MNI EUROPEAN OPEN: RBA Leans Against Market Pricing, Flags 25-50bp Move In July

EXECUTIVE SUMMARY

• FED’S BULLARD EXPECTS ECONOMIC EXPANSION TO CONTINUE THIS YEAR (WSJ)
• LANE: ECB WILL NOT REVISIT DECISION TO LIFT RATES BY 25BP IN JULY (RTRS)
• VILLEROY: NEW ECB TOOL MUST BACKSTOP COMMITMENT TO EURO (RTRS)
• RBA’S LOWE SIGNALS 25-TO-50 BASIS-POINT RATE HIKE IN JULY (BBG)

Fig. 1: Australia/U.S. 10-Year Yield Spread (bp)

Source: MNI - Market News/Bloomberg

UK

ECONOMY: Annual pay rises agreed at British workplaces steadied last month at a historically high rate but fell further behind soaring inflation, according to another survey on Tuesday that suggested fears of a wage-price spiral may be overdone. XpertHR, a pay and personnel data publisher, said employer pay deals for the three months to May stood at a median 4%, unchanged from the previous month. While jointly the highest reading since 1992, it was a long way behind consumer price inflation of 9% in April. (RTRS)

ECONOMY: An exodus of older workers from the UK labour force is likely to persist, tightening supply side constraints for an economy already facing high inflation and complicating Bank of England monetary policy, associate director at the Institute of Fiscal Studies Jonathan Cribb told MNI. (MNI)

EUROPE

ECB: The European Central Bank will not revisit its decision to raise interest rates by 25 basis points at its July 21 meeting, ECB Chief Economist Philip Lane said on Monday, just days after some of its global peers accelerated the pace of monetary tightening. Negative rates are no longer appropriate for the bloc but the exit will be done in two steps, first by lifting the negative 0.5% deposit rate to minus 0.25% in July and by a possibly larger amount in September, Lane said. (RTRS)

ECB: The European Central Bank's planned instrument against financial fragmentation between euro countries must allow it to back up its commitment to defending the euro, ECB policymaker Francois Villeroy de Galhau said on Monday. At an emergency meeting last week, the ECB asked staff to speed up the design of an "anti-fragmentation" tool after a sharp widening in spreads between southern European bond yields versus safe-haven German debt. (RTRS)

FRANCE: French President Emmanuel Macron will invite all political parties able to form a group in the new parliament for talks on Tuesday and Wednesday after his camp lost its absolute majority, a source close to Macron said on Monday. Macron's centrist coalition is under pressure to secure support from rivals to salvage Macron's reform agenda after weekend elections delivered a hung parliament. If it fails, France could face a long spell of political paralysis. (RTRS)

ITALY/BTPS: Italy sold 3.42 billion euros ($3.60 billion) of its latest 'BTP Italia' inflation-linked bond due in June 2030 to retail investors on Monday, the first day of its offering. Data by Italy's bourse showed it underperformed the May 2020 issue of a similar bond, a 5-year maturity note which raised 4.02 billion euros on the first day it was offered to retail investors. The Rome-based Treasury will offer the new retail linker with an 8-year maturity to small savers until market close on Wednesday. Professional buyers can start making orders on Thursday, from 0800 to 1000 GMT. Italian national consumer price index (NIC index) stood in May at an annual rate of 6.8%, ISTAT data showed last week. (RTRS)

NETHERLANDS: The Netherlands on Monday said it would activate the "early warning" phase of an energy crisis plan and lifted a cap on production by coal-fired power plants as it seeks to reduce reliance on Russian gas in the wake of the war in Ukraine. (RTRS)

U.S.

FED: Federal Reserve Bank of St. Louis President James Bullard said the economy appears on track for more expansion this year, and that the central bank must meet market expectations for rate rises as part of its effort to rein in inflation. “U.S. labor markets remain robust, and output is expected to continue to expand through 2022,” Mr. Bullard said in materials for a presentation in Spain. But he added, “Risks remain substantial and stem from uncertainty around the Russia-Ukraine war and the possibility of a sharp slowdown in China.” (WSJ)

ECONOMY: Former Treasury Secretary Lawrence Summers said the US jobless rate would need to rise above 5% for a sustained period in order to curb inflation that’s running at the hottest pace in four decades. “We need five years of unemployment above 5% to contain inflation -- in other words, we need two years of 7.5% unemployment or five years of 6% unemployment or one year of 10% unemployment,” said Summers said in a speech in London Monday. “There are numbers that are remarkably discouraging relative to the Fed Reserve view.” (BBG)

FISCAL: President Biden on Monday told reporters he hoped to make a final decision about whether to support a federal gas tax holiday by the end of the week as high fuel prices continue to pose a problem. “I hope I have a decision … by the end of the week,” Biden said from Rehoboth Beach, Del., where he spent the weekend. Biden did not rule out sending gas rebate cards to Americans, though administration officials have in recent days sounded cool to the idea. Suspending the federal gas tax would require an act of Congress, but a public push by Biden in favor of the policy could help spur action on Capitol Hill. An estimate from the Penn Wharton Budget Model released earlier this year found that suspending the federal gas tax from March to December of this year would reduce average per-capita gasoline spending by between $16 and $47 for that period. (The Hill)

OTHER

EU/CHINA: The European Union and China are planning two high-level meetings in coming weeks, but the talks must tackle real bilateral issues and provide tangible benefits, according to the bloc’s ambassador in Beijing. The two sides will hold the high-level dialogs on the economy and on climate and the environment “in the next few weeks, hopefully,” Nicolas Chapuis, the EU’s ambassador in China, told Bloomberg Television in Beijing on Monday. “We are continuing to press for engagement and solving the issues at hand. Addressing the issues, not sweeping them under the rug.” (BBG)

GEOPOLITICS: Discussions between Turkey, Finland and Sweden about the Nordic countries' NATO membership will continue and an alliance summit in Madrid next week is not a deadline, Turkey said after talks in Brussels on Monday. (RTRS)

JAPAN: Japanese companies look to invest 25% more into equipment, real estate and other physical assets this fiscal year, a Nikkei survey shows, as catching up on delayed plans and a growing interest in decarbonization propel them toward the sharpest jump in nearly half a century. (Nikkei)

JAPAN: Japan’s Finance Minister Shunichi Suzuki repeats recent comments on forex, saying that he will continue to monitor the yen with a high sense of urgency. Will continue to collaborate with the BOJ and take appropriate actions on forex if necessary, Suzuki tells reporters Tuesday. Sudden moves in forex are undesirable. Separately, Suzuki says its important to have responsible fiscal policy management, and that he doesn’t believe the debate on fiscal health has receded. (BBG)

RBA: Australian central bank chief Philip Lowe signaled he will only raise interest rates by 25-to-50 basis points at the July meeting, the same size as debated this month, ahead of the release of significant new economic data. Asked after a speech Tuesday on whether he would follow the Federal Reserve with a 75 basis-point hike next month, Lowe said the board will be “having the same discussion” on the size as it did two weeks ago. Markets responded by scrapping bets on a 75 basis-point hike at the July meeting. “We’re going to look at the data we have each month and the level of interest rates and the inflation rate,” Lowe said. “I expect that next month we’ll be having the same discussion at our board meeting-- 25 or 50 basis points.” (BBG)

RBA: Reserve Bank of Australia, in minutes of its June policy meeting released Tuesday, pointed out that households had built up large financial buffers during the pandemic and the saving rate was very high. “Housing prices had declined in some markets over preceding months, but remained more than 25% higher than prior to the pandemic, thereby supporting household wealth and spending”. On interest rates, says “further steps would need to be taken to normalize monetary conditions in Australia over the months ahead”. (BBG)

RBA: The Reserve Bank’s messy move last year to dump a policy aimed at repressing bond yields to nearly zero led to market dislocation and damaged the central bank’s reputation, a review has found. The central bank on Tuesday released an RBA board review of an experimental policy targeting bond yields, which it introduced to shield the economy during the depths of the COVID-19 pandemic. Some have argued the episode dented the RBA’s credibility, and the central bank on Tuesday said this was an “open question,” arguing other central banks had also underestimated the strength of the economic recovery. In a review of the program, the RBA said the policy had succeeded in driving down funding costs across the economy, pointing to the fall in fixed rates, and a jump in housing and business lending. However, it conceded the exit from the program late last year had tarnished the RBA’s reputation and caused dislocation in the bond market. (The Sydney Morning Herald)

BOK: Bank of Korea Governor Rhee Chang-yong kept the door open for a larger-than-usual interest-rate hike as he emphasized the importance of prioritizing the combat against inflation. Rhee spoke Tuesday just after the central bank released a statement indicating that inflation this year would accelerate beyond a 4.5% annual forecast it gave just last month. Early shipments data for June released separately showed the country’s trade deficit ballooning to a record, fueling concern about the impact of a weaker won that is adding to inflationary pressure at home. “It’s our unchanged forward guidance that monetary policy should be managed with focus on inflation until the rising trend eases,” Rhee told reporters. “There are still three weeks of time left and the board will have to make a decision based on new data.” (BBG)

HONG KONG: Hong Kong's de-facto central bank bought HK$5.22 billion ($664.99 million) from the market in New York trading hours to stop the local currency weakening and breaking its peg to the U.S. dollar. The Hong Kong dollar is pegged to a tight band of between 7.75 and 7.85 versus the U.S. dollar. The aggregate balance - the key gauge of cash in the banking system - will decrease to HK$262.699 billion on June 22, an HKMA spokesperson said on Tuesday. (RTRS)

TURKEY: Turkey's government has submitted a proposal to parliament for a supplementary budget of some 1 trillion lira ($57.74 billion) to cover rising costs of tackling a currency slide, soaring energy prices and rampant inflation, the state-run Anadolu news agency said on Monday. Sources had told Reuters this month that Ankara was mulling pushing a supplemetary budget through parliament before summer recess. (RTRS)

BRAZIL: Brazilian Economy Minister Paulo Guedes said on Monday that privatizing state-run oil firm Petrobras via migration to the "Novo Mercado" segment of the Brazilian stock exchange would increase its market cap from 450 billion reais to 750 billion reais ($145 billion). The Novo Mercado is a segment of the B3 exchange with stricter governance rules, including a single class of shares. Speaking at an event hosted by development bank BNDES, Guedes also said Brazil is vital to energy security of the West, which should speed up the country's accession to the Organization for Economic Cooperation and Development (RTRS).

BRAZIL: Brazil Lower House Speaker Arthur Lirasaid that he wants President Jair Bolsonaro’s administration more directly involved in measures to keep Petrobras from raising fuel prices. Lira said higher taxes on Petrobras profits should be proposed via provisional measure, according to remarks made to reporters in Brasilia after meeting with political party leaders. Lira suggested the govt send to Congress a provisional measure changing the law governing state-owned companies so that there is “greater synergy between state-run companies and the government of the moment”. (BBG)

RUSSIA: The European Union’s 27 member states are set to formally grant Ukraine candidate status later this week, following a Monday meeting of EU ambassadors where nobody opposed the decision, according to people familiar with the matter. (BBG)

RUSSIA: The Kremlin said on Monday that Americans captured in Ukraine were "mercenaries" engaged in illegal activities and should take responsibility for their "crimes", RIA news agency reported. Kremlin spokesman Dmitry Peskov was also quoted as saying that the detained men were not covered by the Geneva convention as they were not regular troops. They had shot at at Russian servicemen and put their lives in danger. (RTRS)

RUSSIA: The Russian foreign ministry will summon on Tuesday European Union ambassador to Moscow Markus Ederer over Lithuania's ban of the transit of goods under EU sanctions through Kaliningrad, the governor of Kaliningrad said on Monday. (RTRS)

IRAN: Iran is escalating its uranium enrichment further by preparing to use advanced IR-6 centrifuges at its underground Fordow site that can more easily switch between enrichment levels, a United Nations nuclear watchdog report seen by Reuters on Monday showed. The move is the latest of several steps Iran had long threatened to take but held off carrying out until 30 of the 35 countries on the International Atomic Energy Agency's Board of Governors backed a resolution this month criticizing it for failing to explain uranium traces found at undeclared sites. (RTRS)

METALS: Workers at Chile's state-owned Codelco announced on Monday they will start a nationwide strike early Wednesday in protest of the government and company's decision to close a troubled smelter, the president of the union federation told Reuters. "We are going to start on Wednesday in the first shift," said Amador Pantoja, president of the Federation of Copper Workers (FTC). (RTRS)

METALS: Miners Vale SA and BHP Group said in a joint statement on Monday they are not interested in selling their joint venture Samarco, after reports of the interest of Brazilian steelmaker Companhia Siderurgica Nacional (CSN). "BHP Brasil and Vale say Samarco is not for sale and reaffirm its support for the restructuring plan filed by the employees' unions," the companies said in a joint statement. The statement added the companies are "focused on the mediation hearing in the bankruptcy process" scheduled for Tuesday. (RTRS)

OIL: United States is in talks with Canada and other allies globally to further restrict Moscow's energy revenue by imposing a price cap on Russian oil without causing spillover effects to low-income countries, Treasury Secretary Janet Yellen said on Monday. "We are talking about price caps or a price exception that would enhance and strengthen recent and proposed energy restrictions by Europe, the United States, the UK and others, that would push down the price of Russian oil and depress Putin's revenues, while allowing more oil supply to reach the global market," Yellen told reporters in Toronto. "We think a price exception is also an important way to prevent spillover effects to low income in developing countries that are struggling with high costs food and energy," Yellen said, speaking along side Canadian Finance Minister Chrystia Freeland. (RTRS)

OIL: Europe’s resolve to stop buying Russian crude may be starting to ebb. The continent’s oil refineries took 1.84 million barrels a day of crude from Russia last week, according to tanker tracking data compiled by Bloomberg. That was the the third consecutive weekly increase and took flows from Russia to Europe, including Turkey, to their highest in almost two months. (BBG)

OIL: Ecuador’s state oil company Petroecuador could be forced to suspend exports if protests continue to disrupt production, Chief Executive Officer Italo Cedenosaid in a streamed press conference. “If at some moment our tanks at Lago Agrio, Balao, Amazonas, Punta Gorda no longer have more oil than for just our domestic consumption, we will obviously have to postpone exports,” Cedeno said. (BBG)

CHINA

PBOC: China’s financial regulators are likely to guide down banks’ capital costs to drive down their Loan Prime Rate quotations in H2, thereby reducing the loan interest rates for enterprises and residents, the 21st Century Business Herald reported citing analysts. LPR, based on the rate of PBOC’s Medium-term Lending Facility and quotations submitted by 18 banks, remains at 3.70% for the one-year maturity and 4.45% for five years this month. The PBOC is less likely to cut the MLF rate due to the expected significant monetary tightening by the Fed, analysts said. There is room for a 5-10 bps in one-year LPR, and a 10-15 bps cut in the five-year one, by means of deposit interest rate reform and reserve requirement ratio cuts to lower banks’ costs, the newspaper said citing Ming Ming, chief economist at CITIC Securities. (MNI)

PROPERTY/CREDIT: A record selloff in Fosun International Ltd.’s dollar bonds shows that financial stress among China’s property developers is shifting to the country’s other weaker borrowers. In a sign of contagion, an extended slump in the Shanghai-based conglomerate’s dollar bonds is spreading to several Chinese industrial firms’ offshore debt Tuesday. Fosun’s dollar notes lost 21% last week, the most in a Bloomberg index of Chinese high-yield dollar bond, after Moody’s Investors Service put the firm on review for a downgrade. (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 Tuesday. 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 1.9005% at 9:41 am local time from the close of 1.7042% on Monday.
• The CFETS-NEX money-market sentiment index closed at 51 on Monday vs 45 on Friday.

PBOC SETS YUAN CENTRAL PARITY AT 6.6851 TUES VS 6.7120

The People's Bank of China (PBOC) set the dollar-yuan central parity rate lower at 6.6851 on Tuesday, compared with 6.7120 set on Monday.

OVERNIGHT DATA

AUSTRALIA ANZ ROY MORGAN WEEKLY CONSUMER CONFIDENCE 81.7; PREV 80.4

Consumer confidence increased 1.6% last week after a 7.6% decline the week before. News about the strength of the labour market may have boosted sentiment, but it remains deeply pessimistic. Household inflation expectations jumped 0.3ppt to 5.9% as average petrol prices increased over the week. The ‘current’ and ‘future economic conditions’ subindices dropped for a third consecutive week, as central banks across the world, including the RBA, became increasingly hawkish about bringing inflation under control, causing uncertainty about economic growth. (ANZ)

NEW ZEALAND Q2 WESTPAC CONSUMER CONFIDENCE 78.7; Q1 92.1

Consumer confidence has fallen sharply in recent months as household budgets have been squeezed by higher mortgage rates and increases in living costs. Weak consumer confidence is weighing on household spending appetites, reinforcing our expectations for a slowdown in economic growth. The drop in confidence has been widespread across all age groups, income brackets and regions. (Westpac)

SOUTH KOREA JUN TRADE BALANCE 20 DAYS -$7,642.0MN; MAY -$4,827.0MN
SOUTH KOREA JUN EXPORTS 20 DAYS -3.4% Y/Y; MAY +24.1%
SOUTH KOREA JUN IMPORTS 20 DAYS +21.1% Y/Y; MAY +37.8%

MARKETS

UP TODAY (Times GMT/Local)

Date	GMT/Local	Impact	Flag	Country	Event
21/06/2022	0715/0815			UK	BOE Pill at Institute of Accountants Economic Summit
21/06/2022	0800/1000	**		EU	EZ Current Acc
21/06/2022	1000/1100	**		UK	CBI Industrial Trends
21/06/2022	1215/1315			UK	BOE Tenreyro Seminar at Goethe University
21/06/2022	1230/0830	**		CA	Retail Trade
21/06/2022	1230/0830	**		US	Philadelphia Fed Nonmanufacturing Index
21/06/2022	1400/1000	***		US	NAR existing home sales
21/06/2022	1500/1100			US	Richmond Fed's Tom Barkin
21/06/2022	1530/1130	*		US	US Treasury Auction Result for 26 Week Bill
21/06/2022	1530/1130	*		US	US Treasury Auction Result for 13 Week Bill
21/06/2022	1600/1200			US	Cleveland Fed's Loretta Mester
21/06/2022	1930/1530			US	Richmond Fed's Tom Barkin