MNI US OPEN: More European Tightening Talk

EXECUTIVE SUMMARY:

• BOE'S HUW PILL: FURTHER TIGHTENING OF MONETARY POLICY IS NEEDED
• ECB'S REHN: `VERY LIKELY' SEPT. RATE HIKE BIGGER THAN 0.25 PPTS
• UK RAIL STRIKES GET UNDER WAY AFTER UNIONS REJECT LATE OFFER
• BIGGER RBA RATE HIKE TO ADDRESS "INFLATION MINDSET": MINUTES
• JAPAN PM KISHIDA: BOJ NEEDS TO MAINTAIN EASY POLICY

Fig. 1: Italy Spreads Continue To Narrow As Anti-Fragmentation Tool In The Works

Source: BBG, MNI

NEWS:

BOE (BBG): The BOE is ready to act “more aggressively” if needed, BOE chief economist Huw Pill says in web event hosted by ICAEW. There are risks of a self-sustaining momentum in inflation, and it is crucial to halt the second round effects, he says. Still, rate hikes will take 12-18 months to have an impact, and it is impossible to offset the shock of energy price rises, Pill says. Pill reiterates inflation, not the exchange rate, is the BOE’s target.

ECB (BBG): The European Central Bank has “good reason” to start raising interest rates next month, said Governing Council member Olli Rehn. Major increases in energy and raw-material costs are being transmitted more broadly to the prices of other products and services, according to the Bank of Finland, which he heads. “With inflation rising sharply, there has been good reason to expedite the normalization of monetary policy,” Rehn said in a statement on Tuesday. “The aim is to ensure that inflation stabilizes at its 2% target over the medium term.”

ECB (BBG): Italian bonds surge, tightening their premiums over German counterparts to the lowest since May 17 after ECB’s Rehn says the central bank is committed to containing unwarranted fragmentation.

ECB (BBG): “Negative rates must be history by September,” European Central Bank Governing Council Member Peter Kazimir tells reporters in in Bratislava on Tuesday. Given the fact that the ECB must tighten monetary policy against the backdrop of weaker macroeconomic conditions, he sees slower growth in the area. Some countries might fall into a technical recession, Kazimir says

UK (BBG): UK rail workers began Britain’s biggest rail strike in three decades after unions rejected a last-minute offer from train companies, bringing services nationwide to a near standstill. A proposal from track manager Network Rail was considered and rejected on Friday, and another one from train companies was turned down on Monday, National Union of Rail, Maritime and Transport Workers General Secretary Mick Lynch said in statement broadcast from near Euston Station, north London. The failure of negotiations means some 40,000 staff at 13 train operating companies and Network Rail will walk out on Tuesday, Thursday and Saturday, bringing commuter services to a halt and threatening to cause transport chaos in London. Only about 20% of services will survive the stoppages, with Scotland and Wales hit hardest.

FRANCE: The Elysee Palace has confirmed that Prime Minister Elisabeth Borne offered her resignation to President Emmanuel Macron earlier today, but that the president rejected this offer. The Elysee told AFP that Macron rejected the offer, "so that the government stays on task", adding that Macron intends to carry out “the necessary political consultations (…) in order to identify possible constructive solutions in the service of the French [people]”. Borne's resignation offer comes after a poor election campaign for Macron and his centrist Ensemble alliance, which retained a plurality in the National Assembly, but lost its overall majority.

GERMANY (BBG): Germany’s federal finance agency is sticking with its ample debt-issuance plans for the third quarter as the government continues to spend freely to help offset the impact of the coronavirus pandemic and Russia’s invasion of Ukraine.Debt issuance will total 106.5 billion euros ($112.2 billion) in the three months through September, in line with a plan published in December, according to a statement by the Federal Finance Agency on Tuesday.

RBA: The Reserve Bank of Australia opted for a larger 50 basis point interest rate hike in June because it wanted to "mitigate" the risk of higher inflation expectations, and because interest rates were still very low and stimulatory. The comments come from the minutes of the RBA's June board meeting released on Tuesday, where the central bank surprised with a 50bps rise to take official rates to 0.85%

JAPAN: Prime Minister Fumio Kishida said on Tuesday that the Bank of Japan needs to maintain the current easy policy but the methods of management is up to the central bank. "Monetary policy affects foreign exchange rates and also affects smaller firms' funding and housing loans and the overall economy. (The BOJ) should manage monetary policy in comprehensive way," Kishida said at debate between party leaders ahead of upper house elections on July 10. He added that senior officials at the BOJ, the Ministry of Finance and the Financial Services Agency, have all voiced concern over the rapid yen fall against the dollar, and they agreed to take appropriate policy, while carefully monitoring future developments.

SWEDEN / EUROPE ENERGY (BBG): The Swedish Energy Agency issued an “early warning” that there is a potential for disruptions of gas supplies, it said in a statement on Tuesday. It doesn’t mean a reduction of supplies, but is a notice that the gas market is strained and that issues with supplies may happen

DATA:

No key data released in the European morning.

LOOK AHEAD:

Date	GMT/Local	Impact	Flag	Country	Event
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