MNI US OPEN - Another 25bps Step Expected From ECB, But Sept Remains Open

NEWS

MNI ECB Preview - July 2023: Another 25bp Hike. September Remains Open
The ECB will almost certainly hike by 25bp this week after President Lagarde guided markets to another hike at the June meeting. Although economic activity data has recently weakened and several policymakers have highlighted the lagged impact on the economy of previous policy rate hikes, the labour market remains tight and inflation is still someway from target.

MNI BoJ Preview - July 2023: Holding Steady, Inflation Outlook Key
Our analysis aligns with the prevailing consensus, which anticipates that the current easing policies will be maintained during this week's meeting. Market expectations also appear fairly low, with the 10yr JGB yield below the upper bound of the -/+0.50% permissible range, while the 10-yr Swap/JGB spread (which can be thought of as a proxy for BoJ YCC tweak speculation) sits around +15bps currently, not too far off multi-month lows going back to last August 2022.

MNI Eurozone Inflation Preview - Services Stickiness Eyed in July Print
As with June, there is a fairly wide range of estimates for core Eurozone Y/Y inflation, from 5.2% to 5.7% from the initial analyst reports we have seen, centring on a 5.4% median. That would represent limited progress from June’s 5.5% outturn. Headline is seen decelerating more sharply, to 5.2% from June’s 5.5% (with a relatively narrower range of estimates from 5.1-5.3%).

US (BBG): Biden to Unveil Steps to Protect Americans From Extreme Heat
President Joe Biden is unveiling a series of new actions to protect Americans from extreme heat conditions, as communities around the country continue to struggle with record high temperatures and the lingering effects of Canadian wildfires. Biden has asked the Department of Labor to issue a hazard alert, reaffirming that workers have heat-related protections under federal law, according to the White House.

RUSSIA/UKRAINE (MNI): Counteroffensive Launched In South But General Warns Of Slow Going
Multiple outlets reporting that Ukrainian forces have launched a major stage of their summer counteroffensive against Russian forces in the south of the country in the Zaporizhzhia oblast. The fog of war is obscuring the extent of the Ukrainian advances, believed to be focused on the village of Robotyne. Russian Defence Ministry spox Igor Konashenkov stated that a "massive" assault by three battalions of Ukrainian troops as well as tanks had been repelled, while Ukrainian Deputy Defence Minister Hanna Maliar states that Ukrainian troops are “gradually advancing” towards the cities of Melitopol and Berdyansk.

CORPORATE (BBG): Barclays to Redeem Biggest Bank AT1 Bond Eligible for 2023 Call
Barclays said on Thursday it will repay a $2.5 billion additional tier 1 note in mid-September by exercising the option to call the notes at the first date, taking out the market’s largest issue of hybrid bank securities that become callable in 2023. The note’s price has gradually risen to face value after slumping to a deep discount following the Credit Suisse wipeout in March.

AUSTRALIA (BBG): Australia Biggest States Face Budget Strains on Cash Crunch
Australia’s two biggest states will struggle to return their budgets to surplus as the economy sags under central bank rate hikes that also sent government borrowing costs soaring, according to ratings agency Moody’s Investors Service. “New South Wales and Victoria, which were most heavily impacted by COVID-19, continue to suffer from the lingering fiscal impact as they both look to manage the delivery of their respective election spending commitments, sticky cost pressures and higher residual debt burdens,”

TURKEY (BBG): Turkey’s Central Bank Surprises With High Inflation Forecast
Turkey’s central bank more than doubled its inflation forecast on Thursday, a move it hopes will bolster its credibility among investors after years of wildly optimistic projections. Governor Hafize Gaye Erkan, appointed last month, announced a new year-end inflation estimate of 58%, up from the level of 22.3% the bank had under her predecessor. The latest projections show Turkey will miss its 5% official price target over a three-year horizon.

DATA

MNI: ITALY JUL CONSUMER CONFIDENCE 106.7
* BUSINESS CONFIDENCE 109.1

BONDS: Core Curves Twist Steepen

A bid in equities and the presence of BTP supply kept the post-FOMC rally in core global markets in check during the early rounds of London trade.

• Bund futures unwound an early bid, leaving the contract -15 or so, while the German cash curve sees some light twist steepening as the major benchmarks run 0.5bp richer to 2.5bp cheaper. Core/semi-core EGB curves see similar moves, with spreads vs. Bunds little changed. BTPs are biased a touch wider out to 10s owing to the presence of the supply (digestion of the auctions was smooth enough).
• Gilts also retraced from early session highs, although weakness there has been a little more pronounced, with a lack of meaningful headline drivers observed. That leaves futures -30 or so, while the cash benchmarks run 2bp richer to 3.5bp cheaper, once again twist steepening on the day, with only 2s printing richer vs. closing levels at typing.
• U.S. Tsys have probably been the most resilient post-FOMC. 2bp of richening to 2bp of cheapening is seen across the curve at typing, with twist steepening noted again here. A recent block seller of FV futures (-5K) has applied some pressure.
• The latest ECB monetary policy decision headlines the macro docket today. With a 25bp hike essentially assured, focus will quickly turn to any guidance for policy movements after the summer break (a cumulative ~38bp of tightening is showing on the ECB-dated OIS strip through September).

FOREX: Wave of Post-Fed USD Weakness Prompts Fresh Support Across G10

• The greenback is weaker against all others in G10 across early Thursday trade, as markets absorb the Fed decision and remain soothed by the general fade in peak Fed market pricing since Powell's press conference. The softer USD has aided gains in EUR/USD and GBP/USD, allowing for prices to partially erase the mid-July pullback.
• The JPY is similarly weaker ahead of the BoJ decision on Friday. Implied JPY vols have surged considerably, with overnight contracts hitting the best levels since January and the last contentious BoJ decision - at which YCC tweaks were again speculated. EUR/JPY is firmer, bouncing well off the 154.89 low and steering clear of any test on the 50-dma support of 153.78.
• Markets wade through several key risk events later Thursday, with the ECB decision expected to result in another 25bps step for the governing council, however the September guide will be in focus given the partial pricing of further tightening.
• Tier one US data also crosses, with advance Q2 GDP from the US as well as weekly jobless claims. Lastly, the earnings cycle continues, with MasterCard, Bristol-Myers Squibb, McDonald's and Ford among the key releases.

EQUITIES: Stocks Plumb New Heights As Fed Soothes Markets

The E-mini S&P contract remains in a bull mode condition and is trading higher. Attention is on the top of the bull channel drawn from the March 13 low - the top intersects at 4632.89 today. A clear channel breakout would strengthen bullish conditions. Eurostoxx 50 futures recovered from yesterday’s lows and remain in consolidation mode. Despite a brief period below it yesterday, support at the 50-day EMA remains intact for now. The average intersects at 4353.80.

• Japan's NIKKEI closed higher by 222.82 pts or +0.68% at 32891.16 and the TOPIX ended 12.05 pts higher or +0.53% at 2295.14.
• Elsewhere, in China the SHANGHAI closed lower by 6.357 pts or -0.2% at 3216.671 and the HANG SENG ended 273.97 pts higher or +1.41% at 19639.11.
• Across Europe, Germany's DAX trades higher by 120.88 pts or +0.75% at 16251.39, FTSE 100 higher by 16.43 pts or +0.21% at 7692.83, CAC 40 up 84.86 pts or +1.16% at 7399.93 and Euro Stoxx 50 up 53.43 pts or +1.23% at 4399.83.
• Dow Jones mini up 52 pts or +0.15% at 35736, S&P 500 mini up 26.25 pts or +0.57% at 4621.5, NASDAQ mini up 181.5 pts or +1.16% at 15792.5.

WTI Strength Marks Resumption of Bull Cycle

Gold conditions remain bullish for now and this week’s recovery signals the end of the recent correction. Last week’s print above $1985.3, the May 24 high, reinforces a bull theme. A stronger resumption of gains would pave the way for a climb towards $1998.1. The uptrend in WTI futures remains intact and this week’s climb confirmed a resumption of the bull cycle. The break above $77.15, the Jul 13 high signals scope for an extension towards the next key resistance at $81.44, the high on Apr 12 / 13.

• WTI Crude up $0.68 or +0.86% at $79.5
• Natural Gas down $0.07 or -2.51% at $2.609
• Gold spot up $5.28 or +0.27% at $1977.96
• Copper up $2 or +0.51% at $392
• Silver up $0.09 or +0.35% at $25.0354
• Platinum up $7.57 or +0.78% at $975.14