MNI US OPEN: GBP Ticks Higher With Johnson Set To Quit

EXECUTIVE SUMMARY:

• UK'S JOHNSON TO RESIGN AS CONSERVATIVE PARTY LEADER TODAY, INTENDS TO STAY ON AS PM UNTIL AUTUMN
• CHINA MULLS $220B STIMULUS WITH UNPRECEDENTED BOND SALES
• GERMAN INDUSTRIAL PRODUCTION WEAKER THAN EXPECTED
• BOE DECISION MAKER PANEL SURVEY HIGHLIGHTS LOFTY INFLATION EXPECTATIONS

Fig. 1: Sterling Sees Modest Boost Following Johnson Departure News

Source: BBG, MNI

NEWS:

UK (BBC): Boris Johnson is to stand down as Conservative leader, but intends to carry on as prime minister until the autumn. He is expected to make a resignation statement in Downing Street shortly. It follows a dramatic 48 hours which saw dozens of ministers - including chancellor Rishi Sunak - resigning in protest at his leadership. Mr Sunak's replacement as chancellor Nahim Zahawi was among the ministers urging the PM to quit.

UK (MNI POLITICS): There is some media and political speculation as to whether outgoing PM Boris Johnson should remain in place in a caretaker capacity during the course of a Conservative party leadership contest. Initial stories about Johnson stepping down as Conservative leader stated his intention to remain in place during leadership contest.

BOE (MNI): BoE release Decision Maker Panel survey for June: https://www.bankofengland.co.uk/decision-maker-pan... Highlights:

• Over the past 12 months to June, average unit costs were estimated to have increased by 9.5%.
• Over the next 12 months, firms expected unit cost growth to be 8.2%.
• Perceptions of current CPI inflation averaged 8.7% in the June survey, 0.3pp lower than the official ONS CPI inflation rate. Looking ahead, DMP members expected CPI inflation to be 7.4% one-year ahead and 4.0% in three years’ time.
• 88% of firms reported they were finding it harder to recruit new employees compared to normal
• 58% of respondents reported that uncertainty for their business was ‘high’ or ‘very high’ at the moment, 4 percentage points higher than in May

CHINA (BBG): China’s Ministry of Finance is considering allowing local governments to sell 1.5 trillion yuan ($220 billion) of special bonds in the second half, an unprecedented acceleration of infrastructure funding aimed at shoring up the country’s beleaguered economy.The bond sales would be brought forward from next year’s quota, according to people familiar with the discussions, who asked not to be identified because they aren’t authorized to speak publicly. It would mark the first time the issuance has been fast-tracked in this way, underscoring growing concerns in Beijing over the dire state of the world’s second-largest economy.

PBOC (MNI): The People’s Bank of China is signalling curbs on rising leverage in the wholesale money market by draining excess liquidity as social financing improves on fiscal stimulus and credit expansion efforts, market analysts said. The central bank has reduced the amount of its daily open market operations at an unexpected pace since this Monday by injecting only CNY3billion per day via reverse repo agreements. This is the first time that the daily OMO injection was lower than CNY10 billion since the end of January 2021. As a result, the PBOC has mopped up a total of CNY378 billion from the interbank market so far this week.

CHINA (RTRS): China's foreign exchange reserves fell more than expected in June, official data showed on Thursday, as the dollar climbed against other major currencies. The country's foreign exchange reserves - the world's largest - fell $56.5 billion to $3.071 trillion last month, compared with $3.113 trillion tipped by a Reuters poll of analysts and $3.128 trillion in May. For the first half of 2022, China's foreign exchange reserves fell $178.9 billion, data from the central bank showed, inching towards a closely watched threshold at $3 trillion. The State Administration of Foreign Exchange (SAFE) said in a statement that the 1.8% drop in June reserves mainly reflected valuation effects, as the dollar rose and global asset prices fell sharply amid worries over inflation and the growth outlook.

UK (BBG): The UK Treasury’s public finances are on an “unsustainable path” that will require tax increases or spending cuts to fix, the government’s fiscal watchdog said. The Office for Budget Responsibility said its analysis indicates a challenging future for governments to navigate shocks including the war in Ukraine and surging energy costs. The conclusions clash with Chancellor of the Exchequer Nadhim Zahawi’s ambition to cut taxes as the Conservative government vies to prop up its support during a time when voters are struggling with a cost of living squeeze.

RUSSIA-UKRAINE (RTRS): Russia's defence ministry said on Thursday that a Russian warplane struck Ukraine's Snake Island in the Black Sea overnight, shortly after Ukrainian troops claimed to have raised their flag over the island. Andriy Yermak, the Ukrainian President's chief of staff, posted a video on Telegram on Thursday of three soldiers raising a large Ukrainian flag on the island, from which Russian forces withdrew on June 30 after coming under heavy bombardment from Ukrainian artillery. At the Russian defence ministry's daily briefing, spokesman Lieutenant General Igor Konashenkov said that part of the Ukrainian detachment on the island was "destroyed".

BOJ (RTRS): The Bank of Japan is expected to raise its inflation forecast but maintain ultra-low interest rates at this month's policy meeting, sources say, as fears of a U.S. recession and rising input costs cloud the outlook for its fragile economic recovery. In a quarterly report due at the July 20-21 meeting, the BOJ is likely to project core consumer inflation will slightly exceed its 2% target in the current fiscal year ending in March 2023, up from the present forecast of 1.9% made in April, the sources say.

IRELAND (RTRS): The Irish debt agency's large cash balance of 30 billion euros raised when interest rates were at unprecedented lows will cushion Ireland in the years ahead against rising borrowing costs, its new chief executive said on Thursday. By raising more debt than necessary in recent years, the National Treasury Management Agency's (NTMA) cash balances have risen to 13% of gross national income. It has also lengthened the average maturity of its bond portfolio 10.7 years.

DATA:

LOOK AHEAD:

Date	GMT/Local	Impact	Flag	Country	Event
07/07/2022	0945/1145			EU	ECB Lane on Green Transition at OECD Forum
07/07/2022	1230/0830	**		US	Jobless Claims
07/07/2022	1230/0830	**		US	Trade Balance
07/07/2022	1300/1400			UK	BOE Mann Speaks at LC-MA Forum
07/07/2022	1400/1000	*		CA	Ivey PMI
07/07/2022	1430/1030	**		US	Natural Gas Stocks
07/07/2022	1500/1100	**		US	DOE weekly crude oil stocks
07/07/2022	1530/1130	**		US	US Bill 04 Week Treasury Auction Result
07/07/2022	1530/1130	*		US	US Bill 08 Week Treasury Auction Result
07/07/2022	1605/1705			UK	BOE Pill Speaks at Sheffield Hallam University
07/07/2022	1700/1300			US	Fed Governor Christopher Waller
07/07/2022	1700/1300			US	St. Louis Fed's James Bullard
08/07/2022	0645/0845	*		FR	Foreign Trade
08/07/2022	0645/0845	*		FR	Current Account
08/07/2022	0800/1000	*		IT	Industrial Production
08/07/2022	1155/1355			EU	ECB Lagarde at Les Rencontres Economiques
08/07/2022	1230/0830	***		CA	Labour Force Survey
08/07/2022	1230/0830	***		US	Employment Report
08/07/2022	1230/0830	**		US	WASDE Weekly Import/Export
08/07/2022	1230/0830			US	New York Fed's John Williams
08/07/2022	1400/1000	**		US	Wholesale Trade
08/07/2022	1500/1100			US	New York Fed's John Williams
08/07/2022	1900/1500	*		US	Consumer Credit