MNI ASIA OPEN - Lagarde Details Anti-Frag Tools to Lawmakers

NEWS:

ECB (MNI): ECB Should Hike By Up To 100Bps
The European Central Bank should raise interest rates by up to 100 basis points by September, and increase them above neutral levels if inflation projections exceed the price stability target, the governor of the Central Bank of Latvia told MNI in an interview, adding that the eurozone faced a "non-trivial" risk of deep recession.

ECB (BBG): Lagarde Tells Ministers ECB Expects to Put Limit on Bond Spreads
President Christine Lagarde told euro-area finance ministers that the European Central Bank’s new anti-crisis tool will kick in if the borrowing costs for weaker nation rise too far or too fast, according to people briefed on their discussions. She said the instrument may be triggered if bond spreads widen beyond certain thresholds or if market movements exceed a certain speed. Lagarde did not specify whether those limits would be made public.

EU-UK (MNI): Ireland MEP Sees No Appetite For EU-UK Trade War
EU and UK relations face a few months of quiet tension as the struggle over the Northern Ireland Protocol heats up, but neither side has appetite for a trade war, according to European Parliament member Sean Kelly who represents a constituency in the Republic of Ireland. "No-one wants a trade war, particularly with the UK," Kelly, MEP for Ireland South and Vice Chair of the EU Delegation to the EU-UK Parliamentary Assembly, told MNI.

EUROPE (MNI): Paris Seen In EU Anti-Subsidy Push Despite Business Fears
France's soon-to-expire European presidency is pushing for agreement on a central plank of a new trade defence platform later this month, despite criticism from multinationals which claim the legislation will raise the bar for foreign direct investment in the eurozone too high, EU officials told MNI.

BOE (MNI) BOE Sticks To Gradual Tightening For Now
The Bank of England stuck to gradual tightening at its June meeting, delivering another 25-basis-points hike, but hardened its guidance with a promise to do what is necessary to get inflation to target and to "act forcefully" if need be. While three Monetary Policy Committee members, Catherine Mann, Jonathan Haskel and Michael Saunders, voted for a 50-basis-point increase, all had all done so in May and none are Bank insiders, with everyone else backing 25 bps.

CANADA (MNI): BOC Needs Bold Hike Beyond Neutral - Senator
The Bank of Canada could take "bold" action to raise its interest rates above neutral levels in order to bring inflation back to target in the G7's most over-heating economy, Senate Banking Committee member and former finance department adviser Clement Gignac told MNI.

SNB (MNI): Raises Rates By 50bps, More May Follow
The Swiss National Bank raised the interest rate sight deposits by 50 basis points to -0.25% on Thursday - its first increase since 2007 - and said more tightening cannot be ruled out, surprising analysts who had predicted a first 25 basis-point hike in September. In its statement, the SNB also omitted a previous reference to the franc as "highly valued" in March, and dropped its explicit commitment to countering upward pressure on the currency, though it added that remains willing to be active in the foreign exchange market as necessary.

RBNZ (MNI): Slowing Growth Could Limit RBNZ Rate Hikes
A member of a "shadow board' of the Reserve Bank of New Zealand believes the outlook for the NZ economy is "darkening" and that the central bank may not raise official interest rates to the forecast high of 3.9% by 2024. Jarrod Kerr, the chief economist of publicly owned Kiwi Bank and a member of the shadow RBNZ board created by economic think tank the NZ Institute of Economic Research, was speaking after lower than expected GDP data for the first quarter of 2022 showed the NZ economy had contracted by 0.2% after 3.0% growth in the last quarter of 2021.

DATA

MNI: US JUN PHILADELPHIA FED MFG INDEX -3.3
US JOBLESS CLAIMS -3K TO 229K IN JUN 11 WK
US PREV JOBLESS CLAIMS REVISED TO 232K IN JUN 04 WK
US CONTINUING CLAIMS +0.003M TO 1.312M IN JUN 04 WK

MNI: CANADA APR WHOLESALE SALES -0.5%; EX-AUTOS -0.5%
APR WHOLESALE INVENTORIES +1.7%: STATISTICS CANADA

US TSYS SUMMARY: Initial Weakness Reverses, Stemming Yield Charge on 3.50%

• Treasury futures initially sold off through European hours, with prices reversing the entirety of the post-FOMC move. Prices dipped to touch 114-10 follow rate hikes from the Swiss, UK and Taiwanese central banks, which helped the 10y yield narrow in on the key upside psychological level at 3.50%.
• This price action soon reversed, however, as equity weakness persisted and as reports continued to disclose more detail on the ECB's anti-fragmentation tool proposals. The reports suggested the ECB will have tolerance bands for peripheral European bond yield spreads, and the central bank could intervene to prevent disjointed markets from hampered the monetary policy transmission mechanism.
• The curve traded very slightly steeper, with 2y yields the largest mover. This tipped the 2y yield back to the week's lows ahead of the close, marking a ~30bps turnaround from the pre-FOMC high.
• The trend needle in Treasuries points south after this week’s weakness. The break of key support at 116-21, May 9 low, confirmed an extension of the bear leg from May 26 and a resumption of the primary downtrend. The move lower opens 114-00 next.
• Bank of Japan is the main risk event overnight before Fed Chair Powell speaks on Friday, due to deliver welcoming remarks at the Inaugural Conference on the International Roles of the US Dollar, in Washington DC.

FOREX: CHF Surges Following SNB Hike, USD Index Slides Over 1.5%

• The significant march higher in US yields during early trade on Thursday was entirely reversed throughout the US session, weighing substantially on the greenback. The USD index has retreated the best part of 1.5%, extending on the prior day’s minor pullback after the June FOMC decision.
• The Swiss Franc surged on Thursday against all G10 ccys to be the best performer globally following the SNB rate decision. The Bank surprised markets by raising rates by 50bps to -0.25%, a move markets had seen the SNB waiting until September to execute.
• The late dollar weakness has exacerbated the price action in USDCHF, which looks set to post losses of close to 3% on the day. USDCHF had been on a one-way mission throughout June, grinding from around 0.9550 all the way to yesterday’s high print of 1.0050. The SNB move, considerable weakness in major equity indices sparking safe haven flows and the greenback turnaround has seen the pair reverse almost the entirety of the June upswing in two swift sessions. The May lows at 0.9545 are the short-term point of focus.
• Bank of England also prompted GBP volatility. With markets pricing in a small chance of a larger than consensus rate hike, the 25bp increase initially weighed on GBP. Following the new hardened guidance however, sterling weakness was short-lived and cable forcefully reversed course to rise around 3% from worst levels and probe the 1.2400 handle.
• The other notable performers amid the USD weakness were NZD (1.64%) and the single currency. EURUSD (+1.45%) remained bid all session long and remains pinned to the highs approaching the APAC crossover following ECB’s Lagarde reportedly outlining triggers (limit on bond spreads) for the central bank’s new anti-fragmentation tool. Initial resistance is being tested at 1.0596, the 20-day EMA, however, the key channel top, currently intersecting at 1.0698 remains in focus.
• Bank of Japan is the main risk event overnight before Fed Chair Powell speaks on Friday, due to deliver welcoming remarks at the Inaugural Conference on the International Roles of the US Dollar, in Washington DC.