MNI EUROPEAN OPEN: A New Week, But No New Themes

EXECUTIVE SUMMARY

• ECB’S SCHNABEL: INFLATION PRESSURES INCREASINGLY BROAD-BASED (BBG)
• ECB TO DISCUSS BLOCKING BANKS FROM MULTIBILLION-EURO WINDFALL AS RATES RISE (FT)
• PBOC LIKELY TO GUIDE DOWN LPR IN H2 (SEC DAILY)
• CHINA COVID OUTBREAKS WIDEN AS MASS TESTING TURNS UP MORE CASES (BBG)
• CHINESE DEVELOPER SHIMAO DEFAULTS ON $1 BILLION DOLLAR BOND (BBG)
• RUSSIA MOVES CLOSER TO AIM OF TAKING THE DONBAS

Fig. 1: Eurodollar EDZ2/H3 & EDZ2/Z3 Spreads

Source: MNI - Market News/Bloomberg

UK

INFLATION: More UK firms than ever before are expecting to increase prices in the next three months, according to a survey that lays bare the perilous outlook for business. Almost two-thirds of firms now expect their prices to rise in the next three months, the highest proportion since the question was first asked in 1997. That rises to nearly 80% in the retail and wholesale, construction and engineering, and production and manufacturing sectors. (BBG)

FISCAL: Boris Johnson and Rishi Sunak have penned a joint article to outline what they are calling "the single biggest tax cut in a decade" in a show of unity on the cost-of-living crisis. Writing in the Sun on Sunday, the Prime Minister and Chancellor said when the National Insurance threshold rises overnight this coming Wednesday from £9,880 to £12,570 it will save 30 million British workers up to £330 a year. (BBG)

BREXIT: The UK’s Northern Ireland Protocol Bill, which overrides parts of the Brexit agreement and could trigger retaliatory trade measures from EU, may not get through the House of Commons before the summer parliamentary recess begins on July 22, an Institute for Government official told MNI. (MNI)

BREXIT: Boris Johnson has been warned there is “no legal or political justification” for his plans to override the Brexit agreement on Northern Ireland, in an extraordinary joint denunciation by the Irish and German governments. (Observer)

BREXIT/POLITICS: Sir Keir Starmer will on Monday signal that Labour is willing to fight Boris Johnson over his Brexit legacy at the next election, setting out a five-point plan to tackle the economic pain caused by Britain’s EU exit. In a big tactical shift, Starmer will use a speech to denounce the “mess” created by the UK prime minister’s 2020 Brexit deal and the breakdown of trust with the EU caused by the row over the trading arrangements for Northern Ireland. (FT)

POLITICS: British Prime Minister Boris Johnson’s Conservative Party is projected to lose at least 24 battleground seats to Liberal Democrats, a new poll shows, underscoring the swing seen in last month’s special election. (BBG)

POLITICS: Tory rebels have said that Boris Johnson’s handling of claims that a Conservative whip drunkenly groped two men has bolstered their efforts to oust him. (The Times)

SCOTLAND: Voters in Scotland are split over whether a second independence referendum should take place in 2023, according to a new poll. (The Independent)

PROPERTY: Homeowners could soon be taking out 50-year mortgages to then be passed on to their children when they die, under new plans being considered by the government. The Japanese-style lending agreements could see people being able to buy a home with little or no expectation of completing mortgage repayments during their lifetime. Instead the property and outstanding debt would be passed on to their children. (Sky)

BOE: The governor of the Bank of England is opposing plans drawn up by the Treasury that would allow ministers to overrule financial watchdogs on key areas of City regulation. Sky News has learnt that Andrew Bailey has expressed disquiet about a so-called 'call-in power' that will be included in the Financial Services and Markets Bill, which is due to be introduced this year. (Sky)

EUROPE

ECB: The European Central Bank publishes slides of presentation by Executive Board member Isabel Schnabel at the Petersberger Sommerdialog in Koenigswinter, Germany. “Euro-area unemployment rate at record low amid an increasingly tight labor market”. “No signs yet of a wage-price spiral, but risks are increasing”. “Projections are pointing to a decline in inflation,” but there’s a “history of projection errors”. “Energy is the main contributor to headline inflation in the euro area”. “Inflation pressures are becoming increasingly broad-based”. “Markets are expecting a steeper policy path in the euro area and a higher terminal rate”. “Repricing of rate expectations pushes long-term bond yields higher”. (BBG)

ECB/BANKS: The European Central Bank is looking at ways to stop banks earning billions of euros of extra profit from the ultra-cheap lending scheme it launched during the pandemic once it starts to raise interest rates later this month. (FT)

GERMANY: Germany should face the possibility that Russia will continue to suspend gas flows through the Nord Stream 1 pipeline beyond a planned maintenance shutdown this month, Economy Minister Robert Habeck said on Saturday. (RTRS)

GERMANY: Germany's energy regulator has listed priority areas that would have protected access to power if there are severe gas shortfalls this winter, ranging from households and hospitals to pharmaceuticals companies and paper producers. (RTRS)

GERMANY: Top German industries could face collapse because of cuts in the supplies of Russian natural gas, the country’s top union official warned before crisis talks with Chancellor Olaf Scholz starting Monday. (BBG)

GERMANY: German Chancellor Olaf Scholz said his government is continuing talks on aid for gas giant Uniper SE, and signaled that bailout tools developed during the pandemic to rescue big companies like Lufthansa are on the table again. (BBG)

ITALY: Italy posted a state sector budget deficit of 6 billion euros ($6.24 billion) in June compared to a shortfall of 15.7 billion euros in the same month last year, the Treasury said in a statement on Friday. The difference came from higher tax revenues- particularly due to a rise in value added tax payments - and other indirect contributions that offset a fall in excise duties on fossil fuels. (RTRS)

SWITZERLAND: Swiss businesses would be first to have energy rationed in the event of supply shortages, Energy Minister Simonetta Sommaruga told the SonntagsZeitung, warning that the government cannot guarantee there will always be enough gas to go around. (RTRS)

RATINGS: Sovereign rating reviews of note from Friday included:

• S&P affirmed Finland at AA+; Outlook Stable

U.S.

FED: Bringing inflation down is imperative to improve conditions for ordinary workers. That's a key theme we heard from our interview with San Francisco Fed president Mary Daly. (Axios)

ECONOMY: U.S. manufacturers are experiencing weaker business growth in the face of global disruptions and, while data suggest the sector should be able to sustain moderate growth levels through yearend, there is a risk that widening concerns about growth could become self-fulfilling, Institute for Supply Management chair Timothy Fiore told MNI Friday. (MNI)

OTHER

GLOBAL TRADE: Turkish customs authorities have detained a Russian cargo ship carrying grain which Ukraine says is stolen, Ukraine's ambassador to Turkey said on Sunday. (RTRS)

U.S./CHINA: As President Joe Biden debates whether to lift Trump-era tariffs on Chinese imports, his cabinet is split over a politically fraught issue that could influence the November congressional midterm elections. (FT)

U.S./CHINA: A Senate Democrat called on President Joe Biden to repeal tariffs put in place by the Trump administration, saying they haven’t significantly changed China’s trade practices and are contributing to high prices for Americans. (BBG)

JAPAN: Japan's government has revised up its estimates of national tax revenue from the last fiscal year ended in March, as a weak yen and economic recovery from the pandemic helped boost big firms' profits, a draft seen by Reuters showed on Monday. (RTRS)

JAPAN: Japan's ruling coalition is within reach of a majority in the July 10 upper house election, a Nikkei poll shows, with the largest opposition party expected to struggle. (Nikkei)

BOJ: The Bank of Japan may be leaning towards taking its overnight rate out of negative territory rather than raising the upper limit of its yield control range in response to rising inflation and to ease speculative pressure as other major central banks tighten policy, MNI understands. (MNI)

BOJ: The Bank of Japan is likely to keep its current monetary easing program “for many quarters to come” to ensure an economic recovery and pursue a still remote target of sustainable 2% inflation, according to a former BOJ official. (BBG)

SOUTH KOREA: South Korea's finance ministry and central bank said on Monday they had agreed to cooperate in minimizing adverse risks of rising interest rates on vulnerable households and businesses. In a joint statement released after a meeting of finance minister Choo Kyung-ho, Bank of Korea Governor Rhee Chang-yong and others, policymakers said they will closely monitor the impact on currency markets, financial companies and small businesses. (RTRS)

SOUTH KOREA: South Korea’s new administration will hold its first fiscal strategy meeting presided over by President Yoon Suk Yeol as early as this week and announce that it will abolish prior administration’s expansionary fiscal policies and make an official transition to normalizing national finance, JoongAng Ilbo newspaper reports, without citing anyone. (BBG)

HONG KONG: Hong Kong’s new Chief Executive John Lee said there is no immediate need for a universal compulsory Covid testing campaign in the city but stressed that there needs to be a reduction in the number of daily infections, which are at the highest level since April. (BBG)

ASIA: A series of major regional or global events are scheduled to be held in Asian countries starting this month through to the end of the year, ushering in an Asian moment for their role in global governance, with the upcoming Lancang-Mekong regional meeting in Myanmar and the G20 Foreign Ministers' Meeting in Indonesia in the coming week as well as G20 Summit in Indonesia and the Asia-Pacific Economic Cooperation (APEC) meeting in Thailand in November. Experts said China will be prepared to send strong signals of confidence to its key neighbors and partners in the region to further boost economic recovery as well as safeguard unity, peace and security for Asia in a world that faces turbulence and challenges. (Global Times)

ASIA: New Zealand Prime Minister Jacinda Ardern has again raised concerns about China’s ambitions in the Pacific, repeating her comment that Beijing “has become increasingly assertive in our region.” (BBG)

TURKEY: Turkey's trade deficit jumped 184.3% year-on-year in June to $8.16 billion, the Trade Ministry said on Saturday, as surging energy import costs continue to widen the shortfall. (RTRS)

BRAZIL: Brazil posted a trade surplus of $8.814 billion in June, official data showed on Friday, below the median forecast of a $9.994 billion surplus from a Reuters poll of economists. (RTRS)

RUSSIA: Russia's Defence Minister Sergei Shoigu informed President Vladimir Putin that all of Ukraine's Luhansk region had been "liberated" by Russian and separatist forces, the defence ministry said on Sunday. After being beaten back in its initial attempt to capture the capital Kyiv, Russia has focused its efforts on driving Ukrainian forces out of Luhansk and Donetsk regions in the east of the country, where Moscow-backed separatists have been fighting Kyiv since Russia's first military intervention in Ukraine in 2014. (RTRS)

RUSSIA: At least three people were killed and dozens of residential buildings damaged in Russia's Belgorod on Sunday, the local governor said, after earlier reports of several blasts heard in the city that lies near the border with Ukraine. At least 11 apartment buildings were damaged and 39 private residential houses, including five fully destroyed, Vyacheslav Gladkov, the governor of the Belgorod region, said. Reuters was not able to independently verify the reports. There was no immediate reaction from Ukraine to the reports. (RTRS)

RUSSIA: Belarusian President Alexander Lukashenko said on Saturday Ukraine had tried to strike military facilities on Belarusian territory three days ago, but all its missiles had been intercepted, the state-run Belta news agency reported. Lukashenko, who did not provide evidence for the claim, said Belarus does not want war with Ukraine. (RTRS)

RUSSIA: Germany is discussing security guarantees for Ukraine with its allies, in preparation for a time after the war in Ukraine, German Chancellor Scholz told broadcaster ARD on Sunday. (RTRS)

RUSSIA: Senior Brussels officials are discussing the creation of an EU-wide sanctions authority, as they push for tougher and more consistent enforcement of penalties related to the war in Ukraine. Mairead McGuinness, financial services commissioner, said officials were open to introducing an EU version of the Office of Foreign Assets Control (Ofac), the powerful US Treasury agency that spearheads enforcement of its sanctions. (FT)

SOUTH AFRICA: South African state-owned power utility Eskom Holdings SOC Ltd. on Monday will reintroduce so-called stage 6 loadshedding, in which it will remove 6,000 megawatts from the grid. The power utility warned to expect varying levels of power shortages throughout the week as the system recovers to pre-strike levels. (BBG)

ARGENTINA: Argentine President Alberto Fernandez named economist and government official Silvina Batakis as the new economy minister late on Sunday after the abrupt resignation of long-standing minister Martin Guzman amid crises and tensions. (RTRS)

METALS: Chile's finance minister, Mario Marcel, on Friday introduced a tax reform bill that increases copper mining royalties on companies that produce more than 50,000 tonnes a year and raises taxes on high-income earners to fund the government's proposed social programmes and reforms. Chile is the world's biggest copper producer and the proposed bill aims to raise 4.2% of GDP over four years, with 0.7% going to a new guaranteed minimum pension fund. (RTRS)

ENERGY: A planned strike next week by Norwegian energy sector workers could cut the country's gas output by 292,000 barrels of oil equivalent per day, or 13% of output, employers' group the Norwegian Oil and Gas Association (NOG) said on Sunday. (RTRS)

ENERGY: Lebanon's Hezbollah said on Saturday it had sent three unarmed drones towards an Israeli Mediterranean gas rig, which the Israeli military said it had intercepted. (RTRS)

ENERGY: The global surge in the cost of fuel is starting to weigh on demand, according to the world’s biggest independent oil trader. Consumers are being hit by the run-up in gasoline, diesel and other oil products, Mike Muller, head of Asia at Vitol Group, said Sunday on a podcast produced by Dubai-based Gulf Intelligence. (BBG)

OIL: Just as US President Joe Biden was urging OPEC’s biggest members to raise production, supply from the cartel was falling. Production from the Organization of Petroleum Exporting Countries dropped by 120,000 barrels a day in June for a second straight monthly decline, according to a Bloomberg survey. Erratic exporter Nigeria drove the loss, with output slumping to a record low. Yet even group leader Saudi Arabia -- which Biden will visit this month -- failed to deliver its promised increase. (BBG)

OIL: The Biden administration plans to block new offshore oil drilling in the Atlantic and Pacific oceans, while allowing limited expansion in the Gulf of Mexico and Alaska’s south coast.The proposal released by the Interior Department on Friday evening would allow as many as 11 oil lease sales for offshore drilling over the course of five years. (WSJ)

OIL: Iran is being forced to discount its already cheap crude even more as a top ally gains a bigger foothold in the key Chinese market. China has become an important destination for Russian oil as Moscow seeks to maintain flows following the fallout from its invasion of Ukraine. That’s led to increased competition with Iran in one of the few remaining markets for its crude shipments, which have been significantly curtailed by US sanctions. (BBG)

OIL: More than two weeks of protests in Ecuador caused state-run oil company Petroecuador to lose 1.99 million barrels of oil production, the company said on Friday, adding that it expects to reach 90% of pre-crisis output in the next week. (RTRS)

OIL: Production at Venezuela’s largest refinery, which can process about 645,000 barrels of oil per day (bpd), was halted late on Saturday by an electrical fault that caused a blackout, according to five people familiar with the matter. (RTRS)

CHINA

PBOC: The People's Bank of China may further guide down the Loan Prime Rate, mainly the five-year one, in the second half of the year to help boost housing mortgages and stabilise market expectations, the Securities Daily reported citing analysts. The PBOC will also use structural monetary policy tools, such as issuing additional re-lending tools for industries affected by the pandemic, the newspaper said citing Ming Ming, chief economist of CITIC Securities. The PBOC may also increase loan support for private enterprises faced with the dilemma of closing down or reducing production which in turn causes supply chain interruptions, the newspaper said citing Ming. (MNI)

CORONAVIRUS: China’s virus cases continued to climb over the weekend with hundreds of infections detected in Anhui province where two counties were already in lockdown. (BBG)

PROPERTY: Chinese developer Shimao Group Holdings Ltd. said it didn’t pay a $1 billion dollar note that matured Sunday, adding to a record year of offshore-bond delinquencies in the sector. (BBG)

BONDS: China will further open up its bond market to international investors while improving macro-prudential management, strengthening supervision of cross-border capital flows, and conducting real-time monitoring of the market, Pan Gongsheng, deputy governor of the People's Bank of China wrote in an article published in the official China Finance magazine. It will also build a systemic risk monitoring, assessment and early warning mechanism to ensure financial security, said Pan. By the end of May, foreign investors held CNY3.74 trillion of Chinese bonds, up CNY2.81 trillion from five years ago before the launch of the Bond Connect Scheme with Hong Kong, according to the article. (MNI)

RATES: China and Hong Kong are working to develop a trading arrangement to allow overseas investors to execute interest-rate derivatives with onshore traders. The so-called “Swap Connect” is now subject to regulatory approvals, market readiness and the completion of operational arrangements, according to a joint statement by the People’s Bank of China and Hong Kong authorities. The program will be launched in six months, according to the statement. (BBG)

OVERNIGHT DATA

JAPAN JUN MONETARY BASE +3.9% Y/Y; MAY +4.6%
JAPAN JUN MONETARY BASE END OF PERIOD Y677.4TN; MAY Y673.4TN

AUSTRALIA JUN MELBOURNE INSTITUTE INFLATION INDEX +4.7% Y/Y; MAY +4.8%
AUSTRALIA JUN MELBOURNE INSTITUTE INFLATION INDEX +0.3% M/M; MAY +1.1%

AUSTRALIA MAY BUILDING APPROVALS +9.9% M/M; MEDIAN -2.0%; APR -3.9%
AUSTRALIA MAY PRIVATE SECTOR HOUSES BUILT -2.7% M/M; APR -0.2%

AUSTRALIA MAY HOME LOANS VALUE +1.7% M/M; MEDIAN -2.5%; APR -2.8%
AUSTRALIA MAY INVESTOR LOAN VALUE +0.9% M/M; MEDIAN -4.5%; APR -4.8%
AUSTRALIA MAY OWNER-OCCUPIER LOAN VALUE +2.1% M/M; MEDIAN -4.5%; APR -1.7%

AUSTRALIA JUN ANZ JOB ADVERTISEMENTS +1.4% M/M; MAY +1.0%

ANZ Australian Job Ads increased 1.4% m/m in June to exceed the recent March peak. The sheer volume of unmet labour demand suggests underutilisation will keep falling and stay low even as demand growth is curtailed by higher inflation and rising interest rates. The very tight labour market is a key reason why we expect the Australian economy will be resilient in the face of these. (ANZ)

CHINA MARKETS

PBOC NET DRAINS CNY97 BILLION VIA OMOS MONDAY

The People's Bank of China (PBOC) injected CNY3 billion via 7-day reverse repos with the rate unchanged at 2.10% on Monday. The operation has led to a net drain of CNY97 billion after offsetting the maturity of CNY100 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) fell to 1.6524% at 09:37 am local time from the close of 1.6748% on Friday.
• The CFETS-NEX money-market sentiment index closed at 43 on Friday vs 65 on Thursday.

PBOC SETS YUAN CENTRAL PARITY AT 6.7071 MON VS 6.6863

The People's Bank of China (PBOC) set the dollar-yuan central parity rate higher at 6.7071 on Monday, compared with 6.6863 set on Friday.

MARKETS

UP TODAY (Times GMT/Local)

Date	GMT/Local	Impact	Flag	Country	Event
04/07/2022	0600/0800	**		DE	Trade Balance
04/07/2022	0630/0830	***		CH	CPI
04/07/2022	0700/0300	*		TR	Turkey CPI
04/07/2022	0900/1100	**		EU	PPI
04/07/2022	1430/1030	**		CA	BOC Business Outlook Survey
04/07/2022	1430/1630			EU	ECB Elderson on Climate Change at ECB Seminar
04/07/2022	1500/1700			EU	ECB de Guindos Speech at Frankfurt Euro Finance Summit