MNI EUROPEAN OPEN: Bostic Fleshes Out Sep Pause Thinking, Fed Put Not On His Mind

EXECUTIVE SUMMARY

• FED’S BOSTIC: IDEA OF SEP PAUSE NOT TIED TO LOOMING MARKET RESCUE (MARKETWATCH)
• BIDEN EMPHASIZED FED INDEPENDENCE IN MEETING WITH POWELL (RTRS)
• US WARMS TO DEFENSE TALKS WITH CHINA, DROPPING PROTOCOL DISPUTE (BBG)
• TORIES FEAR JOHNSON MAY CALL SNAP ELECTION IF HE FACES REBELLION (BBG)
• GREENLAND’S HONG KONG UNIT PLANS TO PAY DOLLAR BOND DUE FRIDAY (BBG)
• OPEC WEIGHS SUSPENDING RUSSIA FROM OIL-PRODUCTION DEAL (WSJ)

Fig. 1: AUD/NZD Vs. Australia/New Zealand 2-Year Swap Spread (%)

Source: MNI - Market News/Bloomberg

UK

POLITICS: Boris Johnson and his allies have launched an emergency effort to lobby wavering MPs as he faces the spiralling threat of a confidence vote in his leadership that could put his position under threat within days. (Guardian)

POLITICS: Conservative MPs war-gaming how a rebellion against Boris Johnson might play out are worried the British prime minister could respond to an attempted coup by calling a general election. Rebels in Johnson’s party fear that even if they reach the threshold of 54 Tory MPs -- or 15% of the total -- to trigger a confidence vote, the premier would survive because it would then need a full majority to oust him. The prospect of Johnson winning and immediately seeking a fresh mandate from voters is being openly discussed by lawmakers, two Tory MPs said on condition of anonymity. (BBG)

POLITICS: Labour leader Sir Keir Starmer and deputy leader Angela Rayner have both received questionnaires from Durham Constabulary in relation to a potential breach of lockdown rules in April 2021. Sir Keir has come under pressure over an event in Durham in April 2021 with party colleagues when he was filmed having a drink and a takeaway curry was ordered - dubbed 'beergate'. (Sky)

ECONOMY: British companies expect barely any growth over the next three months, in their gloomiest outlook since February last year, as the cost-of-living squeeze reduces households' disposable income, the Confederation of British Industry said on Wednesday. The CBI said the expectations element of its surveys of manufacturers, retailers and other services industries fell to +1%, indicating a 1 percentage point difference between the proportion of firms expecting growth rather than contraction. "It's worrying that expectations for private-sector activity have worsened, but unsurprising given that headwinds continue to intensify," CBI economist Alpesh Paleja said. A majority of consumer services companies expect sales to fall over the next three months as households rein in unnecessary spending, while manufacturers see growth and retailers and business services firms think output will be flat. (RTRS)

EUROPE

IRELAND: Irish manufacturing growth cooled in May as supply issues pushed input costs to a near-record high and higher prices dampened client appetite, a survey showed on Wednesday. The AIB S&P Global manufacturing Purchasing Managers' Index (PMI) fell to 56.4 from 59.1 in April. Any figure above 50.0 indicates an improvement in manufacturing conditions, but the rate of improvement was the slowest since February last year. AIB's chief economist Oliver Mangan said there was a clear easing in growth momentum from the elevated levels of the past year, but the drop was in line with the wider euro zone and UK where flash PMIs for May fell to 54.4 and 54.6, respectively. (RTRS)

CROATIA: Croatia is about to find out whether it’s in good enough shape to become the euro zone’s 20th member. Progress made by the Adriatic country of 3.9 million people will be assessed in reports due Wednesday from the European Central Bank and the European Union’s executive arm. Based on appraisals of factors including inflation and public debt, officials in Brussels will issue a recommendation to national governments on whether to allow Croatia to adopt the euro on Jan. 1, 2023. (BBG)

U.S.

FED: Atlanta Fed President Raphael Bostic, in an exclusive interview with MarketWatch, said his suggestion that the central bank take a September “pause” in its push to raise interest rates should not be construed in any way as a “Fed put,” or belief that the central bank would come to the rescue of markets. In a Tuesday interview, Bostic said the notion of any sort of “Fed put” was never a factor in his thinking. “I think it’s a good tale on some level for story books, but it’s not driving how I’m thinking about policy,” he said. (MarketWatch)

FED: U.S. President Joe Biden told Federal Reserve Chair Jerome Powell on Tuesday that he will give the central bank the space and independence to address inflation as it sees fit, according to a top aide. "The president underscored to Chair Powell in the meeting what he has underscored consistently, including today, that he respects the independence of the Federal Reserve," said Biden's top economic adviser, Brian Deese. (RTRS)

FED: Directors at all 12 regional Federal Reserve banks backed raising the discount rate by a half point to 1%, minutes of the meetings showed, though directors in Atlanta voted April 21 to hold rates steady before shifting April 28 to joining the other banks in favoring the hike. “Federal Reserve Bank directors reported that economic activity had been steady, the unemployment rate had fallen to near pre-pandemic levels, and consumer spending had remained strong”. “Tight labor markets had led to upward pressures on wages, although several directors noted that the pace of wage growth had moderated. Many directors commented that businesses had thus far been able to pass on higher costs”. “Inflation remained elevated, and most directors noted uncertainty and upside risks in connection with the inflation outlook”. (BBG)

INFLATION: U.S. Treasury Secretary Janet Yellen said on Tuesday that she was wrong in the past about the path inflation would take, but said taming price hikes is President Joe Biden's top priority and he supports the Federal Reserve's actions to achieve that. Asked in a CNN interview whether she was wrong to downplay the threat that inflation posed in public statements over the past year, Yellen said: "I think I was wrong then about the path that inflation would take." "As I mentioned, there have been unanticipated and large shocks to the economy that have boosted energy and food prices and supply bottlenecks that have affected our economy badly that I didn't at the time fully understand," Yellen said, adding that the shocks range from Russia's invasion of Ukraine to recent COVID-19 lockdowns in China. "So really, the shocks to the economy have continued, but inflation is the number one concern for President Biden," Yellen said. Biden "believes strongly and is supportive of the independence of the Fed to take the steps that are necessary" to reduce inflation, Yellen said, adding that unemployment was also nearly as low as it has ever been since World War Two. A Treasury spokesperson said later: "The Secretary was pointing out that there have been shocks to the economy that have exacerbated inflationary pressures which couldn’t have been foreseen 18 months ago, including Russia’s decision to invade Ukraine, multiple successive variants of COVID, and lockdowns in China." (RTRS)

OTHER

GLOBAL TRADE: A senior U.N. official had "constructive discussions" in Moscow with Russia's first deputy Prime Minister Andrei Belousov on facilitating Russian grain and fertilizer exports to global markets, U.N. spokesman Stephane Dujarric said on Tuesday. The U.N. official, Rebecca Grynspan, is now in Washington for further talks, Dujarric said. (RTRS)

GLOBAL TRADE: The United States is prepared to give "comfort letters" to shipping and insurance companies to help facilitate exports of Russian grain and fertilizer, U.S. Ambassador to the United Nations, Linda Thomas-Greenfield, said on Tuesday. She noted that Russian grain and fertilizer were not under U.S. sanctions but that "companies are a little nervous and we're prepared to give them comfort letters if that will help to encourage them." (RTRS)

GLOBAL TRADE: Delivery times for semiconductors remained effectively flat in May as certain companies began to see improvements in the persistent shortages that have bedeviled many industries for more than a year. The lead times -- a closely watched gap between when a semiconductor is ordered and when it is delivered -- averaged a record high 27.1 weeks last month, compared with 27 weeks in April, according to research by Susquehanna Financial Group. The most recent flat or down month previously had been January 2022, the group said. “Company-specific data points skewed downwards, with about 60% of company lead times falling,” said Susquehanna analyst Chris Rolland in a research note on Tuesday, referring to lead times across chipmakers. He added that company wait times are a leading indicator compared to product-specific delivery times. Rolland noted that continued disruptions from ongoing Chinese lockdowns and the war in Ukraine have not resulted in a significant increases in lead times. (BBG)

U.S./CHINA: The Treasury Department’s No. 2 official highlighted the importance of US tariffs on Chinese goods as a tool to aid American jobs and competitiveness, amid a debate over scaling them back in an effort to quell inflation. “One of challenges that we faced for too long is the fact that, because of China’s unfair practices, American jobs have been lost and our companies have been unable to compete,” Deputy Treasury Secretary Wally Adeyemo said Tuesday in an interview on CNN. “So we want to make sure that we address both short-term challenges, like inflation, but the long-term challenges that we face, as well.” (BBG)

U.S./CHINA: Aides to the US defense secretary and China’s defense minister are discussing a potential meeting in Singapore, according to people familiar with the preparations, a sign the Biden administration is more focused on keeping both sides talking rather than worrying that the two leaders are far apart in relative rank. If negotiations are successful, Defense Secretary Lloyd Austin could meet Defense Minister Wei Fenghe on the sidelines of the Shangri-La Dialogue taking place June 10-12. While Austin spoke by phone with Wei in April, US officials had hoped he would be able to hold a call with General Xu Qiliang, vice chairman of the Communist Party’s powerful Central Military Commission. That call hasn’t happened and, for now at least, isn’t likely to. But with US-China tensions peaking again over issues including Taiwan and human rights, both sides have a stake in dialing back some of the pressure. (BBG)

U.S./CHINA/TAIWAN: The Chinese military said on Wednesday it had conducted a combat "readiness patrol" in the seas and airspace around Taiwan in recent days, saying it was a necessary action to respond to "collusion" between Washington and Taipei. In a statement, the People's Liberation Army Eastern Theatre Command said the combat "readiness patrol" had happened around Taiwan in recent days and was "a necessary action against U.S.-Taiwan collusion". "Recently, the United States has frequently made moves on the Taiwan issue, saying one thing and doing another, instigating support for Taiwan independence forces, which will push Taiwan into a dangerous situation," the command added. (RTRS)

BOJ: Bank of Japan Deputy Governor Masazumi Wakatabe sent a clear message he thinks the BOJ should stick with its easing bias, in an attempt to tamp down continued market speculation over policy normalization. “To address low inflation, it is necessary to persistently continue with monetary easing,” Wakatabe said in a speech Wednesday to local business leaders in Okayama, Japan. “If downside risks to the economy materialize, the bank should not rule out taking the necessary additional easing measures without hesitation.” The remarks by the well-known advocate for strong monetary easing comes as BOJ watchers are closely scrutinizing officials’ comments for hints on the possibility of unwinding stimulus this year or the next, ahead of the end of Governor Haruhiko Kuroda’s term in April. The dovish comments highlight Japan’s outlier status among major central banks, as most counterparts move toward tightening to fight rising inflation. (BBG)

AUSTRALIA: Australia’s economy expanded faster than forecast last quarter as households stepped up spending, bolstering the case for an outsized 40-basis-point interest rate hike next week. New Treasurer Jim Chalmers acknowledged some of the strengths of the A$2.2 trillion ($1.6 trillion) economy, while pointing to accelerating inflation that’s squeezing households and a darkening global outlook. “The international environment is difficult as well and becoming more so,” he told reporters after the release, citing risks of a US recession. “The other big concern in the international environment is the Chinese management of Covid. Their approach to Covid does pose a risk as well to our domestic economy.” (BBG)

RBNZ: RBNZ Deputy Governor Christian Hawkesby comments in a webinar hosted by the Financial Services Institute of Australasia Wednesday in Wellington. Says there is a need for demand to moderate and become more balanced with the economy’s ability to supply. Tighter monetary policy will help achieve that balance. “We need to take actions now to lift interest rates to keep inflation expectations well anchored”. If inflation expectations are not well anchored then there may be a need to lift interest rates significantly higher “and that could create more pain”. Says RBNZ projections set out a period of subdued consumption growth ahead, which is what the Bank is trying to engineer. “If some shocks come along there is more chance you can tip over” and end with economic contraction. (BBG)

RBNZ: RBNZ has begun consultation on the five-yearly review of the monetary policy remit, which is an agreement with the government to direct how it conducts policy. The initial consultation runs until July 15 and a second round will be held in the 2H of 2022 before recommendations are made to the finance minister. Says the dual objectives of price stability and maximum sustainable employment are not for review as they are legislated. Says feedback is sought on the appropriateness of the 1-3% target and use of the CPI as the inflation indicator, while saying it is not clear alternatives are superior to the status quo. (BBG)

SOUTH KOREA: South Korea President Yoon Suk Yeol’s conservative party is expected to keep control of the mayor’s office in the country’s two biggest cities in his first election test, which comes about three weeks after he took office. Polling indicates the president’s People Power Party will retain the top post in Seoul and Busan in the nationwide vote Wednesday for local offices. The PPP also has a slight chance of taking the country’s most populous province of Gyeonggi, which encircles Seoul and houses major firms, from the progressive Democratic Party, according to final polls released last week from broadcasters KBS, SBS and MBC. (BBG)

HONG KONG: Hong Kong’s next leader John Lee said the financial hub still faces hurdles in reopening the border with mainland China, after returning from his first meeting with President Xi Jinping since being selected to run the financial hub. Lee said he told Premier Li Keqiang there are “a lot of challenges and difficulties” to overcome before travel with the mainland can resume. “I will start seeking communication with the mainland side, to explain the Hong Kong situation to them,” Lee said Tuesday at a press conference at Hong Kong International Airport, held shortly after he touched down from Beijing. (BBG)

TURKEY: A potential future challenger to President Recep Tayyip Erdogan could face jail as a Turkish court considers charges he insulted the country’s election authority, a case that threatens to imperil his career and send political tensions soaring. The court in Istanbul may issue a verdict in the trial of the city’s mayor Ekrem Imamoglu, a top official in Turkey’s main opposition Republican People’s Party or CHP, as early as Wednesday. He denies the allegations against him. Polling companies say Imamoglu is now more popular than Erdogan, though so far he’s said a run for the presidency isn’t on his agenda. (BBG)

TURKEY: Turkish President Recep Tayyip Erdogan is in meeting with Central Bank Governor Sahap Kavcioglu, Finance and Treasury Minister Nureddin Nebati and other senior officials in charge of economy at his palace in Ankara late Tuesday, Haberturk television says without citing anyone. (BBG)

TURKEY: Turkish state-owned energy importer BOTAS said on Wednesday it had raised natural gas prices for households, industry and and electricity production, with the price for households raised by 30%. The price of natural gas used in industry was raised by 40% for those who consume less than 300,000 cubic metres per year and by 10% for those who use more than that amount. BOTAS also said natural gas prices for electricity production were raised by 16.3%. Turkey imports almost all of its energy needs, leaving it vulnerable to big price swings. Soaring world energy costs in recent months have piled pressure on BOTAS to hike prices. (RTRS)

MEXICO: Petroleos Mexicanos will refinance debt of suppliers that are owed more than $5 million in invoices with new global bonds, the company said Tuesday. Pemex owed suppliers 370.7 billion pesos last year and 72.6 billion in the first quarter of 2022. The company’s acting Chief Financial Officer Antonio Lopez-Velarde said earlier in May during an earnings call that it had a plan to regularize late payments and that a bond issuance was among possibilities to pay them back. The new bonds will have a coupon of 8.75% and will mature in 2029. Pemex, whose debt is the highest of any major oil company, at $108.1 billion, has struggled to pay its suppliers and service providers in recent years as resources have been drained to invest in its refining business under the nationalist policies of President Andres Manuel Lopez Obrador. And crudeproduction has declined for much of the past 15 years. The company owed Schlumberger $500 million at the end of December, according to a company filing. As of April 21 Pemex owed about $2.5 billion in principal payments this year, and another $2.5 billion in interest, according to data compiled by Bloomberg. The refinancing will cover $2 billion of debt to Pemex providers. The eligible invoices to be considered are those pending payment, denominated in dollars and due up until May 31. (BBG)

BRAZIL: The Brazilian market expects interest rates hikes in the country to come to an end, Brazil's central bank chief Roberto Campos Neto said during a congressional hearing on Tuesday. (RTRS)

BRAZIL: Brazilian President Jair Bolsonaro, seething about fuel prices as his poll standings slip ahead of October's presidential election, has intensified his calls to shake up the board and management of state-run oil company Petrobras. But it will take at least 45 to 60 days to complete the necessary procedural and bureaucratic steps to install a new board and management, according to four people close to the current executive board. That would leave him just two months before the election to pressure the company to decouple its fuel prices from international market gyrations. (RTRS)

BRAZIL: President Jair Bolsonaro signed into law an income tax cut on the leasing of aircraft or engines for aircraft, entered into by airlines, according to an extra edition of the Official Gazette. Tax will be zero by Dec. 2023. (BBG)

RUSSIA: Russian forces now control most of the eastern city of Sievierodonetsk but have not surrounded it, the governor of Ukraine's Luhansk province said on Tuesday after days of fighting. Serhiy Gaidai said in an online post that Russian shelling had made it impossible to deliver humanitarian supplies or evacuate people. (RTRS)

RUSSIA: Russia cut off mobile, internet and landline service in Ukraine’s southern region of Kherson, according to the Ukrainian state communications company. Ukrainian providers started to record interruptions beginning on Monday, and then a total cut-off of services in Kherson region, which has been under Russian occupation after Moscow invaded the country in February. Kyiv says it is impossible to restore communication in the Kherson region because Russia controls the equipment.

RUSSIA: President Joe Biden said he’ll give Ukraine advanced rocket systems and other US weaponry to better hit targets in its war with Russia, ramping up military support as the conflict drags into its fourth month. The package of weapons includes missiles that will allow Ukraine to strike locations as far as 80 kilometers away, a senior US official told reporters on condition of anonymity. World leaders including British Prime Minister Boris Johnson have publicly called for such a move in recent weeks. The US official said Ukraine’s government offered assurances that they won’t use the new missile systems to target Russian territory. In its latest tranche, the US stopped short of agreeing to send the longest-range munitions while highlighting previous shipments of other advanced systems, including howitzers and antitank weapons. (BBG)

RUSSIA: President Biden said in an op-ed published Tuesday that the United States would not try to oust Russian President Vladimir Putin from his position of power because of his invasion of Ukraine. “We do not seek a war between NATO and Russia. As much as I disagree with Mr. Putin, and find his actions an outrage, the United States will not try to bring about his ouster in Moscow,” Biden wrote in a New York Times op-ed published Tuesday evening. (The Hill)

RUSSIA: Russia's nuclear forces are holding drills in the Ivanovo province, northeast of Moscow, the Interfax news agency cited the Russian defence ministry as saying on Wednesday. Some 1,000 servicemen are exercising in intense manoeuvres using over 100 vehicles including Yars intercontinental ballistic missile launchers, it cited the ministry as saying. (RTRS)

METALS: Peru police and indigenous communities clashed at MMG’s Las Bambas copper mine Tuesday evening, said Alexander Anglas, a lawyer for the Huancuire community, in a phone interview. Around 120 police officers arrived to Las Bambas to evict communities, Anglas said. Police used tear gas and pellets, Anglas said. Police later withdrew with the Huancuire community still at the mine, Anglas said in another interview. (BBG)

ENERGY: Gazprom PJSC doesn’t expect to cut off any more European gas buyers as all customers have either paid adequately or been informed they won’t be receiving more gas, according to a person familiar with the situation. Shell Plc and Orsted A/S were the last companies whose payment deadlines fell due, and other buyers have made arrangements to keep the gas flowing, the person said. (BBG)

ENERGY: German companies Uniper and RWE have paid for Russian gas under a new scheme proposed by Moscow, in a bid to ensure continued supply of the fuel that is critical to Europe's top economy. (RTRS)

ENERGY: The European Union ought to pay for any new natural gas interconnections between Spain and its European neighbours trying to secure alternative supplies to the Russian gas, Prime Minister Pedro Sanchez told reporters on Tuesday. (RTRS)

OIL: Russian Foreign minister Sergei Lavrov on Tuesday met Saudi counterpart Prince Faisal bin Farhan Al Saud and both men praised the level of cooperation inside OPEC+, the Russian foreign ministry said. "They noted the stabilising effect that the tight cooperation between Russia and Saudi Arabia has on world markets for hydrocarbons in this strategically important sector," the ministry said in a statement. OPEC+ is an oil alliance that includes Gulf producers and Russia among others. (RTRS)

OIL: Some OPEC members are exploring the idea of suspending Russia’s participation in an oil-production deal as Western sanctions and a partial European ban begin to undercut Moscow’s ability to pump more, OPEC delegates said. Exempting Russia from its oil-production targets could potentially pave the way for Saudi Arabia, the United Arab Emirates and other producers in the Organization of the Petroleum Exporting Countries to pump significantly more crude, something that the U.S. and European nations have pressed them to do as the invasion of Ukraine sent oil prices soaring above $100 a barrel. (WSJ)

OIL: The UK and EU have agreed a co-ordinated ban on insuring ships carrying Russian oil, shutting Moscow out of the vital Lloyd’s of London insurance market and sharply curbing its ability to export crude, according to British and European officials. Lloyd’s has been the heart of the marine insurance industry for centuries and blocking its members from insuring Russian oil cargoes will pile more pressure on global commodity markets, which have been in turmoil since Moscow’s invasion of Ukraine. The insurance ban is part of a new EU sanctions package targeting Russian oil exports. Brussels agreed an embargo on most Russia oil shipments late on Monday but the involvement of the UK unlocked the insurance ban. This could have much broader consequences for Moscow’s exports and leave it looking for insurance in smaller, less developed markets. (FT)

OIL: Libya’s oil production revival took a fresh blow as a key pipeline sprang a leak, limiting supplies at a time when they already look tight. A lack of budget for maintenance ultimately led to the Sarir-Hariga oil pipeline in the east of the country leaking and a loss of 220,000 barrels a day of production, Arabian Gulf Oil Co., a subsidiary of the state oil company that exports from Hariga, said in a statement on its Facebook page. Libya was due to export 633,000 barrels a day of crude from its ports next month, according to loading plans seen by Bloomberg. That was down lightly from May levels, which were already low. (BBG)

CHINA

POLICY: China should maintain rapid economic growth to absorb its growing debt, and avoid a quick rise in domestic interest rates to keep the current high level of debt sustainable and avoid systemic financial risks, wrote Zhang Ming, senior fellow of the Institute of Finance and Banking at the Chinese Academy of Social Sciences in a blog post. China’s macro leverage ratio, meaning overall debt-to-GDP ratio could be as high as 303.8% by end-2021 if local government implicit debts and debts raised by their financing vehicles are included, said Zhang. At present, local governments bear the highest default risk and their debt-to-GDP ratio is as high as 106.6%, said Zhang. (MNI)

EQUITIES: The A share market is expected to continue an upward trend into June, supported by intensive pro-growth policies, the resumption of work and production from Covid-19 lockdowns and ample liquidity, the China Securities Journal reported citing analysts. The A share market showed resilience in May even in the event of tumbling U.S. stocks overnight, with the Shanghai Composite Index rising 4.57% last month, the newspaper said. The net inflow of foreign capital to A shares was CNY16.87 billion in May, the largest monthly inflow this year, the Journal said. (MNI)

CORONAVIRUS: Shanghai has eliminated anti-epidemic checkpoints at bridges, tunnels and other points from June 1, and removed roadblocks to restore normal production and daily life after a two-month Covid-19 lockdown, CCTV News reported. Shanghai added five local Covid-19 cases and ten infections with no symptoms on Tuesday, according to the Shanghai Municipal Health Commission. (MNI)

PROPERTY: Greenland Holdings Corp.’s Hong Kong-listed unit is planning to repay a dollar bond due this Friday, people familiar with the matter said, amid growing concerns over its parent company’s financial health. Greenland Hong Kong Holdings Ltd. intends to pay the offshore bond maturing on June 3, the people said, asking not to be identified because the matter is private. The decision follows the unit’s move to repurchase 12% of the note when prices were at a sizable discount to face value, helping it save money on repayment. (BBG)

CHINA MARKETS

PBOC INJECTS CNY10 BILLION VIA OMOS, LIQUIDITY UNCHANGED

The People's Bank of China (PBOC) injected CNY10 billion via 7-day reverse repos with the rate unchanged at 2.1% on Wednesday. This keeps the liquidity unchanged after offsetting the maturity of CNY10 billion repos 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) rose to 2.0491% at 9:22 am local time from the close of 1.8406% on Tuesday.
• The CFETS-NEX money-market sentiment index closed at 42 on Tuesday vs 45 on Monday.

PBOC SETS YUAN CENTRAL PARITY AT 6.6651 WEDS VS 6.6607

The People's Bank of China (PBOC) set the dollar-yuan central parity rate higher at 6.6651 on Wednesday, compared with 6.6607 set on Tuesday.

OVERNIGHT DATA

CHINA MAY CAIXIN M’FING PMI 48.1; MEDIAN 49.0; APR 46.0

Overall, activity in the manufacturing sector improved in May, but stayed in contractionary territory as local Covid outbreaks continued. Demand was slightly stronger than supply. And domestic demand was slightly stronger than overseas demand, though both were in negative territory. The epidemic’s impact on market supply and demand has transmitted to the labor market, which further weakened. Supply chains were disrupted, and logistics times lengthened further. The gap between costs and output prices further squeezed enterprises’ profitability. The negative effects from the latest wave of domestic outbreaks may surpass those of 2020. It’s necessary for policymakers to pay attention to employment and logistics. Removing obstacles in supply and industrial chains and promoting resumption of work and production will help to stabilize market entities and protect the labor market. Also, the government should not only offer support to the supply side, but also put subsidies for people whose income has been affected by the epidemic on the agenda. (Caixin)

JAPAN MAY, F JIBUN BANK M’FING PMI 53.3; FLASH 53.2

Japanese manufacturers noted a softer improvement in the health of the sector for the second successive month in May. While pointing to a solid improvement overall, the latest Manufacturing PMI was the lowest recorded since February. Both output and new orders rose at softer rates, with the latter rising at the weakest pace for eight months amid sustained supply chain disruption and raw material price hikes. Disruptions were exacerbated by renewed lockdown restrictions across China, and contributed to a further sharp lengthening of suppliers’ delivery times. The deterioration in vendor performance was the joint-quickest since last October and robust overall. Firms cited difficulties in sourcing and receiving raw materials as a key factor behind a steep expansion in safety stocks, with manufacturers indicating the second-fastest rise in pre-production inventories in the survey history. Material shortages and logistical issues were also partly behind a sustained surge in costs. Average input prices rose at a substantial rate that was the fourth-highest on record. Firms widely attributed the rise to higher material and fuel costs, especially for oil and semiconductors. Confidence regarding the year-ahead outlook strengthened however, underpinned by hopes that an end to the pandemic and Russia-Ukraine conflict would induce a broad recovery in demand and supply chains. This is in line with an estimated 2.9% increase in industrial production in 2022. (IHS Markit)

JAPAN Q1 CAPITAL SPENDING +3.0% Y/Y; MEDIAN +3.6%; Q4 +4.3%
JAPAN Q1 CAPITAL SPENDING EX SOFTWARE +5.0% Y/Y; MEDIAN +5.5%; Q4 +5.5%
JAPAN Q1 COMPANY PROFITS +13.7% Y/Y; MEDIAN +9.0%; Q4 +24.7%
JAPAN Q1 COMPANY SALES +7.9% Y/Y; Q4 +5.7%

JAPAN MAY VEHICLE SALES -16.7% Y/Y; APR -15.0%

AUSTRALIA Q1 GDP SA +0.8% Q/Q; MEDIAN +0.7%; Q4 +3.6%
AUSTRALIA Q1 GDP +3.3% Y/Y; MEDIAN +3.0%; Q4 +4.4%

AUSTRALIA MAY CORELOGIC HOUSE PRICES -0.3% M/M; APR +0.3%

AUSTRALIA MAY, F S&P GLOBAL M’FING PMI 55.7; FLASH 55.3

Australia’s manufacturing sector continued to expand at a solid, but slower, rate according to the latest S&P Global Australia Manufacturing PMI. Manufacturing production growth eased to a marginal level midway into the second quarter. That said, supply issues were largely blamed for the slowdown and the sustained strong growth in new orders presented a comforting sign. Price pressures persisted for Australian manufacturers, though indications that price inflation have started to ease suggest we may have already seen a peak. The trend here will be worth monitoring moving forward. “Business sentiment in the Australian manufacturing sector remained positive, but overall confidence declined again with concerns over costs and supply side constraints, issues that have the potential to limit future output. (S&P Global)

NEW ZEALAND MAY CORELOGIC HOUSE PRICES +15.3% Y/Y; APR +18.8%

SOUTH KOREA MAY EXPORTS +21.3% Y/Y; MEDIAN +18.4%; APR +12.9%
SOUTH KOREA MAY IMPORTS +32.0% Y/Y; MEDIAN +31.4%; APR +18.6%
SOUTH KOREA MAY TRADE BALANCE -$1,705MN; MEDIAN -$2,500MN; APR -$2,508MN

UK MAY BRC SHOP PRICE INDEX +2.8% Y/Y; APR +2.7%

MARKETS

UP TODAY (Times GMT/Local)

Date	GMT/Local	Impact	Flag	Country	Event
01/06/2022	0715/0915	**		ES	IHS Markit Manufacturing PMI (f)
01/06/2022	0745/0945	**		IT	IHS Markit Manufacturing PMI (f)
01/06/2022	0750/0950	**		FR	IHS Markit Manufacturing PMI (f)
01/06/2022	0755/0955	**		DE	IHS Markit Manufacturing PMI (f)
01/06/2022	0800/1000	**		EU	IHS Markit Manufacturing PMI (f)
01/06/2022	0830/0930	**		UK	IHS Markit/CIPS Manufacturing PMI (Final)
01/06/2022	0900/1100	**		EU	Unemployment
01/06/2022	1100/0700	**		US	MBA Weekly Applications Index
01/06/2022	1100/1300			EU	ECB Lagarde Panelist at Green Swan Conference
01/06/2022	-	***		US	Domestic-Made Vehicle Sales
01/06/2022	1255/0855	**		US	Redbook Retail Sales Index
01/06/2022	1345/0945	***		US	IHS Markit Manufacturing Index (final)
01/06/2022	1400/1000	***		CA	Bank of Canada Policy Decision
01/06/2022	1400/1000	***		US	ISM Manufacturing Index
01/06/2022	1400/1000	*		US	Construction Spending
01/06/2022	1400/1000	**		US	JOLTS quits Rate
01/06/2022	1400/1000	**		US	JOLTS jobs opening level
01/06/2022	1515/1715			EU	ECB Panetta Into at European Parliament
01/06/2022	1530/1130			US	New York Fed's John Williams
01/06/2022	1530/1730			EU	ECB Lane Speaks at CEPR Paris Symposium
01/06/2022	1700/1300			US	St. Louis Fed's James Bullard
01/06/2022	1800/1400			US	Fed Beige Book