Trial now
PORTUGAL AUCTION PREVIEW

Exchange Operation Announced

US TSY OPTIONS

10Y Put Sale

GBP

Some reversal in the Pound

GILT PAOF RESULTS

PAOF of the 0.375% Oct-26 Gilt not taken up

US EURODLR OPTIONS

Overnight Trade Recap

CHINA

Tech Equities Find Resistance At 100DMA

EXECUTIVE SUMMARY

  • FED'S POWELL SEES SUSTAINED IMPROVEMENT, TEMPORARY INFLATION (MNI)
  • FED'S WILLIAMS CITES JOBS HOLE IN EASY POLICY COMMITMENT (MNI)
  • LAGARDE: ECB STILL HAS ROOM TO CUT INTEREST RATES IF NEEDED (BBG)
  • UK COVID QUARANTINE RULES WILL BE DROPPED FOR DOUBLE JABBED (THE TIMES)

Fig. 1: U.S. 2-Year/1-Year Forward Swap Rate (%)

Source: MNI - Market News/Bloomberg


UK

CORONAVIRUS: British holidaymakers who have had both coronavirus jabs could enjoy more quarantine-free travel from August under government plans to rescue summer breaks. Ministers are set to announce an overhaul of travel restrictions on Thursday. While they are not expected to add a significant number of countries to the green list, they are likely to unveil plans to exempt travellers with two vaccine shots from the requirement to quarantine for ten days after visiting an amber list destination. (The Times)

FISCAL: Downing Street on Monday vowed to "stick" to the government's "triple lock" pledge for uprating the state pension, brushing aside Treasury concerns about how this could add £4bn to the annual cost of the policy. Boris Johnson's spokesman reiterated the commitment despite chancellor Rishi Sunak having questioned how the government could afford it given growing public spending pressures after the coronavirus pandemic. (FT)

FISCAL: Rishi Sunak, the Chancellor, has been warned off a pensions tax raid by senior government ministers who have said a radical shake-up would fail to pass Parliament without cross-party support. (Telegraph)

BREXIT: The Treasury is seeking to secure the City more ambitious trade ties outside the EU, including deeper mutual recognition deals, after financial services were shunned in the Brexit agreement. John Glen, the City minister, said the UK would pursue "deeper dialogue" on financial services with a number of trading partners, including Australia, India and Brazil, to help the Square Mile "thrive outside the EU". "When it comes to developing a more open industry, we've been working hard seeking new international financial services agreements," said Mr Glen, who is also economic secretary to the Treasury. (Telegraph)

POLITICS: The UK chancellor was concerned the prime minister had "no plan" to tackle the surge in coronavirus infections last autumn, wrote the former Number 10 chief adviser on Monday. Dominic Cummings dismissed suggestions that Rishi Sunak was solely responsible for the government not acting faster as England entered its second wave of the pandemic in September 2020, in a question-and-answer session on his Substack blog. He added that the chancellor had expressed worries over Boris Johnson's handling of the crisis. "Sunak's view was the same as all serious people July-Oct: there is no plan just a trolley smashing side to side," Cummings wrote. "We can't keep telling people 'go back to work . . . stop lockdown . . . go back to work, Covid is all nonsense . . . save the NHS etc,' which is what PM was doing." (FT)

PROPERTY: The Government has "a duty" to the next generation to build more homes, Robert Jenrick said on Monday as he faced down Conservative MPs who want him to water down controversial planning reforms. (Telegraph)

NORTHERN IRELAND: The frontrunner to lead Northern Ireland's biggest political party has warned that the "stability" of the region's power-sharing government will be at risk if the UK fails to take "decisive action" to overhaul problematic post-Brexit trading arrangements. The warning by Sir Jeffrey Donaldson on Monday came as the veteran Westminster MP launched what is likely to be an unopposed bid to lead the Democratic Unionist party. His candidature follows a chaotic period of bitter infighting in the party, which led to last week's resignation of Edwin Poots as leader just 21 days into his term. (FT)

EUROPE

ECB: "We are not at the effective lower bound. We still have space and room to maneuver if needed," ECB President Christine Lagarde tells European Parliament committee. "We could certainly use rates, and we could move it down if it is appropriate, necessary and if our threefold assessment of efficiency, effectiveness and appropriateness leads us in that direction." (BBG)

U.S.

FED: MNI: Powell Sees Sustained Improvement, Temporary Inflation

  • Federal Reserve Chair Jerome Powell said the economy has shown sustained but uneven improvement while highlighting "elevated" unemployment and temporary inflation pressure, in remarks published Monday ahead of a Congressional hearing on Tuesday. "As with overall economic activity, conditions in the labor market have continued to improve, although the pace has been uneven," Powell said in the text of opening remarks for a House of Representatives pandemic subcommittee - on MNI MainWire and email now, for more details please contact sales@marketnews.com.

FED: MNI: Fed's Williams Cites Jobs Hole In Easy Policy Commitment

  • New York Fed President John Williams on Monday pledged continued commitment to strong monetary support for the economy because the job market remains far from its full potential while inflation pressures appear to be transitory. "The economy is improving at a rapid rate, and the medium-term outlook is very good," he said in prepared remarks. "But the data and conditions have not progressed enough for the FOMC to shift its monetary policy stance of strong support for the economic recovery" - on MNI MainWire and email now, for more details please contact sales@marketnews.com.

FED: MNI: Bullard-Fed Needs Option To Speed Taper, Hike Rates

  • The Federal Reserve needs to have the option to speed up tapering of asset purchases and raise interest rates if inflation comes in faster than anticipated, in what would be a departure from the 2014 taper playbook, St. Louis Fed President Jim Bullard told reporters Monday. "You probably don't want to be in a situation where you have to pull in rate hikes while you're still tapering, but the committee I'm sure would want to keep all options open," he said. "Could we do it? Sure, we could do a lot of things, but we want this to be transparent, non-disruptive, give everyone a good signal about how this is going to transpire" - on MNI MainWire and email now, for more details please contact sales@marketnews.com.

FISCAL: President Joe Biden expects to meet with lawmakers this week as a group of Democrats and Republicans try to forge an infrastructure plan that could get through Congress with bipartisan support, White House press secretary Jen Psaki said Monday. At least 21 senators from both parties have backed a framework that seeks to spend roughly $1 trillion on transportation, broadband and water systems. Biden and Democratic congressional leaders have raised questions about how lawmakers plan to pay for the plan, while liberals have called it inadequate to fight climate change. (CNBC)

FISCAL: Senate negotiators for the bipartisan infrastructure bill are trying to create momentum for a "too-big-to-fail" package by adding an equal number of Democratic and Republican co-sponsors, Axios has learned. White House officials are pleased with how the talks are proceeding and are discussing how President Biden might declare his support for the roughly $1.2 trillion package, if the remaining issues are resolved. (Axios)

FISCAL: White House press secretary Jen Psaki said Monday that President Biden expects Congress to lift the legal limit on the federal debt despite a looming battle with Republicans over spending. During a Monday White House briefing, Psaki told reporters that Biden believes lawmakers will once again prevent the U.S. from defaulting on its debt, after legislators raised or suspended the debt ceiling three times under former President Trump. "The president believes that Congress will do what they've done three times during the Trump administration, which is to raise the debt ceiling," Psaki said. (The Hill)

FISCAL: Gov. Gavin Newsom says California will pay off all the past-due rent that accumulated in the nation's most populated state because of the fallout from the coronavirus pandemic, a promise to make landlords whole while giving renters a clean slate. Left unsettled is whether California will continue to ban evictions for unpaid rent beyond June 30, a pandemic-related order that was meant to be temporary but is proving difficult to undo. (AP)

CORONAVIRUS: Covid-19 transmission is accelerating in several poorly vaccinated states, primarily in the South plus Missouri and Utah, and more young people are turning up at hospitals. The data present the clearest sign of a rebound in the U.S. in months. In Missouri, Arkansas and Utah, the seven-day average of hospital admissions with confirmed Covid-19 has increased more than 30% in the past two weeks, according to the U.S. Department of Health & Human Services. In Mississippi, the hospitalization rate is up 5% in the period. The jump in hospitalization is particularly jarring among 18- to 29-year-olds in the outlier states. (BBG)

MARKETS/FINANCE: Financial regulators assured President Joe Biden on Monday that the U.S. financial system is in good shape and that financial risks are being mitigated by strong liquidity in the banking system, the White House said. (RTRS)

OTHER

GLOBAL TRADE: The European Union is working toward having the U.S. lift its national-security tariffs on metal imports by the end of the year, EU Ambassador to Washington Stavros Lambrinidis said. "We're going to be sitting down in the next five months until the end of the year -- we're going to try to address the fundamental issue of overcapacity and the absolute goal for us is that those tariffs have to be lifted," Lambrinidis said in a virtual discussion hosted by the Wilson Center on Monday. "We have to get rid of those tariffs -- they're hurting, so many, so many industries." Lambrinidis' remarks come as the transatlantic partners work to improve trade relations that deteriorated under former President Donald Trump. (BBG)

GLOBAL TRADE: The U.K. formally started negotiations to join an 11-nation trans-Pacific trading bloc, part of its bid to diversify its commerce post-Brexit. Joining the CPTPP, whose members include Canada, Japan, Mexico and Australia, is a "glittering post-Brexit" prize, International Trade Secretary Liz Truss said in a statement. "This part of the world is where Britain's greatest opportunities lie," Truss said. "Membership would help our farmers, makers and innovators sell to some of the biggest economies of the present and future." (BBG)

U.S./CHINA: The Biden administration is considering banning imports of a critical solar panel material from China's Xinjiang region, according to four people familiar with the administration's plans, a move that would assuage bipartisan pressure to crack down on human rights abuses but could undermine the White House's aggressive climate change goals. At issue is polysilicon, the material inside most solar panels, which President Joe Biden hopes will help replace fossil fuels and allow the U.S. to eliminate carbon emissions from power generation by 2035. Currently about half the world's supply of polysilicon comes from Xinjiang, where the Chinese government has been accused of rounding up hundreds of thousands of ethnic Uyghur Muslims in what the State Department has labeled a "genocide." (POLITICO)

U.S./CHINA: After months of speculation, China's longest-serving ambassador to the US Cui Tiankai confirmed on Tuesday that he would be leaving Washington, at a time of heightened tensions between the two countries. Cui, who held the key position for eight years, was known for his relatively moderate stance compared to the more hawkish breed of "Wolf Warrior" diplomats. He is expected to be succeeded by foreign vice-minister Qin Gang, a career diplomat who has worked on European affairs, but with no direct experience in the US. Cui leaves his post at a difficult time in China-US relations, as the Biden administration works to repair its alliances and pushes for greater coordination against Beijing, particularly on human rights and trade. (SCMP)

GEOPOLITICS: The U.S., the U.K. and the European Union sanctioned dozens of Belarusian individuals and organizations on Monday in a coordinated response to last month's forced landing of a Ryanair flight and the government's ongoing crackdown on President Alexander Lukashenko's political opponents. In a joint statement, the governments, along with Canada, expressed deep concern about steps taken by Lukashenko since his discredited declaration of victory in last year's presidential election, including continuing attacks on human rights, fundamental freedoms and international law. EU governments also agreed to sanction several sectors of Belarus's economy including industries connected to petroleum and the soil nutrient potash, as the bloc increases pressure on Lukashenko. Josep Borrell, the EU's foreign policy chief, said that officials also discussed the separate package of economic sanctions and it will be presented to EU leaders at a summit later this week. (BBG)

CORONAVIRUS: The highly contagious delta variant is the fastest and fittest coronavirus strain yet, and it will "pick off" the most vulnerable people, especially in places with low Covid-19 vaccination rates, World Health Organization officials warned Monday. Delta, first identified in India, has the potential "to be more lethal because it's more efficient in the way it transmits between humans and it will eventually find those vulnerable individuals who will become severely ill, have to be hospitalized and potentially die," Dr. Mike Ryan, executive director of the WHO's emergencies program, said during a news conference. Ryan said world leaders and public health officials can help defend the most vulnerable through the donation and distribution of Covid vaccines. "We can protect those vulnerable people, those frontline workers," Ryan said, "and the fact that we haven't, as Director-General (Tedros Adhanom Ghebreyesus) has said, again and again, is a catastrophic moral failure at a global level." (CNBC)

CORONAVIRUS: As the Covid pandemic recedes dramatically in the West, Europe is opening its doors to Americans -- but the reverse is not holding true, with the United States not budging on restrictions imposed 15 months ago. President Joe Biden has hailed progress on vaccination, with a goal of reaching 70 percent of Americans with at least one dose by July 4, and health authorities have eased recommendations on masks, but the language on travel restrictions has remained constant. "We look forward to the resumption of transatlantic travel as soon as the science permits," State Department spokesman Ned Price said Monday. (AFP)

CORONAVIRUS: South Africa is planning to make vaccines locally using messenger RNA, the breakthrough technology of the global inoculation effort against Covid-19. The manufacturing will be conducted by the state-owned Biovac Institute, Tedros Adhanom Ghebreyesus, the director-general of the World Health Organization, told reporters Monday. That will be part of a broader vaccine technology-transfer hub in the country, he said. (BBG)

AUSTRALIA: Masks will remain compulsory on public transport and indoor venues for another week in Sydney. In addition, that mandate has also been extended across Greater Sydney from 4pm today. This includes the Blue Mountains and the Illawarra regions, but not the Central Coast. (9 News)

AUSTRALIA: The ABS has noted that "payroll jobs fell by 0.9% nationally in the fortnight to 5 June 2021, following a 0.4% rise in the previous fortnight. The latest fortnight of data partly overlapped with the first nine days of the lockdown in Victoria. Payroll jobs in the state fell by 2.1% over the fortnight. Almost every industry in Victoria saw a fall in payroll jobs during this period, with the largest falls seen in the Accommodation and food services, and Arts and recreation services industries (down 10.2% and 8.0%). Each lockdown sees falls in Accommodation and food services payroll jobs, reflecting the impact that restrictions have on this industry. While the fall in payroll jobs is generally greatest in the state or territory of the lockdown, restrictions that affect interstate travel may also contribute to falls in payroll jobs in the Accommodation and food services industry in other states and territories. Payroll jobs in the industry fell in almost every state and territory across the fortnight. The Northern Territory was the only state or territory with an increase (up 0.3%) in payroll jobs in the industry over the fortnight, and the only state or territory where payroll jobs in the industry were above pre-pandemic levels." (MNI)

NEW ZEALAND: Applications for NZ$1b of funding for Infrastructure Acceleration Fund will open shortly, with an invitation for expressions of interest released on June 30, Housing Minister Megan Woods says in emailed statement. Fund will be available to councils, iwi and developers for new infrastructure that will unlock new housing development. (BBG)

SOUTH KOREA: Size of 2nd extra budget could be 33t-35t won, ruling Democratic Party lawmaker Park Wan-ju says in a party meeting on June 22. Some of national debt would be repaid with excess tax revenue. (BBG)

BOK: Deepening financial imbalances in South Korea due to rapid asset price gains and excessive borrowing threaten to hurt the economy, the central bank said. Such imbalances could impact the economy negatively if there's a shock triggering a correction in the asset market and a rapid deleveraging of debt, the Bank of Korea said Tuesday in a semi-annual report on financial stability. Korea is facing larger mid-to-long term financial risks than it did before the pandemic, it said. Real estate in particular is believed to "significantly overpriced" considering the country's economic conditions, it said. The burden of debt repayment is growing among households as they struggle to improve income. (BBG)

BOK: The Bank of Korea (BOK) said Tuesday it has decided to issue three-year monetary stabilization bonds, in an effort to better control liquidity. The BOK said it will significantly reduce the amount of two-year monetary stabilization bonds to reduce volatility in bond markets in the wake of the sales of longer-term bonds. At the end of last month, about 80 percent of outstanding monetary stabilization bonds had maturities of two years, a BOK official said. The three-year bonds are expected to help the BOK have more measures to control liquidity, the official said. (Yonhap)

NORTH KOREA: North Korea said the United States' expectations on talks will only bring greater disappointment to Washington, state media KCNA said citing Kim Jong Un's sister Kim Yo Jong on Tuesday. (RTRS)

NORTH KOREA: South Korea and the United States have agreed to consider terminating their "working group" forum on North Korea policy, the foreign ministry said Tuesday, in what appears to be a conciliatory gesture to Pyongyang that has decried the forum as a hurdle to inter-Korean ties. Seoul's top nuclear envoy, Noh Kyu-duk, and his U.S. counterpart, Sung Kim, reached the agreement during their talks in Seoul on Monday, as they sought a coordinated strategy to resume nuclear diplomacy with Pyongyang. "During the talks between the top nuclear envoys, the two sides checked the operation of the existing working group and agreed to consider terminating it," the ministry said in a press release. (Yonhap)

NORTH KOREA: U.S. President Joe Biden said Monday he decided to extend U.S. sanctions on North Korea for another year, a move that follows the latest U.S. outreach to the reclusive nation for dialogue at any time and place. In a letter to the speaker of the U.S. House of Representatives, Biden said the North's fissile material as well as its pursuit of nuclear and missile programs "continue to constitute an unusual and extraordinary threat to the national security, foreign policy, and economy of the United States." "For this reason, I have determined that it is necessary to continue the national emergency declared in Executive Order 13466 with respect to North Korea," he said in the letter, released by the White House. (Yonhap)

TURKEY: Turkey will further relax restrictions imposed to curb the spread of COVID-19 from next month, President Tayyip Erdogan said on Monday after the number of daily coronavirus cases in the country fell to around 5,000. (RTRS)

MEXICO: Mexico's central bank is seen keeping its benchmark interest rate steady at its next monetary policy meeting on Thursday amid persistently high inflation levels in the economy struggling to rebound from the coronavirus pandemic, a Reuters poll showed on Monday. All of the 20 analysts surveyed said they expect the Bank of Mexico to hold the rate unchanged at 4.0%. The central bank has maintained the interest rate in its last two monetary policy decisions, citing inflation. Annual inflation slowed in May, but remained above the central bank's target. Banxico aims for a rate of 3% with a one percentage point tolerance threshold above and below that. (RTRS)

BRAZIL: A proposal to overhaul Brazil's income tax system is delayed because President Jair Bolsonaro has requested last-minute changes to the bill that are likely to make it less ambitious than originally planned. As part of an effort to improve Brazil's business environment, Economy Minister Paulo Guedes had planned a reduction in corporate levies that would be offset by taxation of dividends. Yet Bolsonaro demanded that dividends received under a certain amount be exempt, forcing the economic team to recalibrate the proposal to ensure the government won't lose revenue, said three people with knowledge of the matter who requested anonymity because the discussion isn't public. (BBG)

BRAZIL: Brazil's lower house of Congress on Monday approved the main text of a bill allowing the privatization of state-controlled energy giant Eletrobras , with the measure to advance to President Jair Bolsonaro for approval after amendments are considered. The government-proposed bill would privatize Latin America's biggest power utility, known formally as Centrais Eletricas Brasileiras SA, by floating shares on the stock market, with the state relinquishing control by diluting its current 61% stake. (RTRS)

RUSSIA: US Secretary of State Antony Blinken held a telephone conversation with Polish Foreign Minister Zbigniew Rau on Friday night and discussed among other issues a possible threat posed by the Nord Stream 2 gas pipeline project to the European energy security, US State Department Spokesman Ned Price said in a statement. "Secretary of State Antony J. Blinken spoke with Polish Foreign Minister Zbigniew Rau," the statement reads. "Secretary Blinken emphasized the strength of our Polish-American partnership to NATO and the Transatlantic community in addressing regional and global challenges." "The Secretary also discussed our cooperation with Poland to address the threat posed by the Nord Stream 2 pipeline to European energy security," according to the statement. "The Secretary emphasized the importance of defending our democratic values, including media freedom and respect for civil rights, as Poland looks forward to assuming the chair of the OSCE [Organization for Security and Cooperation in Europe] in 2022," the statement added. (TASS)

RUSSIA: US Ambassador to Russia John Sullivan will return to Moscow this week, following through on plans for the two nations to send back their top envoys after the progress made at last week's presidential summit meeting in Geneva. State Department spokesman Ned Price told reporters of the timeline for Sullivan's return to Moscow at a press briefing on Monday. President Joe Biden's administration also welcomed the return of Russian Ambassador Anatoly Antonov, Price said. (RT)

IRAN: There are currently no plans for U.S. President Joe Biden to meet with Iran's newly elected leader, according to the White House, which downplayed Ebrahim Raisi's influence. (RTRS)

IRAN: The United States views the process that made Ebrahim Raisi Iran's president-elect as "pretty manufactured," U.S. State Department spokesman Ned Price said on Monday, repeating the U.S. view that Iran's recent election was neither free nor fair. "Our Iran policy is designed to advance U.S. interests and that is regardless of who is chosen as Iran's president in a ... process that we consider to be pretty manufactured. This was not a free and fair election process," Price told reporters in a telephone briefing. (RTRS)

MIDDLE EAST: Saudi Arabia's foreign minister discussed with the International Atomic Energy Agency (IAEA) chief "the importance of imposing the necessary mechanisms for a rapid and comprehensive inspection of all Iranian nuclear sites," the foreign ministry wrote in a tweet on Monday. (RTRS)

MIDDLE EAST: A drone attack targeted US forces stationed at the Baghdad International Airport on Monday night, according to Arabic reports. Iraqi officials have not yet confirmed the reports. It is as of yet unclear if any injuries or damage were caused in the attack. (Jerusalem Post)

IMF: To help support members faced with the COVID-19 pandemic, the Fund temporarily increased certain access limits to its emergency financing (EF) instruments, i.e., Rapid Credit Facility (RCF) and Rapid Financing Instrument (RFI). While this expanded support has been critical to help countries manage the pandemic, the increase in access limits was not applied to the Large Natural Disasters (LND) windows within the EF toolkit, reducing the flexibility to respond to such LNDs. This paper proposes to temporarily increase by 50 percent of quota the annual access limit (AAL) and cumulative access limit (CAL) under the LND windows of the RCF and RFI. The changes to the "LND windows" would be in effect through end-December 2021, in line with the other temporary changes of access limits under EF instruments. The case for further extensions to all the temporarily increased EF AALs and CALs will be examined after the 2021 Annual Meetings. (IMF)

CHINA

YUAN: The PBOC can enhance the public's confidence in its currency policies by awarding those who follow its guidance on the yuan and punish those who bet against it, Guan Tao, the chief economist of BOC International and a former forex regulatory official, wrote on Yicai.com. While the PBOC's previous response to excess depreciation may not fit, the same principle should be observed, Guan said without elaborating. Authorities must develop emergency response measures if an overall weakening dollar index causes the yuan to move one way, Guan said. Two-way movement is likely to be observed in a better scenario where the dollar index both rises and falls, he said. No government will stand by and do nothing if the markets exhibit volatilities contrary to its wishes, Guan said citing the Federal Reserve's extraordinary easing approach. (MNI)

PBOC: China is likely to keep liquidity level appropriate and policies stable, and the market needs not to be concerned even as the pace of credit expansion has slowed, the Securities Times reported citing analysts. Monetary policies will emphasize two structural aspects of extending the terms for small business loans and green finance, the newspaper said. That the central bank kept LPR unchanged for the 14th month and MLF rate the same for the 15th month showed prudent and neutral monetary stance, the newspaper said. Regulators may also judge the soaring commodity-driven PPI to be unsustained, which means that MLF isn't likely to be raised due to inflation, the newspaper said. Credit growth is likely to be maintained given a rebound in corporate bond offerings and further expansion of special-purpose local government bonds, the newspaper said. (MNI)

CREDIT: Several large Chinese banks are restricting credit to China Evergrande Group amid mounting concerns about the developer's financial health, according to people familiar with the matter. Three banks with a combined 46 billion yuan ($7.1 billion) of credit exposure to Evergrande as of June 2020 have decided in recent months not to renew loans to the company when they mature this year, the people said, asking not to be identified discussing private information. The decisions were made before Evergrande's bonds began tumbling at the end of May and resulted from banks' internal risk assessments, the people said. Three other banks are allowing Evergrande to roll over portions of credit lines it has already tapped but are limiting the company's access to any untapped credit from those lines, the people said. (BBG)

OVERNIGHT DATA

AUSTRALIA ANZ ROY MORGAN WEEKLY CONSUMER CONFIDENCE 112.4; PREV. 111.0

The strong labour market recovery provided a boost to consumer confidence with the index gaining 1.3% last week. The unemployment rate fell to 5.1% in May, reaching its lowest level since February 2020-that is, before the pandemic started. This strength in the employment data overshadowed news about the emergence of a COVID cluster in Sydney. Confidence in the city rose by 5.2%, while in the rest of New South Wales it gained 2.8%. We know from recent experience, however, that sentiment will likely be impacted negatively if the outbreak worsens and greater restrictions are imposed. (ANZ)

NEW ZEALAND Q2 WESTPAC CONSUMER CONFIDENCE 107.1; Q1 105.2

Household confidence levels are on the rise. The Westpac McDermott Miller Consumer Confidence Index rose by 1.9 percentage points in the June quarter, taking it to a level of 107.1. Although that's still a little below its long run average, consumer confidence has been trending higher in recent months and has now recovered most of the drop we saw following last year's outbreak. Underlying this rise in confidence levels, increasing numbers of households have reported that their financial position has improved over the past 12 months. That's not entirely unexpected, as this time last year New Zealand was emerging from several weeks in lockdown. But this isn't just a post-Covid bounce. New Zealand's economic recovery has been gaining traction in recent months, with a firming in activity seen across regions and sectors. Importantly, that includes the household sector, with a strengthening in the labour market, strong increases in retail spending, and continued gains in house prices. Households are also feeling more optimistic about the outlook for the economy over the coming year, and they expect that their own financial situation will continue to improve. In some cases, that lift in sentiment may have been reinforced by the Government's recent announcement that benefit levels will increase over the coming months. (Westpac)

NEW ZEALAND MAY CREDIT CARD SPENDING +27.2% Y/Y; APR +87.5%
NEW ZEALAND MAY CREDIT CARD SPENDING +8.5% M/M; APR +2.7%

SOUTH KOREA MAY PPI +6.4% Y/Y; APR +6.0%

CHINA MARKETS

PBOC INJECTS CNY10BN VIA OMOS TUE; LIQUIDITY UNCHANGED

The People's Bank of China (PBOC) injected CNY10 billion via 7-day reverse repos with the rate unchanged at 2.2% on Tuesday. The operation left liquidity unchanged given it netted off CNY10 billion reverse repos maturing today, according to Wind Information.

  • The operation aims to keep liquidity reasonable and ample, the PBOC said on its website.
  • The 7-day weighted average interbank repo rate for depository institutions (DR007) decreased to 2.2216% at 09:24 am local time from the close of 2.2808% on Thursday.
  • The CFETS-NEX money-market sentiment index closed at 51 on Monday vs 57 on Friday.

PBOC SETS YUAN CENTRAL PARITY AT 6.4613 TUES VS 6.4546

The People's Bank of China (PBOC) set the dollar-yuan central parity rate higher for a sixth day at 6.4613 on Tuesday, compared with the 6.4546 set on Monday, marking the weakest fixing since May 7.

MARKETS

SNAPSHOT: Powell & Williams Stick To Script

=Below gives key levels of markets in the second half of the Asia-Pac session:

  • Nikkei 225 up 868.36 points at 28878.94
  • ASX 200 up 128.788 points at 7364.1
  • Shanghai Comp. up 27.567 points at 3556.75
  • JGB 10-Yr future down 16 ticks at 151.65, yield up 0.5bp at 0.055%
  • Aussie 10-Yr future down 7.0 ticks at 98.395, yield up 7.2bp at 1.593%
  • U.S. 10-Yr future -0-02+ at 132-04, yield up 0.51bp at 1.494%
  • WTI crude up $0.06 at $73.72, Gold up $4.67 at $1787.89
  • USD/JPY up 16 pips at Y110.43
  • FED'S POWELL SEES SUSTAINED IMPROVEMENT, TEMPORARY INFLATION (MNI)
  • FED'S WILLIAMS CITES JOBS HOLE IN EASY POLICY COMMITMENT (MNI)
  • LAGARDE: ECB STILL HAS ROOM TO CUT INTEREST RATES IF NEEDED (BBG)
  • UK COVID QUARANTINE RULES WILL BE DROPPED FOR DOUBLE JABBED (THE TIMES)

BOND SUMMARY: A Calmer Asia Session

A much more sedate round of Asia-Pac trade for the global core FI markets on Tuesday, with an uptick/rally for most of the major regional equity indices applying light pressure to the U.S. Tsy space after some modest early richening. T-Notes last -0-02 at 132-04+, holding to a 0-06+ range, while the major cash Tsys run little changed to 1.0bp cheaper across the curve.

  • The latest round of 5-Year JGB supply wasn't the firmest, at least on the pricing side, with the average price printing in line with broader expectations for the low price (per the BBG dealer poll). The cover ratio was a touch firmer than prev., while the price tail saw an incremental widening. The soft pricing of the auction and uptick in the domestic equity indices (TOPIX last +~3.0%) is applying some pressure to futures, which have pushed below their overnight/morning lows to last sit -17 on the day. 5-Year JGB yields haven't shown much of a reaction to the auction, with some modest underperformance in the belly of the curve seen (5- to 10-Year paper is ~0.5bp cheaper on the day).
  • Aussie bonds moved in a similar manner to Tsys with a widening and elongation of Sydney's indoor mask-wearing order implemented as the latest COVID cluster grew providing the major headlines on the local front. Futures sit shy of best levels, with YM last printing +0.5 and XM -6.5 on the day.

US TSY FUTURES: Tsy Net Positioning Generally Pared Back Into FOMC

Pre-FOMC positioning adjustments across the major U.S. Tsy futures contracts generally revealed a paring of the broader net exposures.

  • TY futures saw a relatively notable trimming of net long exposure (from multi-year highs) in the week ending 15 Jun, while net short positioning in TU, FV & US futures was essentially flat to a little less pronounced.
  • Eurodollar futures saw an extension of net shorts, while net short positioning in Fed Funds Futures edged away from the all-time extreme (in headline terms) registered in the previous week.

JGBS AUCTION: Japanese MOF sells Y2.0485tn 5-Year JGBs:

The Japanese Ministry of Finance (MOF) sells Y2.0485tn 5-Year JGBs:
  • Average Yield -0.097% (prev. -0.097%)
  • Average Price 100.49 (prev. 100.50)
  • High Yield: -0.091% (prev. -0.093%)
  • Low Price 100.46 (prev. 100.48)
  • % Allotted At High Yield: 13.5078% (prev. 94.3092%)
  • Bid/Cover: 3.790x (prev. 3.300x)

AUSSIE BONDS: The AOFM sells A$150mn of the 2.50% 20 Sep '30 I/L Bond, issue #CAIN408:

The Australian Office of Financial Management (AOFM) sells A$150mn of the 2.50% 20 September 2030 I/L Bond, issue #CAIN408:
  • Average Yield: -0.5512% (prev. -0.6452%)
  • High Yield: -0.5425% (prev. -0.6400%)
  • Bid/Cover: 2.5133x (prev. 3.6067x)
  • Amount allotted at highest accepted yield as percentage of amount bid at that yield 68.2% (prev. 60.8%)
  • bidders 31 (prev. 42), successful 17 (prev. 7), allocated in full 13 (prev. 4)

EQUITIES: Bouncing Back

Equity markets are in the green on Tuesday, Asia-Pac markets shaking off Monday's malaise after a positive lead from the US. Markets in Japan lead the way higher with gains of around 3%, Japan officially capped the number of spectators at the Olympic events at 10,000 or 50% of venue capacity (whichever is smaller). In Australia the ASX 200 is up around 1.6% while bourses in mainland China have seen gains of around 0.5%. In the US futures are higher with e-mini Dow Jones leading the way. Late on Monday Fed's Williams spoke and was optimistic on the economy, he warned it was still too early to cut back on QE bond purchases did confirm the FOMC is approaching a discussion about tapering asset purchases.

OIL: Brent Above $75/bbl

Oil is slightly higher in Asia-Pac trade; WTI last up $0.02 from settlement levels at $0.73.68/bbl while Brent is above $75/bbl for the first time in two years up $0.24 at $75.14/bbl. Key resistance and the bull trigger remains $72.99, Jun 16. A break of this level would confirm a resumption of the underlying uptrend. Elsewhere China has reduced its crude oil import quota for private oil refiners by about 35% compared to last year, amid a government crackdown on the sector. Markets look ahead to API inventory data later today.

GOLD: Little Changed

Spot gold last deals little changed around the $1,787/oz mark after bullion managed to shrug off the eventual uptick in longer dated U.S. real yields on Monday, benefitting from a softer DXY. This came after gold initially turned bid on the Asia-Pac richening witnessed in the U.S. Tsy space, before some sharp cheapening kicked into that space during European & NY hours. Little has changed from a technical perspective, with the initial lines in the sand now well-defined.

FOREX: Greenback Edges Higher, Antipodeans Sag

Major USD crosses retraced some of yesterday's moves, albeit to a limited degree. The greenback outperformed its G10 peers at the margin, with participants awaiting a congressional testimony from Fed Chair Powell. The Asia-Pac session saw little in the way of fresh headline flow to stir the pot.

  • The Antipodeans faced a modicum of selling pressure, even as consumer confidence improved on both sides of the Tasman.
  • The PBOC set its central USD/CNY mid-point at CNY6.4613, 13 pips shy of sell-side estimate. Spot USD/CNH oscillated within a tight range around neutral levels.
  • U.S. existing home sales, advance EZ consumer confidence take focus on the data front today. Speeches are due from ECB's Lane, Rehn & Schnabel as well as Fed's Powell, Mester & Daly.

FOREX OPTIONS: Expiries for Jun22 NY cut 1000ET (Source DTCC)

  • EUR/USD: $1.2175(E536mln), $1.2220-25(E1.4bln-EUR puts)
  • USD/CNY: Cny6.28($600mln), Cny6.35($600mln)

UP TODAY (Times GMT/Local)