debt ceiling bill, according to a person in the room. Dem votes will be needed to pass the bill." Jeffries' statement de-risks the outside possibility that Democrats would vote against adopting the rule, potentially blocking bill from being sent to the floor for a full House vote.

US (MNI): US: Schumer-Once Debt Limit Bill Reaches Senate Will Bring To Floor ASAP
Senate majority leader Chuck Schumer (D-NY) has stated that once the debt limit bill reaches the chamber he will bring it to the Senate floor as soon as possible. Schumer: "Once this bill reaches the Senate, I will move to bring it to the floor as soon as possible. Although the House still has more work to do, Senators should be prepared to move on this bill quickly once it's the Senate's turn to act. Any needless delay, any last minute brinksmanship, will be an unacceptable risk. Moving quickly, working together to avoid default is the responsible and necessary thing to do."

US (MNI): Debate On Debt Limit Bill To Begin At 19:15 ET, Final Vote 20:15
Craig Caplan at CSPAN has reported on twitter that a final vote on legislation to raise the US federal debt limit is likely to come earlier than previously announced. Caplan: "Hour-long debate on the debt bill (provided its rule is first adopted) will now start earlier than previously announced at 7:15pm with a final vote to follow."
The bill will first have to overcome a vote to adopt the rule, normally a straightforward procedural vote, but subject to additional tension due to ongoing resistance from conservative House Republicans.

IRAN (MNI): Iranian Nuclear Stockpile Increases By 983 Kg
According to the new quarterly report from the International Atomic Energy Agency, Iran's nuclear programme has continued to accelerate as the agency fails to oversee Iran's nuclear sites in accordance with the lapsed 2015 JCPOA nuclear deal. Key quotes from the report, per Reuters: "Iran continues to breach restrictions on its nuclear activities imposed by 2015 nuclear deal."

BOE (MNI): Core Inflation Is The Key Measure: BOE Mann
Core inflation, rather than headline, is a better indicator of whether inflation stability is achieved in the medium term, Bank of England Monetary Policy Committee member Catherine Mann said Wednesday. Mann told an event hosted by banking group Pictet that there are big gaps between headline and core inflation and the interest rates required for real economy stability and financial stability -- r-star and double-r-star -- adding that these gaps are making policymakers' jobs harder and heighten the risk of "things breaking." Core inflation has proven stubborn in the UK in recent data sets while headline appears to have turned the corner.

EUROPE (MNI): Spanish Elections A Blow To EU Fiscal Reform-Officials
The decision by Spanish Prime Minister Pedro Sanchez to call snap elections for July 23 deals a blow to remaining hopes of a deal on reforming European Union fiscal rules by the end of this year, with officials in Brussels and Madrid telling MNI that Spain’s capacity to concentrate on the bloc’s objectives will inevitably be reduced.

DATA

MNI: Chicago Business Barometer™ Tumbles to 40.4 in May
The Chicago Business Barometer^TM, produced with MNI, tumbled -8.2 points to a six-month low of 40.4 in May. The headline index has now been in contractionary territory for nine consecutive months. Prices Paid cooled by -9.4 points to 60.9, the softest since August 2020. Weak demand was cited as the key downwards driver of prices. The passthrough of lower commodity prices from suppliers remained slow and moderate. Employment softened by -2.7 points to 48.5 in May. The subindex has been in contractive territory for nine months now barring April, as firms struggle to hire and retain staff.

**CANADIAN MARCH GDP 0.0% VS -0.1% EXPECTED
APRIL FLASH GDP +0.2%, LED BY RESOURCES, TRANSPORT
Q1 GDP +3.1% ANNUALIZED VS +2.5% EXPECTED

Real GDP growth was stronger than expected in Q1, rising 3.1% annualized vs cons 2.5% and the BoC's forecast of 2.3% from the April MPR, following a minimally downward revised -0.1% in Q4 (initial 0.0%). With the Bank estimating potential growth at 2.3% in 2023, it marks a quarter with zero progress in demand softening to allow supply to move in better balance. Separate monthly data were also stronger than expected, with March GDP a tenth stronger than expected at 0.0% M/M (advance had pencilled in -0.1%) and April indicated at +0.2% M/M vs some analyst expectations of a small decline with a drag from the PSAC strikes.

MNI: US BLS: JOLTS OPENINGS RATE 10.103M IN APR

US BLS: JOLTS QUITS RATE 2.4% IN APR

• The April JOLTS report was mixed. Openings pointed to an unexpected tightening in the labor market: whereas a decline in job openings to 9,400k from 9,590k in March had been expected, we got a rise to a 3-month high 10,103k from an upwardly revised 9,745k. That was the first M/M since December 2022.
• The ratio of job openings to the number of unemployed people also hit a 3-month high of 1.78 (was 1.67 in March).
• On the other hand the quits rate paints a slightly looser labor market picture vs prior: the overall rate dropped to the lowest since Feb 2021 at 2.4% (from 2.5% in March) overall quits rate was 2.4%, private quits rate was steady at 2.7%,

MNI: GERMANY FLASH MAY CPI -0.1% M/M; (BBG FCST +0.2%)
GERMANY FLASH MAY HICP -0.2% M/M; +6.3% Y/Y (BBG FCST +6.7%)
FRANCE MAY HICP -0.1% M/M, +6% Y/Y
ITALY MAY FLASH HICP +0.3% M/M, +8.1% Y/Y

US TSYS: Firmly Richer As Fedspeak and Weak PMIs Offset JOLTS Beat

• Cash Tsys have surged today, technically led by the 3Y at typing whilst the 2Y remains off post-Chicago PMI highs but all other major benchmark tenors push new session highs heading towards the close.
• There has been sizeable volatility through the session after a sizeable downside miss for the MNI Chicago PMI, higher than expected JOLTS job openings and then Jefferson (voter) and Harker (’23 voter) supporting skipping a June hike. They add to the overnight bid on external factors from softer Eurozone core inflation implications and China PMIs.
• 2YY -7.4bps at 4.376%, 5YY -8.0bps at 3.727%, 10YY -6.7bps at 3.620%, 30YY -5.5bps at 3.836%.
• TYU3 trades 17 ticks higher as it climbs to session highs of 114-18, nearer resistance at the 20-day EMA of 114-29+ and ultimately 115-07+ (50-day EMA). Volumes have soared, currently approaching 1.7M cumulative.
• Tomorrow sees a swathe of data including ADP, ISM mfg, final ULCs/productivity for Q1, Challenger job cuts and weekly initial claims, all before Friday’s payrolls report.

EGBs-GILTS CASH CLOSE: Soft EZ Inflation Sparks Rally

European curves leaned bull steeper Wednesday, with central bank hike prospects dented and curve short ends/bellies boosted by softer than expected inflation data.

• The initial dovish signal sent by German state-level (NRW) May CPI carried on through a soft French May flash inflation reading, boosting EGBs. A strong Italian print dented Bunds only briefly before they pushed to fresh session highs.
• The afternoon saw some consolidation, with the national German print in line with updated estimates, and strong US jobs opening data offsetting a very weak MNI Chicago PMI.
• Bull flattening turned to bull steepening by session's end. Gilts outperformed Bunds, with BoE hike pricing pulling back sharply vs the huge rises in the past few sessions (peak -13bp on the day; ECB -3bp). Periphery spreads traded mixed.
• Central bank speakers (including ECB's Villeroy/de Guindos, and BoE's Mann) had little impact, being overshadowed by the inflation data.
• Thursday sees the eurozone May prelim inflation print, with final PMIs also eyed.

Closing Yields / 10-Yr Periphery EGB Spreads To Germany:

• Germany: The 2-Yr yield is down 6.5bps at 2.719%, 5-Yr is down 7.8bps at 2.278%, 10-Yr is down 6bps at 2.282%, and 30-Yr is down 3.8bps at 2.461%.
• UK: The 2-Yr yield is down 10bps at 4.335%, 5-Yr is down 11bps at 4.101%, 10-Yr is down 6.4bps at 4.183%, and 30-Yr is down 6.9bps at 4.515%.
• Italian BTP spread down 1bps at 179.9bps / Greek up 3.7bps at 149.5bps

FOREX: USD Index Paring Gains Following Fed Skip Rhetoric, Euro Weakness Prevails

• Early price action across currency markets on Wednesday assisted the USD Index to new multi-month highs on the final trading day of May. However, late comments from Fed’s Jefferson and Harker seemingly advocating for a Fed pause in June have taken the shine off the greenback in late US trade.
• Worth noting that the DXY turnaround has coincided with the index briefly testing resistance at the 76.4% retracement for the March - April downleg, crossing at 104.68. Progress through here would open the best levels since early March for the index.
• Softer European CPI prints over the past two days continue to place downward pressure on the single currency. EURUSD plumbed fresh lows as the European session came to an end and technical indicators continue to point to short-term downside momentum extending. Immediate levels to watch are 1.0631 and 1.0608, the March 20 and 17 lows respectively. Below here would open the March lows at 1.0516.
• The lower yields have also assisted EURJPY lower, with the pair currently down 0.95% approaching the APAC crossover, having broken a cluster of old lows between 148.72/85. This may prompt some further pressure on the pair which has come into focus following this week’s sharp turnaround from the 151 handle. Overall, the EURJPY move is considered corrective for now, with the 50-day EMA, which intersects at 147.43, remaining intact and a key support.
• EURGBP (-0.75%) has printed another fresh 2023 low Wednesday, marking a fourth consecutive session of lowers lows. The 14day RSI for the cross is on the cusp of becoming technically oversold for the first time since March 2021 - and bearish developments in the moving-average space also signal short-term downside momentum: the 50- and 200-dmas are on the verge of forming a death cross (50-dma < 200-dma).
• Focus shifts to German retail sales on Thursday morning before the final manufacturing PMI reads for May. Attention will then be on the Eurozone Flash estimate of CPI which is expected to come in at 6.3% Y/y. This will be the final read before the June 15 ECB meeting. US ADP and the ISM Manufacturing PMI highlight the docket before Friday’s key employment report.

US STOCKS: Only Limited Boost From June Skip Talk, Banks And Energy Stocks Lead Losses

• Talk of skipping a June hike from two FOMC voters helped ESM3 lift further off lows that had been seen after the JOLTS report, a slide that continued despite real yields reversing their initial jump higher on the release.
• Currently at 4190 off an earlier low of 4174, the move sees the contract pull back after yesterday coming just shy of testing resistance at the medium-term bull trigger of 4244 (Feb 2 high), but for now it doesn’t support at the 20-day EMA of 4165.17 after which lies 4114 (May 24 low).
• The S&P e-mini trades broadly inline with the Nasdaq e-mini, both at -0.6% on the day, whilst SPX is led lower by energy (-2.0%) as WTI comes under further pressure, consumer discretionary (-1.4%), and industrials and financials (-1.3%).
• Financials mask larger underperformance for banks, currently underperforming with -2.1%, whilst the separate KBW index shows regionals in particular suffering (KRX -3.5%, BKX -2.4%) after the FDIC said that the number of lenders with weaknesses increased in Q1.

COMMODITIES: Crude Oil Slides Further, Brent Earlier Nearly Opened Key Support

• Crude oil has fallen further today, hindered by weak demand from China (not helped by softer than expected official PMIs overnight) and an on net stronger dollar even after some depreciation seen after two FOMC officials supported skipping in June.
• OPEC+ meet this weekend to decide their latest production quotas as the group weighs up it's tumbling crude exports in May against weak Chinese demand that has sub-$70/bbl Brent in its headlights after already claiming WTI this week.
• In the US, EIA monthly oil data showed crude oil output rising to 12.696mbpd for its highest since Mar’20.
• WTI is -2.0% at $68.07 off a low of $67.03 that breached yesterday’s $69.02 and came close to $66.46 (76.4% of the May 4-24 rally).
• Brent is -1.1% at $72.71, off a low of $71.39 that breached $73.2 (May 30 low) and came close to $71.28 (May 4 low) after which lies a key support at $70.10 (Mar 20 low).
• Most active strikes in the COQ3 today have been $85/bbl calls, but are followed by $70/bbl puts and with some sizeable plays at $65/bbl and $60/bbl puts
• Gold is +0.3% at $1965.64 having earlier poked above the 50-day EMA at $1971.3 in a move that could next open key short-term resistance at $1985.3 (May 24 high).