Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.
EXECUTIVE SUMMARY
- ECB’s VISCO SAYS INFLATION MAY DROP MORE QUICKLY THAN FORECAST - BBG
UK SUPPORT TO REJOIN THE EU PASSES 50% FOR THE FIRST TIME - BBG - FEARS GROW OVER RAPID SPENDING DROP - RBA MINS - MNI BRIEF
- CHINA LIKELY TO CUT RRR IN THIRD QUARTER TO BOOST ECONOMY - CSJ
- CHINA TELLS FINANCIAL COS. TO ENHANCE HOUSEHOLD SPENDING SUPPORT - BBG
Fig. 1: Global Supply Chain Pressures & Global CPI Trend
Source: MNI - Market News/Bloomberg
U.K.
BREXIT: More than half of Britons would vote to rejoin the European Union for the first time since the nation opted to leave the bloc seven years ago, YouGov polling showed. (BBG)
INFLATION: Food and drink manufacturers cut their prices in June for the first time in more than three years, after their own costs continued to fall, according to a survey by Lloyds Banking Group. The reduction will come as a relief for households struggling with their budgets, as rising interest rates bump up mortgage costs and inflation remains more than four times its target at 8.7%. (BBG)
TRADE: Britain said on Tuesday it intends to start talks with Turkey over refreshing their bilateral free trade deal, with a view to including services and the digital sector in any future agreement. Britain already has a free trade agreement (FTA) with Turkey, which was rolled over when Britain left the European Union, which the trade ministry said was now outdated. (RTRS)
EUROPE
ECB: While the European Central Bank projects inflation to slow to 2% by the end of 2025, “my impression is that it might be faster,” Governing Council member Ignazio Visco says in Bloomberg TV interview. (BBG)
UKRAINE: Russia launched overnight air attacks on Ukraine's south and east using drones and possibly ballistic missiles, Ukraine's Air Force and officials said early on Tuesday. A fire broke out at one of the "facilities" in the port of Mykolaiv late on Monday, the city mayor said. The port city provides Ukraine with access to the Black Sea. (BBG)
U.S.
TECH: U.S. chip company executives met with top Biden administration officials on Monday to discuss China policy, the State Department and sources said, as the most powerful semiconductor lobby group urged a halt to more curbs under consideration. Secretary of State Antony Blinken talked with chip company chief executives about the industry and supply chains after his recent trip to China, a department spokesperson told reporters. (RTRS)
TECH: The Biden administration’s plans to restrict investments in China will be narrowly focused on cutting-edge technology, only new investments, and likely won’t go into effect until next year as the policy grinds through Washington’s bureaucracy. (BBG)
POLITICS: Maverick Democratic Senator Joe Manchin on Monday is set to address a bipartisan group in New Hampshire, a critical early-voting state in the 2024 presidential primary elections, feeding speculation that he could be weighing a third-party candidacy. The former West Virginia governor, first elected to the U.S. Senate in 2010, will speak to the "No Labels" organization promoting the possibility of backing a third-party candidate. (RTRS)
BANKING: US bank regulators are set to release their plans next week for a sweeping overhaul of capital rules, with the latest draft including requirements for large lenders’ residential mortgages that go beyond international standards. (BBG)
OTHER
AUSTRALIA: The Reserve Bank of Australia board noted at its July 4 meeting considerable uncertainty over household consumption resilience existed and the squeeze on household budgets could result in a sharper fall in spending than forecasted, according to the minutes published Tuesday. (MNI)
AUSTRALIA: China’s flagging economic growth is “concerning” for Australia, Treasurer Jim Chalmers said, adding that it’s “quite remarkable” Beijing is grappling with the risk of deflation at a time when most nations are trying to restrain prices. (BBG)
AUSTRALIA: Organizers of the 2026 Commonwealth Games are scrambling to find a new host, after the Australian state of Victoria pulled out, blaming escalating costs cost estimates which had blown out by billions of dollars in just a few months. (BBG)
NEW ZEALAND: New Zealand inflation probably slowed markedly in the second quarter as the central bank’s aggressive interest-rate increases began to take their toll. (BBG)
CHINA
POLICY: China is likely to cut the amount of cash banks have to keep in reserve again in the third quarter to boost its economy, China Securities Journal reports Tuesday, citing analysts. (CSJ)
CONSUMPTION: China announces measures to support household consumption in areas including home appliances, furniture, textiles, according to a statement on the Ministry of Commerce’s website. (BBG)
PROPERTY: A gauge of Chinese high-yield dollar debt fell to the cusp of distress after one of the most closely watched property firms warned it was short of funds to repay a bond due in days, renewing concerns about the health of developers struggling with weak sales and limited refinancing access. (BBG)
GROWTH: Policymakers will focus on high-quality growth and promote stable economic development in China, according to the Chinese People's Political Consultative Conference (CPPC). At a recent H1 macroeconomic symposium attended by CPPC Chairman Wang Huning, leaders said China will achieve economic goals in a high-quality fashion, and noted the economy was steadily improving with market demand recovering. Looking forward, China will focus on stabilising growth, ensuring livelihoods and preventing risks. (Yicai)
YUAN: Some Indian refiners have begun to use yuan for settlement of crude oil imported from Russia, as India’s imports of Russian oil hit a record high in June. The Central Bank of Argentina allowed opening CNY accounts in its financial institutions and used CNY to repay its foreign debt for the first time last month. Authorities must increase the confidence of China's economy globally and promote demand for Chinese goods if the aim is to make the yuan a reserve currency, said Tian Lihui, dean at the Institute of Finance & Development at the Nankai University. (MNI)
CHINA MARKETS
PBOC Net Injects CNY13 Bln Via OMOs Tuesday
The People's Bank of China (PBOC) conducted conducted CNY15 billion via 7-day reverse repos on Tuesday with the rates at 1.90%. The operation has led to a net injection of CNY13 billion after offsetting the maturity of CNY2 billion reverse repo today, according to Wind Information.
- The operation aims to keep banking system liquidity reasonable and ample, the PBOC said on its website.
- The 7-day weighted average interbank repo rate for depository institutions (DR007) rose to 1.8863% at 09:33 am local time from the close of 1.8529% on Monday.
- The CFETS-NEX money-market sentiment index closed at 49 on Monday, compared with the close of 43 on Thursday.
PBOC Yuan Parity At 7.1453 Tuesday Vs 7.1326 Monday.
The People's Bank of China (PBOC) set the dollar-yuan central parity rate higher at 7.1453 on Tuesday, compared with 7.1326 set on Monday. The fixing was estimated at 7.1653 by BBG survey today.
OVERNIGHT DATA
JAPAN MAY TERTIARY INDUSTRY INDEX M/M 1.2; MEDIAN 0.4%; PRIOR 0.9%
MARKETS
US TSYS: Marginally Firmer In Asia
TYU3 deals at 112-23+, +0-00+, a 0-04+ range has been observed on volume of ~32k.
- Cash tsys sit 1-2bps richer across the major benchmarks, light bull steepening is apparent.
- Tsys firmed in early dealing as a bid in JGBs spilled over despite the absence of any headline driver.
- A block buyer in FV, 2,312 lots, added a level of support.
- Little in meaningful macro news flow crossed and tsys held richer for the remainder of the session.
- The docket is thin in Europe today. Further out we have retail sales, industrial production and business inventories.
JGBS: Futures Richer, Mid-Range, Liquidity Enhancement Auction Tomorrow For OTR 1-5-Year JGBs
JGB futures are dealing in the middle of the Tokyo session range in afternoon trade, +7 compared to settlement levels.
- There haven't been many specific domestic drivers worth noting, except for the growing speculation surrounding a potential adjustment to the YCC policy at the upcoming policy meeting of the BoJ next week.
- JGB futures have a downside bias into the Japan inflation report due on Friday, according to Bloomberg. (See link ICYMI)
- May Tertiary Industry Index rises 1.2% m/m versus +0.4% est.
- The cash JGBs are trading mixed with yield movements ranging from 0.5bp lower (7-year zone) to 2.6bp higher (40-year). The benchmark 10-year yield is 0.3bp lower at 0.478%, just shy of its highest level in three months of 0.485% set on Friday.
- Swap rates are also mixed across the curve with changes ranging from +/-0.8bp. Swap spreads are generally wider out to the 7-year and tighter beyond.
- Tomorrow the local calendar has no data. The MoF does however plan to sell Y500bn at a Liquidity Enhancement Auction for OTR 1-5-year JGBs.
- Later today sees June US retail sales and industrial production, May US business inventories, and the July NAHB housing market index.
AUSSIE BONDS: Slightly Richer, July Decision Not Finely Balanced (RBA Minutes)
ACGBs are dealing slightly higher (YM +3.0 & XM +1.0) after the release of the RBA Minutes for the July meeting.
- The Board discussed both a 25bp hike and a pause but decided that the arguments for the latter were “stronger”. This time it appears that the decision was not “finely balanced”.
- The minutes indicated that the cycle may not yet be over and that decisions remain very data dependent, as growth concerns seem to have increased. Q2 CPI is due on July 26 and staff forecasts are likely to be key components in the August 1 outcome.
- Cash ACGBs are 1-3bp richer with the AU-US 10-year yield differential at +17bp.
- Swap rates are 2-3bp lower with the 3s10s curve steeper.
- Bills pricing is +2 to +4.
- RBA dated OIS pricing 1-5bp softer across meetings.
- Tomorrow the local calendar sees Westpac -MI Leading Index.
- Commodity prices declined on Monday after China’s economy grew slower than expected in the second quarter, adding to concern about the lacklustre recovery for Australia’s largest export partner. Fund managers say the big concern for the market is whether authorities will step in and announce more meaningful economic stimulus. (See link)
- Tomorrow the AOFM plans to sell A$800mn of the 3.50% 21 December 2034 bond.
NZGBS: Closed Richer Ahead Of Q2 CPI Tomorrow
NZGBs closed on a positive note with benchmark yields flat to 2bp lower ahead of Q2 CPI tomorrow. Without meaningful domestic drivers, local participants have been content to monitor developments in US tsys and ACGBs. NZ/US and NZ/US 10-year yield differentials closed little changed.
- Tomorrow sees the release of Q2 CPI with economists expecting the quarterly pace to step down to +0.9% q/q from +1.2% in Q1. This will leave the annual rate at +5.9% down from +6.7%. If analysts are correct, then inflation would be below RBNZ’s Q2 forecast of +1.1% q/q and +6.1% y/y. The RBNZ appears to be on hold for now, unless inflation isn’t in the target band by H2 2024, with the risk to rates likely to stem from sticky non-tradeable inflation (+1.0% q/q versus +1.7% prior).
- Swap rates are flat to 3bp lower with the 2s10s curve flatter.
- RBNZ dated OIS closed little changed with terminal OCR expectations sitting at 5.64%.
- The latest 1News/Verian poll showed support for the incumbent Labour Party down 2pp to 33% but the opposition Nationals also down 2pp to 35%. The NZ election is scheduled for October 14.
- Later today sees June US retail sales and industrial production, May US business inventories, and the July NAHB housing market index.
FOREX: Greenback Marginally Pressured In Asia
The USD is marginally pressured in Asia, BBDXY is down ~0.1%, however ranges do remain relatively narrow thus far on Tuesday. Chinese authorities have announced measures to boost household consumption however market impact has been fairly modest.
- AUD/USD prints at $0.6825/30, the pair is ~0.2% firmer and has pared some of Mondays losses. The latest minutes showed that the RBA remains very data/forecast dependent but did have a more dovish tone with discussion of downside risks to growth and the removal of “finely balanced”.
- Kiwi is firmer, NZD/USD is up ~0.2%. The pair was supported at $0.6320 in early dealing and has firmed through the Asian session. Ranges do remain narrow with a $0.6320/40 persisting for the most part.
- Yen is also marginally firmer, USD/JPY is down ~0.1%. The pair firmed in early dealing however resistance was seen ahead of ¥139 and losses were erased. Resistance comes in at ¥140.18 the 50-Day EMA, support is seen at ¥137.25 low from July 14.
- Elsewhere in G-10 EUR and GBP are both ~0.2% higher.
- Cross asset wise; Regional Equities and US Equity futures are lower. Hang Seng is down ~2% and e-minis are ~0.2% lower. US Tsy Yields are at touch softer across the curve.
- There is a thin data calendar in Europe today, further out Canadian CPI and US Retail Sales cross.
EQUITIES: Renewed China Property Woes Weighs On Broader Sentiment
Hong Kong markets have returned today and lost ground (HSI off by more than 2%). Japan markets are faring better on their return, but are only modestly higher in terms of the Topix. Trends are mixed elsewhere. US equity futures sit modestly in the red at this stage. Emini last just under 4550, -0.10% weaker, while Nasdaq futures were down 0.17%.
- The HSI is off by 2.17% at the break. Some catch up to the softer tone in mainland China shares yesterday post weaker data is in play, while renewed property market concerns is another headwind.
- Property developers have weighed on the HSI, amid a warning from Dalian Wanda Group on a funding short fall (it has a $400mn bond due on July 23). Elsewhere, China's Evergrande reported larges losses for the past two years, while a creditor is seeking bankruptcy for Evergrande's real estate Xian unit.
- The mainland CSI 300 is off 0.30% at the break, despite a rebound in consumer discretionary stocks as the authorities pledge to aid the consumption recovery.
- Elsewhere both the Kospi and Taiex are down despite positive leads from US tech related indices in Monday trade. Losses are under 0.50% at this stage.
- Japan shares are higher, although the Nikkei 225 is struggling to hold gains. The ASX 200 is down 0.36%.
- In SEA, the picture is mixed, although more markets are down than up.
OIL: Prices Up Slightly As Russian Cuts Balance China Demand Worries
Oil is up moderately during APAC trading following two days of sharp falls, helped by Russian intentions to reduce crude exports. WTI is up 0.4% to $74.41/bbl, just off the intraday high of $74.51. Brent is 0.3% higher at $78.75 after a high of $78.83. Crude swings today have also been impacted by moves in the greenback which is now down 0.1%.
- Oil prices are likely to remain very sensitive to demand indicators after China’s Q2 disappointed and a number of forecasters cut their growth projections. Treasury Secretary Yellen also warned of the risks to global growth and Australian Treasurer Chalmers said that China’s slowdown was “concerning”. China is the world’s largest crude importer.
- Offsetting demand concerns are expectations that the oil market will tighten in H2 2023. Russia plans to reduce Q3 2023 exports by 2.1mn tonnes in line with its announced August 500kbd cut, which should be aided by the Urals price exceeding the price cap.
- US API crude & product inventory data for last week are released later. There was a 3.03mn barrel build in the latest data according to Bloomberg.
- Later the Fed’s Barr and Gibson speak ahead of the blackout period before the July 26 meeting. US June retail sales, IP and July NAHB housing index, and Canadian June CPI print. The ECB’s Panetta speaks and updated European Commission forecasts are scheduled.
GOLD: Treads Water Ahead Of US Retail Sales Today
Gold has shown slight strength (+0.25%) during the Asia-Pac session, having closed steady for the second consecutive day on Monday. Investors are carefully evaluating the impact of China's slow economic recovery on global growth, while also considering signs that the Federal Reserve is nearing the end of its monetary-tightening cycle. The US dollar and US Treasuries were tame ahead of the release of US retail sales data today.
- US Treasury Secretary Janet Yellen expressed concern about the repercussions of the sluggish Chinese economy, but she reassured that she doesn't foresee a recession in the US, where the inflation threat is diminishing. This has sparked optimism that the Fed might soon pause its rate hikes, which typically have a negative effect on gold due to its lack of interest-bearing nature.
- According to MNI's technicals team, gold remains reasonably close to resistance at $1968.0 (Jun 16 high) with an intraday high nudging $1960, whilst support is seen at $1934.4 (20-day EMA).
UP TODAY (TIMES GMT/LOCAL)
| Date | GMT/Local | Impact | Flag | Country | Event |
| 18/07/2023 | 0900/1000 | ** |  | UK | Gilt Outright Auction Result |
| 18/07/2023 | - |  | EU | ECB Panetta at G20 Finance/Central Bank meeting | |
| 18/07/2023 | 1215/0815 | ** |  | CA | CMHC Housing Starts |
| 18/07/2023 | 1230/0830 | *** | | CA | CPI |
| 18/07/2023 | 1230/0830 | * | | CA | Industrial Product and Raw Material Price Index |
| 18/07/2023 | 1230/0830 | *** |  | US | Retail Sales |
| 18/07/2023 | 1255/0855 | ** | | US | Redbook Retail Sales Index |
| 18/07/2023 | 1315/0915 | *** | | US | Industrial Production |
| 18/07/2023 | 1400/1000 | ** | | US | NAHB Home Builder Index |
| 18/07/2023 | 1400/1000 | * | | US | Business Inventories |
| 18/07/2023 | 1400/1000 | | US | Fed's Michael Barr | |
| 18/07/2023 | 1530/1130 | * | | US | US Treasury Auction Result for Cash Management Bill |
| 18/07/2023 | 2000/1600 | ** | | US | TICS |
| 19/07/2023 | 2245/1045 | *** |  | NZ | CPI inflation quarterly |
Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.