MNI US OPEN: ECB Eyeing Half-Point Hike This Week?

MNI: EUROZONE JUN FINAL HICP +0.8% M/M, +8.6% Y/Y

MNI: EUROZONE MAY CONSTRUCTION OUTPUT +0.4% M/M, +2.9% Y/Y

MNI: UK MAY AWE 6.2% Y/Y, AWE-EX BONUS 4.3% - ONS

UK JUNE RTI PAYROLLS +31,000 AT 29.6 MILLION - ONS

MNI: UK MAY UNEMPLOYMNET RATE 3.8% - ONS

MNI BRIEF: UK Real Incomes Declined At Record Pace In May

Real wages in the UK fell again in May, as pay deals and bonus payments failed to keep pace with soaring inflation, data released by the Office for National statistics showed, dipping even very slightly below analysts' expectations..

Total average earnings rose 6.2% y/y in the three months to May, driven in large part by bonus payments, while pay deals excluding bonuses rose by 4.3% y/y. However, when adjusted for inflation, real wages fell 0.9% y/y and by 2.9% excluding bonuses. Excluding bonuses, "real pay is now dropping faster than at any time since records began in 2001,” according to David Freeman, head of labour market and household statistics at the ONS said.

The jobs and wages data remains key to the Bank of England's reading of the UK economy and the latest data will offer mixed signals, but probably doesn't add further fuel to the need for a 50 bps rate hike at the August meeting.

“Following recent increases in inflation, pay is now clearly falling in real terms both including and excluding bonuses. Excluding bonuses, real pay is now dropping faster than at any time since records began in 2001.”

FIXED INCOME: ECB 50bp talk hitting German curve; UK labour market data helping gilts

There has been some divergence between core fixed income markets this morning.

• The biggest moves have been seen in EGBs following first a Reuters and then a Bloomberg sources story that suggested the ECB would discuss both 25bp and 50bp hikes at its meeting this week. This follows forward guidance that had pretty explicitly signalled a 25bp hike this week (although the hawks have been a lot more open to a 50bp hike this week in their recent public commentary). Market pricing for this week's meeting has increased from a less than 20% probability of a 50bp hike to around a 40% probability. This has led to a bear flattening of the German curve. Schatz yields had at one point been move than 10bp higher on the day.
• Gilts on the other hand are higher today after slightly disappointing UK labour market data. The very front-end of the SONIA strip has been pulled lower since the ECB sources story, with 51bp now priced for the August meeting (from 48bp yesterday) but the terminal rate has not shifted, gilt yields are lower across the curve, although off the more extreme levels seen at the open.
• Against this backdrop, US Treasuries have seen the smallest moves with the curve steepening marginally today.
• Looking ahead we have US housing data as well as the Mansion House speeches (from BOE's Bailey and Chancellor Zahawi) as well as the next round of the Conservative leadership contest where we will be whittled down to three candidates.
• TY1 futures are down -0-7+ today at 118-07+ with 10y UST yields down -0.5bp at 2.982% and 2y yields down -2.7bp at 3.151%.
• Bund futures are down -0.33 today at 151.59 with 10y Bund yields up 2.1bp at 1.232% and Schatz yields up 5.1bp at 0.548%.
• Gilt futures are up 0.26 today at 115.27 with 10y yields down -2.8bp at 2.127% and 2y yields down -2.3bp at 1.943%.

FOREX: EUR Makes Light Work of Monday High

• The EUR sits close to the top of the G10 pile Tuesday, with the release of several sources reports to Bloomberg and Reuters making a 50bps rate hike at this Thursday's ECB a certain topic for discussion - although the median consensus still looks for a smaller 25bps rise this week.
• EUR/USD made light work of the Monday highs upon release, turning attention to resistance at 1.0258, the 20-day EMA. A breach of the average would strengthen bullish conditions and signal scope for an extension within the bear channel.
• The greenback is among the poorest performers early Tuesday, extending the weakness noted on Monday as the USD Index extends the pullback off last week's cycle high. The USD Index is now near 2.5% off the best levels of last week.
• As was the case pre-market yesterday, US equity futures are firmer, indicating a positive open on Wall Street later today after the late downdrift in markets into the close. The firmer risk backdrop is helping AUD and NZD shore up recent strength, while WTI back above $102/bbl helps oil-tied FX outperform.
• US housing data takes focus going forward, with housing starts and building permits data on the docket. ECB's Makhlouf is due to speak, although policy comments are likely few and far between given the proximity to Thursday's rate decision. BoE's Bailey is also scheduled to speak, delivering the Mansion House speech alongside Chancellor Zahawi.

EQUITIES: Europe Stocks Pare Gains On ECB 50bp Hike Speculation

• Asian stocks closed mixed (Japan returned from a Monday holiday): Japan's NIKKEI closed up 173.21 pts or +0.65% at 26961.68 and the TOPIX ended 10.29 pts higher or +0.54% at 1902.79. China's SHANGHAI closed up 1.328 pts or +0.04% at 3279.431 and the HANG SENG ended 185.12 pts lower or -0.89% at 20661.06.
• European stocks pared earlier modest gains after multiple media reports that the ECB was considering hiking by 50bp in July; tech stocks are lagging, with defensives (utilities) leading: the German Dax down 62.77 pts or -0.48% at 12959.81, FTSE 100 down 11.14 pts or -0.15% at 7218.69, CAC 40 down 39.08 pts or -0.64% at 6091.91 and Euro Stoxx 50 down 21.72 pts or -0.62% at 3511.86.
• U.S. futures are a little stronger, with the Dow Jones mini up 90 pts or +0.29% at 31135, S&P 500 mini up 16.25 pts or +0.42% at 3850, NASDAQ mini up 51 pts or +0.43% at 11958.

COMMODITIES: Precious Metals Benefit From Weaker USD But Copper Retreats

• WTI Crude down $0.4 or -0.39% at $101.77
• Natural Gas down $0.01 or -0.11% at $7.519
• Gold spot up $3.78 or +0.22% at $1710.43
• Copper down $5 or -1.49% at $334.7
• Silver up $0.15 or +0.79% at $18.8595
• Platinum up $7.45 or +0.86% at $873.39