MNI ASIA OPEN - ISM Says Technical Recession Possible

NEWS:

US (MNI): ISM Mfg Chief - Technical Recession Possible
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 year end, there is a risk that widening concerns about growth could become self-fulfilling, Institute for Supply Management chair Timothy Fiore told MNI Friday. Fiore maintained his view that U.S. manufacturing will see steady growth through the end of the year, attributing June's surprising 3.1ppt drop in the PMI to 53.0 to the 8.4ppt drop in supplier deliveries to 57.3 and weaker-than-expected new orders.

FED (MNI): MNI BRIEF: Susan Collins Takes Helm of Boston Fed, July Voter
Susan Collins has started in her new position as president of the Federal Reserve Bank of Boston, the first black woman in the role, the bank said in a statement Friday. "I'm honored to take on this new role and the tremendous responsibility it carries, especially at such an important time for the U.S. economy," Collins said. "I'm eager to join my colleagues in analysis of the critical policy issues for the Fed and the economy."

UK/EU (MNI): N. Ireland Bill May Not Pass Commons Before Break - IfG
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. While the second reading of the bill has been completed, its committee stage is not due to start until July 13 and the timetable is very tight, as the government will need to find three days for it before the summer recess and only four are still available, noted IfG senior researcher Jess Sargeant.

BIS (MNI): BIS Appoint NY Fed's Williams Head of Markets Ctte
NY Fed President John Williams has been appointed Chair of the Basel-based Bank for International Settlement's Markets Committee. Williams' term will begin in January 2023 and run for three years, the BIS said Friday. Reserve Bank of Australia Governor Philip Lowe was appointed to a second term as head of the Committee on the Global Financial System, while BOE Deputy Governor Jon Cunliffe saw his term as Chair of the Committee on Payments and Market Infrastructures (CPMI) extended.

DATA

EUROZONE DATA: New High For EZ Inflation Muddies Water For ECB
Eurozone inflation soared to a new high of 8.6% in June, according to a preliminary release from Eurostat, up from 8.1% in May and outpacing market expectations of an 8.5% increase. Month-over-month, prices rose an estimated 0.8%. The increase was driven in part by higher gas prices, with strong y/y gains seen in Italy and Spain. German harmonised inflation slowed modestly, helped by fuel and travel subsidies, but it wasn't enough to slow the increase across the entire bloc. Core inflation, ex-energy, food, alcohol and tobacco slowed moderately in June, dipping to 3.7% from 3.8% in May. Alone, energy inflation stood at 41.9% y/y, up from 39.1% in May.

US DATA: ISM Mfg New Orders Contract For First Time Since May'20

• The ISM manufacturing index was weaker than expected in June, falling from 56.1 to 53.0 (cons 54.5).
• New orders (49.2) joined employment (47.3) with a sub-50 readings for lows since May'20 and Aug'20.
• The report was more positive on employment than the numbers suggest: "despite the employment index contracting in May and June, companies improved their progress on addressing moderate-term labor shortages at all tiers of the supply chain panelists saw lower rates of quits compared to May."
• But new orders in contraction territory clearly dominate. Some respondents note a pushing back of customer orders on high inventories or material availability holding back production, but it's not all bad with some customers pulling forward orders to offset it and ocean freight costs beginning to fall a bit.
• Electrical components have now been in short supply for 21 consecutive months, semiconductors 19mths.
• The rally in yields continues at pace, with 5Y yields sliding 9bps on the release for 25bps lower on the day as the dollar surges with BBDXY +0.7

FOREX: USD Bolstered Amid Risk Selloff, AUDUSD Extends Yearly Lows

• Treasury yields extended their decline on Friday as new data on US manufacturing added weight to mounting recessionary concerns across global markets. The risk-off tone was dollar supportive, with all major currencies losing ground apart from the Japanese Yen.
• AUD/USD has fallen to fresh YTD lows, dipping below the 0.6800, before stabilising somewhat. From a technical standpoint, the next level to watch will be 0.6805, the June 22, 2020 low. Below that is the June 15th low of 0.6777.
• Additionally, AUD/JPY is off by over 2%, through the 50-day MA, last tracking close to 91.80, having made a low print of 91.42.
• The Euro had remained fairly subdued throughout European hours as Eurozone CPI data came in just ahead of expectations at 8.6% Y/Y. However core inflation came in below forecast at 3.7% - making for a broadly market-neutral release.
• A significant dampening of market sentiment then prompted a fresh wave of selling for EURUSD, which printed below yesterday’s lows of 1.0383. This narrows the gap once again with the 1.0350, May 13 low and a bear trigger. Furthermore the 1.0341 low from 2017 loiters just below this key support. For bulls, a breach of 1.0600 would alter the picture and highlight a bullish channel breakout.
• Swiss CPI and the Bank of Canada’s Business Outlook Survey highlight Monday’s calendar, however it is worth noting the US will be out for July 4^th holiday.

US TSYS SUMMARY: 5Y Yields Pull Back To Rally ‘Only’ 16bps

• Cash Tsys reversed the huge bid following the ISM miss but still saw yields down 16bps in the belly before an early close (having touched -25bps at one point). The overriding story from the ISM manufacturing survey was new orders contracting for the first time since May’20 and the elevated risk of a technical recession more generally, with the Atlanta Fed GDPNow tracker for Q2 being revised down even further to -2% annualized.
• However, these latest developments are now seen to support the morning’s price moves rather than warrant adding to them, considering the 5Y is already down more than 40bps from Tuesday’s recent high.
• The moves have been dominated by adjustments in real yields. Following the post-ISM round trip, the picture further along the curve is unchanged from this morning: 10Y real yields have slipped 14bps on a day that inflation breakevens have stabilised after sliding to pre-taper levels of sub-2.40% in June.
• 2YY -12bps at 2.833%, 5YY -16bps at 2.877%, 10YY -13.3bps at 2.880%, 30YY -8bps at 3.103%.
• TYU2 sits 27 ticks higher on the day at 119-12 as volumes tail off after a heavy session, having briefly exceeded the 120-00 handle with a high of 120-04. A continuation of today’s acceleration in the uptrend could open key resistance at 120-19+ (May 26 high).