MNI EUROPEAN OPEN: Energy & Recession Worries Remain At The Fore

EXECUTIVE SUMMARY

• FED'S POWELL DECLINES TO RULE OUT 100-BASIS POINT RATE HIKE (RTRS)
• U.S. SENATE'S NO. 2 REPUBLICAN SAYS GAS TAX HOLIDAY 'DEAD ON ARRIVAL' (RTRS)
• GERMANY SHOULD BRACE FOR FURTHER GAS FLOW REDUCTION, HABECK SAYS (BBG)
• TORY STRATEGISTS BRACED FOR DOUBLE DEFEATS IN BY-ELECTIONS (FT)
• WE CAN FIND A NEW MAJORITY, FRANCE'S MACRON SAYS AFTER LOSING CONTROL OF PARLIAMENT (RTRS)
• FORMER JAPAN FX CHIEF NAKAO: INTERVENTION CAN’T BE ELIMINATED (BBG)
• YUAN UNLIKELY TO DEPRECIATE SHARPLY AGAINST DOLLAR (CSJ)

Fig. 1: Eurodollar EDZ2/H3 &EDZ2/Z3 Spreads (bp)

Source: MNI - Market News/Bloomberg

UK

ECONOMY: Britain is “definitely” tumbling into recession, the outgoing president of the CBI warned after inflation surged to a new 40-year high amid the worst industrial strife for decades. (Telegraph)

FISCAL: The Treasury has told cabinet ministers that any pay rises for public sector workers must come from their existing budgets. Amid mounting concern about wage awards fuelling inflation, ministers have been given the message that there will be “no new money” for pay rises, meaning that any extra funding will have to be found through spending cuts or underspending. In the spending review last November, the government assumed that increases in public sector pay would amount to about 3 per cent. But the review, and the assumptions underpinning it, took place before Russia invaded Ukraine, which has helped to spur inflation. (The Times)

POLITICS: The Conservatives are braced to lose two parliamentary by-elections, according to senior party strategists, in moves that could prompt a renewed backlash against Boris Johnson. Voters will head to the polls on Thursday in Wakefield, West Yorkshire, and Tiverton and Honiton in Devon, in by-elections prompted by the resignations of Tory MPs. It will be a chance for people to give a verdict on the prime minister’s conduct in the partygate scandal. (FT)

POLITICS: The Tories are set to lose their Wakefield seat in the by-election and may also be defeated in Tiverton & Honiton if Labour supporters vote tactically, a leading polling expert has said. A double defeat means the government will be “at risk of losing its electoral footing”, Professor Sir John Curtice said. (The Times)

EUROPE

ECB: The European Central Bank will raise its deposit rate above zero for the first time in a decade in September, according to most economists polled by Reuters, who expect it to be at least 50 basis points higher than previously anticipated by year-end. While economists say euro zone inflation is yet to peak the ECB has given itself some room to catch up with its global peers, who are rapidly hiking rates to neutral, by planning a new instrument to limit the divergence in the bloc's bond yields. The June 15-22 poll showed all but two of the 55 economists expected the ECB to deliver a quarter-point raise on July 21 to -0.25%. Two expected it to hike by 50 basis points, compared to none in the last poll. A strong majority of 91% or 50 of 55 economists expected the Bank to hike its policy rate by 50 basis points in September, taking the deposit rate out of negative territory to 0.25%. (RTRS)

GERMANY: German Economy Minister Robert Habeck said the country should brace for Russian President Vladimir Putin to further squeeze gas imports, a decision that may trigger the next stage of the country’s gas-emergency plan. “Given the current situation, we must assume that Putin is ready to reduce the gas flow further,” Habeck said Wednesday on the sidelines of an air show outside Berlin. “We are preparing for all scenarios.”Habeck said a further cut in flows could prompt the government to move to the second of a three-stage crisis plan. That move could come as early as this week, according to an official familiar with plan, who asked not to be identified. (BBG)

FRANCE: All party leaders in the French parliament agree on the need to avoid a political gridlock, President Emmanuel Macron said in a televised address on Wednesday, adding that he would work towards forming a majority over the coming weeks. In his first comments on the election in which his camp lost its absolute majority, Macron also said new agreements must be struck across party lines and that the political decision makers now needed to learn to make compromises. (RTRS)

ITALY: Italy approved measures on Wednesday to help families and firms cope with surging energy costs and boost gas storage amid a Russian supply squeeze, ministers said. The package is worth around 3.3 billion euros ($3.50 billion), according to a draft seen by Reuters. The scheme mainly focuses on extending to the third-quarter measures aimed at cutting electricity and gas bills for enterprises and households. (RTRS)

ITALY/BTPS: Italy sold 7.27 billion euros ($7.70 billion) of its latest BTP Italia inflation-linked bond due in June 2030 in the three days of a retail offering, data by Italy's bourse showed on Wednesday. The bond underperformed the May 2020 issue of a similar note, with a 5-year maturity. Italy sold 1.40 billion euros of the new BTP Italia on Wednesday, the last day of the retail offer. Professional buyers can place orders on Thursday, from 0800 to 1000 GMT. Italy raised about 5.2 billion euros on the third day of the retail offer of the May 2020 issue, with total orders from retail investors just over 14 billion euros. Including institutional investors, the overall demand at the last edition hit a record 22.3 billion euros. (RTRS)

U.S.

FED: Federal Reserve Chair Jerome Powell on Wednesday said he would not take any specific size of rate hike "off the table" as the central bank works to contain inflation. Asked by a member of the Senate Banking Committee if the Fed could raise rates by as much as 100 basis points at once, Powell said he would never take anything off the table, and officials will make whatever moves are needed to restore price stability. (RTRS)

FED: Chicago Federal Reserve Bank President Charles Evans on Wednesday signaled he'd likely back another big interest rate hike in July unless inflation data improves, and nodded to the risk of a downturn because the Fed cannot "fine-tune" the economy's response to rising borrowing costs. "I would think that, you know, 75 (basis points) is a very reasonable place to have a discussion," Evans told reporters after a talk in Cedar Rapids, Iowa, when asked about his outlook for the Fed's July policy decision. "I think 75 would be in line with continued strong concerns that the inflation data isn't coming down as quickly as we thought." (RTRS)

FED: The U.S. Federal Reserve should raise interest rates above 3% by the end of this year and then reassess how much more it needs to do to bring inflation down in part due to the tightening impact of the central bank reducing its balance sheet in tandem, Philadelphia Fed President Patrick Harker said on Wednesday. "We don't have to overreact in terms of the fed funds rate," Harker said during a conference held by the regional Federal Reserve bank. "We need to get above neutral, again I'd like to get above three, but I don't think you have to accelerate rapidly beyond that at this point until we get a better understanding of what exactly the quantitative tightening is doing." (RTRS)

FISCAL/INFLATION/ENERGY: President Joe Biden's request that Congress pass a three-month suspension of the federal gasoline tax "is dead on arrival," U.S. Senator John Thune, the second-ranking Republican in the Senate, said on Wednesday. "What the administration, of course, is coming up with is yet another gimmick, another Band-Aid and something they know is dead on arrival up here in Congress," Thune said. (RTRS)

FISCAL/INFLATION/ENERGY: Energy Sec. Jennifer Granholm indicated that President Biden has considered using the Defense Production Act to help mitigate the record-high gas prices, but stressed that it is just "one" of the tools at the president’s disposal. (FOX Business)

POLITICS: U.S. President Joe Biden's public approval rating fell for a fourth straight week to 36% matching its lowest level last seen in late May, according to a Reuters/Ipsos opinion poll completed on Wednesday. The president's approval rating has stayed below 50% since August, a warning sign that his Democratic Party could lose control of at least one chamber of the U.S. Congress in the Nov. 8 midterm elections. Thirty-four percent of Americans say the economy is the most important issue currently facing the United States. Biden has been plagued by 40-year-highs in inflation, with Russia's invasion of Ukraine restricting global fuel supply and supply chains still constrained by the COVID-19 pandemic. (RTRS)

OTHER

GLOBAL TRADE: Countries should ask the United States for help if they have any problems importing Russian food and fertilizer, a senior U.S. official said on Wednesday, stressing that such goods were not subject to U.S. sanctions over Moscow's war in Ukraine. "Nothing is stopping Russia from exporting its grain or fertilizer except to own policies and actions," U.S. State Department Bureau of Economic and Business Affairs Assistant Secretary, Ramin Toloui, told reporters. (RTRS)

U.S./CHINA: US tariffs on more than $300 billion in annual imports from China provide significant leverage and are useful from a negotiating standpoint, President Joe Biden’s trade chief said amid a debate within his administration on whether to keep the duties in place. “The China tariffs are, in my view, a significant piece of leverage, and a trade negotiator never walks away from leverage,” US Trade Representative Katherine Tai said at a Senate hearing on Wednesday in response to a question from Senator Bill Hagerty, a Tennessee Republican, about whether removing the duties would encourage “more bad behavior” by Beijing. (BBG)

G7: Leaders from the Group of Seven rich nations and the NATO alliance will seek to increase pressure on Russia over its war in Ukraine at meetings next week, while making clear that they remain concerned about China, senior U.S. administration officials said on Wednesday. NATO would announce new commitments to shore up European security, the officials said, while the participation of leaders from Australia, Japan, South Korea and New Zealand would show that the war in Ukraine had not detracted from focus on China. G7 leaders were also expected to address China's "coercive economic practices," which have become even more aggressive in recent years, one of the officials said. (RTRS)

GEOPOLITICS: The United States is hopeful that there will soon be a positive resolution of the issues between Turkey, Finland and Sweden regarding the NATO accession bids of the two Nordic countries, the State Department's top diplomat for Europe said on Wednesday. Speaking at a Senate Foreign Relations Committee (SFRC) hearing, Karen Donfried, assistant secretary for Europe and Eurasian affairs, said Washington understood that the talks between the parties earlier this week had been constructive. (RTRS)

JAPAN: The possibility of Japan intervening to stem the yen’s slide can’t be ruled out, according to Takehiko Nakao, former head of currency policy at the finance ministry, in remarks that appeared to spark a move in the currency. “Unilateral intervention shouldn’t be eliminated as a possibility,” said Nakao, in an interview on Bloomberg TV. “Coordinated intervention is generally very difficult unless there’s a very excessive movement in the market, or a kind of crisis mode.” The yen strengthened to as much as 135.13 against the dollar from around 135.77 before his remarks. Nakao said separately he’s not in communication with current policy makers over possible intervention. (BBG)

NEW ZEALAND: Fonterra today lifted its 2022/23 forecast Farmgate Milk Price range to NZ$8.75-$10.25 per kgMS, up from NZ$8.25-$9.75 per kgMS. This increases the midpoint of the range, which farmers are paid off, by 50 cents to $9.50 per kgMS. Fonterra Chief Executive Miles Hurrell says the lift in the forecast milk price reflects the milk supply and demand picture and the current strong US Dollar. (Scoop NZ)

SOUTH KOREA: South Korean Finance Minister Choo Kyung-ho says government will make efforts to stabilize market if needed, to minimize negative impact from rising USD/KRW. To also make policy efforts to alleviate supply and demand instability in the market. (BBG)

SOUTH KOREA: South Korea’s feedback loop between inflation outcomes and expectations of further price gains may grow stronger, a central bank deputy governor said, calling for early action to ease consumer anxiety over rising costs. With inflation remaining elevated at levels last seen in 2008, the Bank of Korea may consider a larger-than-usual interest-rate increase at its next board meeting.An early reining-in of inflation expectations is needed to promote economic stability and the BOK should focus on containing it, Senior Deputy Governor Lee Seung-heon said Thursday at a local forum, according to a presentation made available by his office. Lee is among six members on the central bank’s board. (BBG)

NORTH KOREA: North Korea held a rare military meeting to change the operational plan of military frontline units with leader Kim Jong-un in attendance, state media said Thursday, amid heightening tensions in the region. Kim also discussed the reorganization of key military formations as he convened the second-day sitting of the third enlarged meeting of the eighth Central Military Commission of the ruling Workers' Party of Korea (WPK) on Wednesday, according to the official Korean Central News Agency (KCNA). (Yonhap)

HONG KONG: Hong Kong's de-facto central bank bought HK$8.58 billion ($1.09 billion) 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$233.308 billion on June 24, an HKMA spokeswoman said on Thursday. (RTRS)

RUSSIA: Russia faces yet another bond payment test this week, with just days remaining before it potentially slides into its first foreign default in a century. Three interest transfers totaling almost $400 million are due on Thursday and Friday, but more pressing is a Sunday-night deadline on previous missed payments from late May. Those funds -- about $100 million of bond coupons -- are stuck due to international sanctions, and the grace period to find a solution expires at the end of the day on June 26. At that point, Russia will effectively be in default, unless it somehow gets payments through to sufficient holders of the debt. (BBG)

RUSSIA: Russia's consumer price index (CPI) fell 0.12% in the week to June 17, down for a third week in a row after a massive spike in March, providing the central bank with more room to cut rates to limit the economic downturn this year, data showed on Wednesday. So far this year, consumer prices in Russia rose 11.51%, data from the federal statistics service Rosstat showed. (RTRS)

METALS: Workers at Chilean state-owned mining giant Codelco, the world's largest copper producer, launched a major strike on Wednesday to protest the closure of a smelter over environmental issues, though the government downplayed the impact on operations. The Federation of Copper Workers (FTC), an umbrella group of Codelco's unions, said 50,000 workers were expected to strike, including staff and contractors after the Ventanas smelter was shuttered despite calls for investment to keep it open. (RTRS)

ENERGY: Germany’s government fears Russia could take advantage of annual maintenance on its main export pipeline to shut off gas supplies to the country completely, increasing the risk of a winter energy crisis in Europe’s largest economy. Earlier this month Russia cut the flow of gas through Nord Stream 1 by 60 per cent. The pipeline, one of the main conduits for Russian gas into Europe, will be shut down for around two weeks from mid-July for annual summer work on it. Officials say they worry that Gazprom, Russia’s state-owned gas giant, might stop gas deliveries completely while NS1 is closed for repairs, undermining Germany’s efforts to fill gas storage ahead of the winter heating season. (FT)

ENERGY: Czech Prime Minister Petr Fiala accused Russia on Wednesday of waging an economic war on Europe in tandem with its invasion of Ukraine. Russia's goal was to weaken and destabilize democratic states, Fiala said in a televised speech on Wednesday evening, adding that there was a real danger Russia could turn off Europe's gas supply in the coming weeks or months. (DPA)

ENERGY: Italy and Greece plan to once again call for the need to cap natural gas prices, as energy cost is on the rise. The initiative was agreed to during a meeting that Italian Prime Minister Mario Draghi and his Greek counterpart, Kyriakos Mitsotakis, had in Rome on Wednesday, according to the Greek premier’s office. The two leaders discussed the challenges that Russia’s invasion of Ukraine has brought at a European level, focusing on the issues of energy and food supply, and they stressed the need to also have solutions at European level. (BBG)

OIL: China and India may be buying more Russian oil than the US previously believed, easing a supply crunch in global markets and potentially driving a recent price decline, one of President Joe Biden’s economic advisers said. (BBG)

OIL: Germany would support having an international debate about imposing price caps on Russian oil imports, according to Joerg Kukies, Chancellor Olaf Scholz’s top economic aide. “We are open to having this discussion on the international level and can definitely foresee this making sense if it’s implemented,” he said Wednesday at Bloomberg’s Future of Finance event in Frankfurt. (BBG)

OIL: U.S. refiners will try to convince the Biden administration not to ban fuel exports to combat sky-high gasoline prices, according to sources familiar with plans for a meeting set for Thursday. Asked about the industry’s unease with a possible export ban, Granholm said Biden is “not willing to take tools off the table, but we’re willing to listen.” “Not only will limitations or outright bans of petroleum products have the exact opposite effect than intended – raising fuel prices instead of lowering them and placing additional refining capacity at risk – it would hurt our allies in Latin America and Europe,” a spokesperson for the American Fuel and Petrochemical Manufacturers said. (RTRS)

OIL: The dislocation of global fuel markets after Russia’s invasion of Ukraine has boosted the cost of shipping products such as diesel by sea. Rates to haul fuels such as gasoline and diesel, known in the industry as clean tanker freight, have more than doubled this year to the highest since April 2020, according to Baltic Exchange data. On one key route in Asia, ship owners are now earning over $49,000 a day transporting products from South Korea to the distribution hub of Singapore, compared with $98 a day prior to the war. (BBG)

OIL: Several reports scheduled to be released by the US Energy Information Administration for the week of June 20 will be delayed due to systems issues, agency says in statement. EIA expects to release its Weekly Natural Gas Storage Report as planned on Thursday. All other data releases scheduled for this week, including a closely followed weekly oil inventory report, will be delayed. (BBG)

CHINA

YUAN: The yuan is unlikely to see another sharp depreciation against the U.S. dollar, as the dollar index has limited upward space while the Chinese economy has bottomed out, the China Securities Journal reported citing analysts. The dollar index is unlikely to break through the high range of 105 to 106 in the short-term following the Fed’s June rate hike, the newspaper said citing a report by Nanhua Futures Co. The yuan will remain basically stable at a balanced level in Q3 with increasing two-way moves, the newspaper said. (MNI)

CORONAVIRUS: People must provide negative nucleic acid test results within 48 hours or hold a PCR test record within 24 hours, before entering public venues or using public transportation from June 24, according to a statement on the city’s health commission Wechat account. (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 Thursday. 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 1.9332% at 9:51 am local time from the close of 1.6922% on Wednesday.
• The CFETS-NEX money-market sentiment index closed at 43 on Wednesday vs 46 on Tuesday.

PBOC SETS YUAN CENTRAL PARITY AT 6.7079 THU VS 6.7109

The People's Bank of China (PBOC) set the dollar-yuan central parity rate higher at 6.7079 on Thursday, compared with 6.7109 set on Wednesday.

OVERNIGHT DATA

CHINA MAY SWIFT GLOBAL PAYMENTS CNY 2.15%; APR 2.14%

JAPAN JUN, P JIBUN BANK SERVICES PMI 54.2; MAY 52.6
JAPAN JUN, P JIBUN BANK M’FING PMI 53.2; MAY 53.3
JAPAN JUN, P JIBUN BANK COMPOSITE PMI 52.7; MAY 52.3

Activity at Japanese private sector businesses rose solidly at the midway point of 2022 as border restrictions related to the COVID19 pandemic were eased. The rise was the fourth in as many months and the sharpest recorded since last November amid the strongest expansion in the services sector since October 2013, with firms relating the increase to the return of international visitors. Concurrently, manufacturers signalled the softest upturn in the current four-month growth sequence as COVID-19 restrictions in mainland China contributed to further supply chain disruption and exacerbated existing supply and demand pressures. Private sector firms also noted a further robust increase in prices in June. While the rate of input price inflation remained broadly similar to May’s series record, the slight easing in inflation was the first for five months and provided tentative evidence that the rise in input prices had peaked. That said, prices charged for Japanese goods and services rose at an unprecedented rate for the second successive month as higher material and staff cost burdens were partially passed through to customers. (S&P Global)

AUSTRALIA JUN, P S&P GLOBAL SERVICES PMI 52.6; MAY 52.9
AUSTRALIA JUN, P S&P GLOBAL M’FING PMI 55.8; MAY 55.7
AUSTRALIA JUN, P S&P GLOBAL COMPOSITE PMI 52.6; MAY 52.9

Expansion across Australia’s private sector economy continued in June, according to the S&P Global Flash Australia Composite PMI. The easing of COVID-19 policies and opening of international borders has encouraged growth in demand, especially overseas. Stronger demand conditions have had a positive influence on other areas of the economy, with employment levels continuing to rise at a solid rate. That said, firms have taken advantage of rising demand levels and passed through higher costs to their selling prices at a substantial pace. With interest rates rising to contain rapid price pressures, as well as a fading boost to economic activity post-lockdown, downside risks to the Australian economy have increased. (S&P Global)

SOUTH KOREA MAY PPI +9.7% Y/Y; APR +9.7%

MARKETS

UP TODAY (Times GMT/Local)

Date	GMT/Local	Impact	Flag	Country	Event
23/06/2022	0600/0700	***		UK	Public Sector Finances
23/06/2022	0600/0800	**		SE	PPI
23/06/2022	0645/0845	**		FR	Manufacturing Sentiment
23/06/2022	0715/0915			FR	Flash Manufacturing, Services PMI
23/06/2022	0715/0915	**		FR	IHS Markit Services PMI (p)
23/06/2022	0715/0915	**		FR	IHS Markit Manufacturing PMI (p)
23/06/2022	0730/0930	**		DE	IHS Markit Services PMI (p)
23/06/2022	0730/0930	**		DE	IHS Markit Manufacturing PMI (p)
23/06/2022	0800/1000	***		NO	Norges Bank Rate Decision
23/06/2022	0800/1000			EU	ECB Economic Bulletin
23/06/2022	0800/1000			EU	Flash Manufacturing, Services PMI
23/06/2022	0800/1000	**		EU	IHS Markit Services PMI (p)
23/06/2022	0800/1000	**		EU	IHS Markit Manufacturing PMI (p)
23/06/2022	0800/1000	**		EU	IHS Markit Composite PMI (p)
23/06/2022	0830/0930	***		UK	IHS Markit Manufacturing PMI (flash)
23/06/2022	0830/0930	***		UK	IHS Markit Services PMI (flash)
23/06/2022	0830/0930	***		UK	IHS Markit Composite PMI (flash)
23/06/2022	1000/1100	**		UK	CBI Distributive Trades
23/06/2022	1100/0700	*		TR	Turkey Benchmark Rate
23/06/2022	-			EU	ECB Lagarde at European Council Meeting
23/06/2022	1230/0830	**		US	Jobless Claims
23/06/2022	1230/0830	*		US	Current Account Balance
23/06/2022	1345/0945	***		US	IHS Markit Manufacturing Index (flash)
23/06/2022	1345/0945	***		US	IHS Markit Services Index (flash)
23/06/2022	1400/1000			US	Fed Chair Jerome Powell
23/06/2022	1430/1030	**		US	Natural Gas Stocks
23/06/2022	1500/1100	**		US	DOE weekly crude oil stocks
23/06/2022	1530/1130	*		US	US Bill 08 Week Treasury Auction Result
23/06/2022	1530/1130	**		US	US Bill 04 Week Treasury Auction Result
23/06/2022	1700/1300	**		US	US Treasury Auction Result for TIPS 5 Year Note
23/06/2022	1800/1400	***		MX	Mexico Interest Rate