MNI EUROPEAN OPEN: Moderating Price Pressure Leaves China Room For Stimulus

EXECUTIVE SUMMARY

• CHINA INFLATION DATA SHOW PRICE PRESSURES MODERATING
• JAPAN MOF, BOJ, FSA OFFICIALS TO DISCUSS FINANCIAL MARKETS AT 4PM (BBG)
• TSY SEC YELLEN: U.S. RECESSION UNLIKELY, BUT NO DROP IN GASOLINE PRICES SOON (RTRS)
• BORIS JOHNSON FACES EUROSCEPTIC REVOLT OVER NORTHERN IRELAND PROTOCOL BILL (FT)

Fig. 1: USD/JPY & '23 Feb Fed Expected Rate (%)

Source: MNI - Market News/Bloomberg

UK

POLITICS/BREXIT: Boris Johnson has been warned by Tory Eurosceptics that they will vote down his contentious bill to override the Northern Ireland protocol if it is watered down and does not fully “neutralise” the Brexit text. Liz Truss, UK foreign secretary, agreed to toughen up the bill after last- minute representations by the pro-Brexit European Research Group, leading to a fierce cabinet row on Wednesday. The legislation will be published next week. Johnson, backed by senior cabinet minister Michael Gove, criticised Truss for making the changes, arguing that it would raise tensions with Brussels and make a negotiated settlement with the EU impossible. (FT)

BREXIT: The EU’s position on the row over Northern Ireland Protocol has “hardened” in the face of the UK vow to unilaterally scrap part of the agreement, the Irish government has warned. (Independent)

ECONOMY: Rishi Sunak has been accused of squandering £11bn of taxpayers money by paying too much interest servicing the government’s debt. Calculations by the National Institute of Economic and Social Research, the oldest non-partisan economic research institute in the UK, show the losses stem from the chancellor’s failure to take out insurance against interest rate rises a year ago on almost £900bn of reserves created by the quantitative easing process. (FT)

ECONOMY: Boris Johnson took aim at his own government’s tariffs on imports of food that is not produced domestically, saying their removal could ease the UK’s cost-of-living crisis. But even his officials say otherwise. Yet Johnson’s own government has said cutting tariffs on food imports would have minimal impact on household finances. It’s a “tiny, tiny proportion, 0.4% on the cost of living,” Trade Secretary Anne-Marie Trevelyan said in April. (BBG)

ECONOMY: British employers added staff in May at the slowest pace since early 2021, according to a survey that adds to signs that the labour market is losing some of its heat. A measure of permanent staff hiring by accountants KPMG and the Recruitment and Employment Confederation (REC) fell for a sixth month to 59.2 from 59.8 in April, but remained well above the 50 threshold for growth. (RTRS)

ECONOMY: Proposals to overhaul the law to make it easier to prosecute companies and hold them to account for committing crimes have been put forward to the UK government by the independent agency that reviews legislation. The Law Commission submitted on Friday several possible options to reform the laws governing corporate criminal liability in England and Wales, including widening the scope for attributing criminal liability. (FT)

POLITICS/ECONOMY: Boris Johnson has raised the spectre of a 1970s-style “wage-price spiral” that could force the Bank of England to push up interest rates dramatically if workers demand to be compensated for rocketing prices. Instead the prime minister promised a return to lowering taxes, cutting government spending and slashing regulation, after a renewed push by backbench Conservative MPs. (Guardian)

POLITICS: Jeremy Hunt has warned that Boris Johnson’s policies risk being “overshadowed” by questions over his leadership, insisting it had been his “duty” to speak out against the prime minister. Hunt, one of the most senior Conservatives to turn against Johnson in Monday’s confidence vote, said he did not submit a letter to the 1922 Committee of Conservative backbenchers or encourage others to do so. (Times)

POLITICS: Boris Johnson could face the prospect of another no-confidence vote within a year after Graham Brady, chair of the 1922 Committee, refused to rule out changing the rules. (Guardian)

EUROPE

FRANCE: President Emmanuel Macron’s party and its allies would win 280-320 of the 577 seats in parliament in this month’s French legislative elections, according to poll published on Friday by Elabe for BFM TV, L’Express and SFR. Macron needs 289 seats to retain an absolute majority. Elabe projections show the Nupes grouping of France’s four largest left-wing parties winning 165-190 seats. (BBG)

FINLAND: Finland's government plans to amend border legislation to allow the building of barriers on its eastern frontier with Russia, it said on Thursday, in a move to strengthen preparedness against hybrid threats amid Russia's invasion of Ukraine. (RTRS)

ESTONIA: Estonian Prime Minister Kaja Kallas, who is fighting to stay in office after ending her governing coalition amid squabbling, said she may seek an early election if she fails to assemble a new majority in parliament. Kallas, who has seen her popularity soar in Estonia with her hard line against Russian President Vladimir Putin, is courting the Social Democrats and the conservative Pro Patria party to form a majority. Pro Patria, which hasn’t signaled whether it will be on board, is expected to make a decision on Saturday. (BBG)

UKRAINE: The European Union’s executive arm is expected to recommend next week that Ukraine be granted candidate status, a key step on the long path to EU membership, according to people familiar with the matter. The recommendation, which needs to be debated and adopted by the college of EU commissioners, would come with conditions linked to the rule of law and anti-corruption legislation, said the people who declined to be named on a confidential matter. (BBG)

UKRAINE: NATO Deputy Secretary General Mircea Geoane confirmed that Ukrainian President Volodymyr Zelensky would be invited to the Alliance's summit in Madrid. (European Pravda)

UKRAINE: Ukrainian forces claimed on Thursday to have pushed forward in intense street fighting in the eastern city of Sievierodonetsk, but said their only hope to turn the tide was more artillery to offset Russia's massive firepower. In the south, Ukraine's defence ministry said it had captured new ground in a counter-attack in Kherson province, targeting the biggest swathe of territory Russia has seized since its invasion in February. (RTRS)

U.S.

ECONOMY: U.S. Treasury Secretary Janet Yellen said on Thursday she did not expect the U.S. economy to tip into a recession, but growth would "absolutely" slow down and gasoline prices were unlikely to fall anytime soon. "I don't think we're (going to) have a recession. Consumer spending is very strong. Investment spending is solid," she told a New York Times Dealbook event. "I know people are very upset and rightly so about inflation, but there's nothing to suggest that a ... recession is in the works." (RTRS)

ECONOMY: Treasury Secretary Janet Yellen rejected the idea that corporate greed is causing the US inflation surge, differing with fellow Democrats who have accused big businesses of price gouging. “Demand and supply is largely driving inflation,” Yellen said at a New York Times hosted event on Thursday, when asked about the view that corporate greed is a key cause. She said that it’s true that price-to-cost margins have gone up, but she said that’s not what’s driving inflation. (BBG)

ECONOMY: Friday's consumer price data is likely to reflect the continued impact that Russia's invasion of Ukraine is having on food and energy prices, but U.S. goods and services inflation should moderate in the months ahead, a senior U.S. official said on Thursday. "Despite these disruptions, we continue to believe that the economy can and is transitioning from what has been a historic recovery to stable, steady growth with inflation pressures moderating," the official told reporters. The official said air fares, which were up more than 30% in the last months, were expected to increase quite significantly again, showing the spillover impact of higher energy prices on components of core inflation. (RTRS)

POLITICS: The Jan. 6 committee hearing on Thursday promised to prove former President Trump was responsible for the Jan. 6 Capitol attack. Driving the news: “President Trump summoned the mob, assembled the mob, and lit the flame,” Vice Chair Liz Cheney (R-Wyo.) said, before laying out a seven-point plan for how the panel will publicly show Trump tried to overturn the 2020 election and prevent the transition of power to President-elect Biden. (Axios)

OTHER

GEOPOLITICS: Turkish President Recep Tayyip Erdogan warned Greece against deploying forces on Greek islands in the Aegean Sea, after criticizing what he described as a growing US military presence in the country. “Turkey will not step back from using its rights if necessary and will not give up its rights in the Aegean under the international agreements,” Erdogan said Thursday at an annual military exercise on the Aegean coast. “I am not joking, I am speaking very seriously.” (BBG)

CORONAVIRUS: The World Health Organization said on Thursday its latest investigation into the origins of COVID-19 was inconclusive, largely because data from China is missing, another blow to its years-long effort to determine how the pandemic began. (RTRS)

JAPAN: Officials from Japan’s Finance Ministry, Bank of Japan and Financial Services Agency will meet at 4pm to discuss international financial markets, according to a notice from the ministry. Participants include Vice Finance Minister for International Affairs Masato Kanda, FSA Commissioner Junichi Nakajima and BOJ Executive Director Shinichi Uchida. (BBG)

JAPAN: Japanese Finance Minister Shunichi Suzuki repeats his usual comments on the yen as the currency nears its lowest level since 1998 versus the US dollar. Stability in foreign exchange rates is most important; watching fx moves and their impact on the economy with a sense of urgency. Aware of inflation’s impact on households via media reports. Need to watch downside risks of inflation on the economy such as lower purchasing power and weaker consumption. Suzuki also refrained from commenting on the possibility of currency intervention. (BBG)

JAPAN: Japan's business community issued a joint statement on Friday seeking further relaxation of border controls, as the country begins a gradual easing of COVID-19 travel restrictions. The statement by domestic business lobby Keidanren and foreign chambers of commerce urged further easing to "facilitate an environment where people, goods, money and digital technologies can move freely". (RTRS)

AUSTRALIA: Australia's New South Wales state on Friday said it would invest A$1.2 billion ($850 million) in new transmission lines over 10 years to speed up connections to the grid for new renewable energy projects as the state looks to shift to greener power. (RTRS)

AUSTRALIA: AGL Energy, Australia's top power producer, said on Friday it expects a unit down since April at one of its power stations will restart in late September, more than a month later than earlier flagged, worsening the country's power crisis. (RTRS)

BOK: Bank of Korea Governor Rhee Chang-yong says a rise in interest rates may increase difficulties for the vulnerable class in the short term, but if the timing is missed and inflation rises further, the damage could be even greater. (BBG)

SOUTH KOREA: South Korea's President Yoon Suk-yeol said on Friday labour conflicts should be handled by law and principle as thousands of truckers have been on a strike this week to protest the surge in fuel costs. Yoon told reporters the government should maintain neutrality and that he was not sure if it was appropriate for authorities to get involved in labour conflicts too much. (RTRS)

SOUTH KOREA: Striking South Korean truckers plan to stop shipments of chip raw materials produced in Ulsan, a union official told Reuters. They also plan to tell non-union truckers not to enter a petrochemical production complex in Ulsan, the official said. (RTRS)

HONG KONG: Hong Kong’s quarantine facilities are the fullest in more than three months after officials revived the Covid Zero tactic of mandatory centralized isolation to contain the spread of new sub-variants. More than 50 people -- close contacts of people who test positive for a sub-variant -- are in government-run facilities, with occupancy hitting the highest since February this month. The overall number is likely higher as the government doesn’t release figures for Penny’s Bay, the biggest isolation camp for confirmed Covid cases and close contacts. (BBG)

BOC: Canada unexpectedly canceled an ultra-long bond issuance, potentially terminating the maturity as a surge in revenue reduces the government’s borrowing needs. The Bank of Canada said Thursday that an auction of 2064 bonds on June 16 won’t happen, just as traders were waiting for more information on the sale. The decision reflects “Canada’s declining borrowing needs generally,” the bank said in market notice. (BBG)

BOC: Hot inflation is the Bank of Canada's primary focus as it raises interest rates, a senior central bank official told Reuters on Thursday, making it clear that the bank was willing to accept a housing market correction in order to curb consumer price gains. Senior Deputy Governor Carolyn Rogers, in an interview with Reuters, said higher interest rates will weigh on housing and highly-indepted Canadians, but are needed to curb inflation, which is running at a 31-year high of 6.8%. (RTRS)

BRAZIL: Brazil and the United States should forge closer ties after the two countries drifted apart for ideological reasons, Brazil's far-right President Jair Bolsonaro said on Thursday at a first official meeting with his U.S. counterpart Joe Biden. (RTRS)

BRAZIL: The stock offering for Brazil’s state-owned power company Eletrobras on Thursday raised at least 29.2 billion reais ($6 billion), becoming Latin America’s largest equity deal so far this year, according to people familiar with the matter. (BBG)

RUSSIA: The Kremlin is planning to annex the Donetsk, Luhansk, Kherson, and Zaporizhzhia regions of Ukraine and combine them into a single federal district within Russia, three sources close to the Putin administration told Meduza. “The district should appear after referendums on joining Russia are held in these territories. Ukrainian territories will not accede to existing districts [in Russia],” one of these sources explained. (Meduza)

RUSSIA: Kremlin-controlled authorities have sentenced to death two British citizens and a Moroccan national who all served in Ukraine’s military after a three-day show trial in which no evidence in their favor was presented. (Politico)

RUSSIA: By the end of this year, some Russian regions may face a significant increase in unemployment, according to analysts from the Center for Strategic Research (CSR). First of all, there is a threat to the subjects of the Russian Federation with a pronounced industrial structure of the economy. At the same time, according to experts, employers will more often use other tools to optimize the wage fund (PWF) — transferring employees to idle time or reducing the variable part of salaries. (Kommersant)

RUSSIA: President Vladimir Putin has canceled the requirement for Russian exporters to sell 50% of foreign exchange earnings. Now companies will have to sell foreign currency in the amount that will be determined by the government commission on foreign investment, and the terms of the sale will be set by the Bank of Russia, follows from a decree published on Thursday. (Vedomosti)

RUSSIA: US Treasury Secretary Janet Yellen said a plan to ban European and UK firms from insuring tanker shipments of Russian oil could help limit Moscow’s energy revenues as allied countries seek to curb revenues flowing to Moscow. “The UK is very likely to go along with such a ban and that could have the effect of locking in a good deal of Russian oil,” Yellen said Thursday at an event organized by the New York Times. (BBG)

RUSSIA: Russia may be getting more revenue from its fossil fuels now than shortly before its invasion of Ukraine, as global price increases offset the impact of Western efforts to restrict its sales, U.S. energy security envoy Amos Hochstein told lawmakers during a hearing on Thursday. "I can't deny that," Hochstein told the Senate Subcommittee on Europe and Regional Security Cooperation in response to a question about whether Moscow was making more money now off its crude oil and gas sales than a couple of months before the war started. (RTRS)

TURKEY: Turkey's central bank said on Friday it was increasing the weight of lira fixed assets in the collateral pool, with banks to establish long-term fixed-rate securities in lira in addition to their foreign currency deposits and participation funds. It also said it was increasing the required reserve ratio applied to commercial cash loans in lira to 20% from 10%, in order to support financial stability. (BBG)

TURKEY: Turkey's Treasury said on Thursday it will issue state enterprise income-indexed domestic bonds to encourage Turks to make savings in lira assets, while the banking watchdog announced maturity limits for consumer loans. (BBG)

TURKEY: The Turkish BDDK banking watchdog said on Thursday it had decided to set a maximum 24-month maturity for consumer loans between 50,000 and 100,000 lira and a maximum 12-month maturity for consumer loans over 100,000 lira ($5,814). It said in a statement that among other steps it will direct loans towards productive areas such as investment and exports. (BBG)

AFRICA: The President of Senegal and the African Union (AU), Macky Sall , answered questions from France 24 and RFI. Asked about his trip to Sochi, Russia, to meet Vladimir Putin as President of the AU, Macky Sall explains that he went there "because we are experiencing a shortage of cereals and fertilizers on the African continent". He said he had sent three messages to the Russian president. "Do everything to help free grain from Ukraine through the port of Odessa", "access grain and fertilizer", and "the end of the war, a de-escalation". (France24)

ISRAEL: The floundering government coalition appeared poised to at least survive the weekend, after a meeting between Prime Minister Naftali Bennett and a rumored defector passed uneventfully Thursday evening. Following their meeting, Bennett and Yamina MK Nir Orbach issued a brief joint statement that did not provide any details of their discussion. “The meeting was good, we will meet once again on Sunday,” the statement said. (Times of Israel)

IRAN: Iran on Thursday dealt a near-fatal blow to chances of reviving the 2015 Iran nuclear deal as it began removing essentially all the International Atomic Energy Agency monitoring equipment installed under the deal, IAEA chief Rafael Grossi said. (RTRS)

METALS: A group of indigenous Peruvian communities on Thursday agreed to temporarily lift a protest against MMG Ltd's Las Bambas copper mine that forced the company to halt operations for more than 50 days, the longest in the mine's history. According to meeting minutes signed on Thursday afternoon, the truce will last thirty days and the communities and the mine will engage in talks during that time. (RTRS)

ENERGY: Workers on Shell’s Prelude floating liquefied natural gas production facility in Australia are beginning industrial action after talks failed to resolve a dispute over conditions, a labor union group said Friday. The action, which had been expected, is likely to affect operations and potentially disrupt some cargoes, people with knowledge of the matter said earlier this month Prelude has the capacity to produce 3.6 million tons a year of LNG, but has struggled with ongoing technical issues since it started in 2019. (BBG)

OIL: Saudi Aramco will give full contractual oil supply to at least five buyer in Asia for July, but cut volumes to two others, said refinery officials who asked not to be identified as the information is confidential. One of the buyers that received full-term supply had sought extra volumes and was informed that it will receive what it had asked for. Another customer had some grade adjustment. Of the two that will receive less contractual crude volumes, one had also asked for incremental supply. (BBG)

CHINA

ECONOMY: Banks must achieve the goal of lending to more SMEs at a faster pace this year, and further tilt credit resources to areas severely affected by the epidemic, the China Securities Journal reported citing a meeting by China Banking and Insurance Regulatory Commission. Large state-owned banks should ensure an additional CNY1.6 trillion of inclusive loans to small business throughout the year, the meeting said. Banks are still reluctant to lend to SMEs that lack collateral, guarantees and other data, the newspaper said citing Liang Si, a researcher at Bank of China Research Institute. (MNI)

ECONOMY: Tesla Inc has cancelled three online recruitment events for China scheduled this month, the latest development after Chief Executive Elon Musk threatened job cuts at the electric car maker, saying it was "overstaffed" in some areas. However, Musk had not commented specifically on staffing in China, which made more than half of the vehicles for the automaker globally and contributed a quarter of its revenue in 2021. The company cancelled the three events for positions in sales, R&D and its supply chain originally scheduled for June 16, 23 and 30, notifications on messaging app WeChat showed late on Thursday, without stating a reason. (RTRS)

TRADE: China’s foreign trade will continue to be supported by quickly recovered production amid eased Covid-19 curbs, increased pro-growth policies and a weaker yuan, the China Securities Journal reported citing analysts after May export growth unexpectedly rebounded by 13 percentage points to 16.9% y/y. Overseas demand was still expanding in May, and high commodity prices continued to boost payments, the newspaper said citing Zheng Houcheng, director of Yingda Securities Research Institute, adding that there is a lower comparison base on year. Congestion at the Port of Shanghai has eased rapidly since late April, the newspaper added. (MNI)

CORONAVIRUS: Shanghai will lock down eight city districts this weekend to mass test millions of people as Covid-19 cases continue to emerge, causing more disruption and triggering a renewed run on groceries in areas that just exited a grueling two-month shutdown. The restrictions will apply to roughly 15.3 million residents of Pudong, Huangpu, Jing’an, Xuhui, Hongkou, Baoshan, Yangpu and Minhang districts of Shanghai during the testing, a key tool in China’s Covid Zero arsenal. Renewed scrutiny in the areas that account for more than 60% of Shanghai’s population comes after the number of infections found in the community rebounded to six on Thursday, from zero the day before. (BBG)

ENERGY: Thermal coal in China has climbed above the government’s price caps imposed last month, prompting regulators to dispatch squads to major mining regions to ensure compliance. Cargoes for spot delivery have traded above 1,300 yuan ($195) a ton this week in the northern hub of Qinhuangdao, higher than the 1,155 yuan ceiling set by Beijing, according to people familiar with the transactions. (BBG)

CHINA MARKETS

PBOC INJECTS NET CNY10 BILLION VIA OMOS FRIDAY

The People's Bank of China (PBOC) injected CNY10 billion via 7-day reverse repos with the rate unchanged at 2.1% on Friday. This led to a net injection of CNY10 billion as no 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) rose to 1.8608% at 9:49 am local time from the close of 1.6154% on Thursday.
• The CFETS-NEX money-market sentiment index closed at 44 on Thursday vs 42 on Wednesday.

PBOC SETS YUAN CENTRAL PARITY AT 6.6994 FRI VS 6.6811

The People's Bank of China (PBOC) set the dollar-yuan central parity rate higher at 6.6994 on Friday, compared with 6.6811 set on Thursday.

OVERNIGHT DATA

CHINA MAY CPI +2.1% Y/Y; MEDIAN +2.2%; APR +2.1%
CHINA MAY PPI +6.4% Y/Y; MEDIAN +6.4%; APR +8.0%

JAPAN MAY PPI +9.1% Y/Y; MEDIAN +10.0%; APR +9.5%
JAPAN MAY PPI +0.0% M/M; MEDIAN +0.6%; APR +1.1%

SOUTH KOREA APR BOP CURRENT ACCOUNT BALANCE -$79.3MN; MAR $7,057.6MN
SOUTH KOREA APR BOP GOODS BALANCE +$2,947.7MN; MAR $5,637.5MN

SOUTH KOREA MAY BANK LENDING TO HOUSEHOLDS KRW1,060.6TN; APR KRW1,060.2TN

MARKETS

UP TODAY (Times GMT/Local)

Date	GMT/Local	Impact	Flag	Country	Event
10/06/2022	0001/0101	**		UK	IHS Markit/REC Jobs Report
10/06/2022	0130/0930	***		CN	CPI
10/06/2022	0130/0930	***		CN	Producer Price Index
10/06/2022	0600/0800	*		NO	CPI Norway
10/06/2022	0700/0900	***		ES	HICP (f)
10/06/2022	0800/1000	*		IT	Industrial Production
10/06/2022	0830/0930	**		UK	Bank of England/TNS Inflation Attitudes Survey
10/06/2022	1230/0830	***		CA	Labour Force Survey
10/06/2022	1230/0830	***		US	CPI
10/06/2022	1345/1545			EU	ECB Lagarde Message for Goethe Uni Law & Finance Institute
10/06/2022	1400/1000	***		US	University of Michigan Sentiment Index (p)
10/06/2022	1400/1000	*		US	Services Revenues
10/06/2022	1600/1200	***		US	USDA Crop Estimates - WASDE
10/06/2022	1800/1400	**		US	Treasury Budget