MNI US OPEN - Beleaguered G7 Leaders Meet to Discuss Israel, Russia, Ukraine

NEWS

MNI FED REVIEW - JUNE 2024: Destination Remains The Same

The overall outcome of the June FOMC meeting was hawkish versus expectations, but couldn’t fully reverse the dovish impact of a very soft May CPI report released hours earlier. Markets reacted hawkishly to the new projection for the 2024 median Fed funds rate, which showed just one cut anticipated by year-end, versus three in March’s projection (and versus 2 widely expected). But the reaction was relatively muted, due in part to the fact that the 2025-26 path was relatively steady, implying 100bp of cuts in each of 2025 and 2026.

MNI BOJ PREVIEW - JUNE 2024: Steady Policy Rate, Focus on JGB Purchases

At this week’s meeting, we anticipate that the BoJ will maintain its policy rate settings (keeping the target for the overnight uncollateralized call rate at 0-0.1%) on June 14, in line with consensus. Recent economic data around prices and growth suggest this approach. Nevertheless, the trend towards normalisation continues. The BoJ's sensitivity to foreign exchange rates has also shifted in recent months. We expect a generally hawkish tone at the meeting, indicating the possibility of additional policy tightening in subsequent meetings, possibly as soon as July. The focus for the June meeting will likely be on balance sheet policy and the future pace of JGB purchases.

ECB (BBG): ECB’s Muller Says Inflation Could Temporarily Accelerate Again

Euro-area inflation could quicken again and the European Central Bank has yet to reach its 2% goal, according to Governing Council member Madis Muller. “As we saw in the initial euro area inflation estimate in May, the pace of inflation may temporarily accelerate again,” he told Estonian lawmakers in Tallinn on Thursday. “We aren’t at the target yet.” The ECB lowered borrowing costs last week, though it’s unclear when policymakers will cut further. “In order to achieve our goal, interest rates presumably still need to stay above average for some time,” he said.

ECB (BBG): ECB’s Vasle Says More 2024 Cuts Probable in Baseline Scenario

More euro-area interest-rate reductions are likely if the European Central Bank’s expectations for a further slowdown in inflation materialize, according to Governing Council member Bostjan Vasle. “If the baseline scenario is realized and the data are favorable, then we can probably expect further rate cuts already this year, and then also next year,” the Slovenian central bank chief told Finance newspaper. “Otherwise, it would be appropriate to wait some more time with further steps.”

EU (BBG): EU Bonds Fall After MSCI Rejects Adding Them to Sovereign Gauges

The European Union’s bonds fell on Thursday as bets they would soon be added to key sovereign benchmarks received an early blow. The yield on 10-year notes rose six basis points to 3.15%, leading losses in the region, after MSCI Inc. announced late Wednesday it won’t add the bloc’s debt to its range of government bond indexes because of divided responses to its consultation on the topic.

US (BBG): Trump to Pitch Dimon, Fraser as Verdict Fails to Scare Off CEOs

Donald Trump’s brand on Wall Street, once tarnished by the US Capitol attack and his bombastic political rhetoric, has made a near-full recovery, evidenced by the lineup of bank industry chieftains attending an event with the former president. JPMorgan Chase & Co.’s Jamie Dimon, Citigroup Inc.’s Jane Fraser, Bank of America Corp.’s Brian Moynihan and Tim Cook of Apple Inc. are among those expected to attend a Washington meeting with Trump on Thursday, according to people familiar with the event, which will be hosted by the Business Roundtable, a group that promotes corporate friendly policies.

UK (BBG): Starmer Vows Labour Focus on Wealth Creation to Blunt Tories

Keir Starmer said he will put economic growth and wealth creation at the heart of Labour’s manifesto, as his poll-leading opposition party seeks to blunt Conservative attacks about tax before the UK election on July 4. “What we need to do is get the economy going — there’s a reason that taxes have gone up so much in recent years and that’s because the economy is flatlining,” Starmer said in a Sky News event in Grimsby. He said there would be “no surprises” in his party’s manifesto when it’s published on Thursday. “Working people shouldn’t pay more tax. We will not raise their tax.”

G7 (MNI): Sullivan-Biden to Measure Success on 'Tangible Progress' on Issues

White House National Security Advisor Jake Sullivan has spoken at a briefing ahead of the G7 leaders' summit taking place 13-14 June in Apulia, Italy. He says that US President Joe Biden will measure the success of the meeting "by whether or not we made tangible progress" on a range of issues including reaching agreement on Chinese 'overcapacity', the use of frozen Russian assets to fund Ukraine as well as broader military support for Kyiv, and seeking consensus on the war in Gaza. Says that "I think we're teed up for success in that regard, but we'll have to see how the next two days unfold."

CHINA/NEW ZEALAND (BBG): China Seeks Stronger Ties With New Zealand as Premier Li Visits

New Zealand and China pledged to strengthen their economic ties even as they acknowledged disagreements during the first day of Chinese Premier Li Qiang’s visit to the South Pacific nation. The countries signed a number of agreements that will support cooperation on trade, economic and environment issues, New Zealand Prime Minister Christopher Luxon told reporters Thursday in Wellington. Li arrived in the capital city earlier today, beginning a six-day tour of New Zealand and Australia amid concerns about China’s ambitions in the Pacific.

CHINA (MNI): China Ready to Safeguard Interests After EU Tariffs

MNI (Beijing) Beijing will safeguard the interests of Chinese firms following the EU's decision to implement tariffs on Chinese imported battery electric vehicles, Ministry of Commerce He Yadong, spokesperson said Thursday. China was urging the EU side to correct is protectionist policy and implement the consensus reached by leaders from both sides at recent meetings, He added. Commenting on recent state media reports that China could begin investigating EU pork imports, He said China's domestic industry has the right to make an application to safeguard normal market competition.

CHINA (MNI): China to Aid Outdated New-Energy Capacity Clear-out

MNI (Beijing) Chinese authorities will raise industry standards and push an industrial upgrading to help speed the clearance of outdated and inefficient capacities, Wang Shijiang, senior official at the Ministry of Industry and Information Technology told reporters on Wednesday, noting that domestic demand for new-energy products will remain robust as the country pushes the green transition. Regulators will guide the layout of new-energy industries and further expand space for products tailored to various application scenarios, while utilising industry associations to foster self-regulation and disseminate information, Wang said.

JAPAN (BBG): Japanese Investors Sell Most Foreign Debt in Nine Years

Japanese investors sold the largest amount of foreign debt in nine years amid a shift in global central bank policy. Net sales totaled ¥2.65 trillion ($16.9 billion) in the week through June 7, the most since April 2015, preliminary figures from Japan’s Ministry of Finance showed on Thursday. That followed purchases of ¥2.3 trillion in May. Last week saw an interest-rate cut by central banks in the euro zone and Canada as well as weak US data on manufacturing and job openings.

S.KOREA (BBG): S. Korea to Extend Stock Short-Selling Ban Through March 30

South Korea will extend stock short-selling ban through March 30 next year, according to an emailed statement from Financial Services Commission.

ARGENTINA (BBG): Milei to Meet IMF Chief as Argentina Declares Victory on Rates

President Javier Milei will meet face-to-face with the head of the International Monetary Fund in Italy this week, with Argentina claiming it has cleared a key hurdle as it seeks fresh funds to eventually lift capital controls. The libertarian leader’s talks Friday with Managing Director Kristalina Georgieva on the sidelines of the Group of Seven summit will take place a day after the Fund’s executive board votes on its latest review of the crisis-prone South American nation’s $43 billion program.

TAIWAN (BBG): Taiwan Keeps Key Rate Unchanged at 2%; Raises RRR Ratio

Taiwan’s central bank keeps discount rate to banks unchanged at 2%, the monetary authority announces in statement, adding that it raises reserve requirement ratio by 25 basis points. Taiwan revises 2024 GDP forecast to +3.77% from +3.22%. Revises 2024 CPI forecast to +2.12% from +2.16%.

DATA

EUROZONE DATA (MNI): Industrial Production Disappoints With Weakness Driven by Ireland and Italy

• EUROZONE APR IP -0.1% M/M, -3% Y/Y

Eurozone industrial production slightly disappointed in April at -0.1% M/M (vs +0.2% consensus, +0.5% revised prior from +0.6%). The annual reading was also weak printing -3.0% Y/Y (vs -2.0% consensus, -1.2% prior revised from -1.0%). The April monthly fall was somewhat driven by Ireland, which saw production fall -3.4% M/M after rising 10.5% M/M last month.

SPAIN DATA (MNI): Accommodation and Package Holidays Helps Services HICP Re-Accelerate

• SPAIN MAY HICP +0.2% M/M, +3.8% Y/Y

Spanish final May HICP confirmed flash estimates at 3.8% Y/Y (vs 3.4% prior).As indicated in the flash release, a sequential increase in electricity prices pushed the headline rate higher (energy HICP was 7.9% Y/Y vs 5.0% prior). HICP excluding unprocessed food and energy ticked higher in May after 9-months of deceleration, to 3.2% Y/Y (vs 3.0% prior). This was driven by a reversal in services inflation to 3.9% Y/Y (vs 3.5% in April, 4.1% in March). Core goods also ticked up to 1.0% Y/Y (vs 0.9% prior).

AUSTRALIA DATA (MNI): Aussie Unemployment Tighter at 4% in May

• AUSTRALIA MAY UNEMPLOYMENT RATE +4%
• AUSTRALIA MAY EMPLOYED PERSONS CHANGE 39.7K
• AUSTRALIA MAY F-T EMPLOYED PERSONS CHANGE 41.7K
• AUSTRALIA MAY LABOR PARTICIPATION RATE +66.8%

Australia’s unemployment rate fell 10 basis points to 4.0% in May, in line with expectations, while employment grew by 39,700, stronger than anticipated, data from the Australian Bureau of Statistics showed Thursday. “In April we saw more unemployed people than usual waiting to start work. Some of the fall in unemployment and rise in employment in May reflects these people starting or returning to their jobs,” noted Bjorn Jarvis, head of labour statistics at the ABS.

FOREX: JPY Weakness Puts Currency on Course for Post-Intervention Lows

• JPY trades poorer against all others in G10 headed into the NY crossover, prompting USD/JPY to full reverse the move triggered by Wednesday's softer-than-expected US CPI print. Further gains for the pair would put prices on course for a test of the weekly highs at Y157.40 and the bull trigger and key resistance of 157.71. Clearance of this level would put USD/JPY at new post-intervention highs.
• While USD/JPY's rally is notable, EUR/JPY is gaining in tandem. A break and close above the Y170.00 handle opens 170.89 next - levels which will keep pressure on the trade-weighted JPY (circa 1.3% off the levels that triggered intervention), and keep the currency in focus before Friday's BoJ decision.
• GBP will be watched carefully through the release of the Labour Party manifesto later today. The plans of the presumptive winners of the July 4th election will be dissected carefully on tax and spend, as the likely incumbent government pledge not to raise taxes, while also reinvigorating the economy. GBP/USD remains either side of the 1.2800 level, with the S/T bull trend intact after yesterday's cycle high 1.2860 print.
• US PPI takes focus Thursday, rounding off a trifecta of US risk events kicked off by the CPI print yesterday. PPI numbers will be used to further gauge expectations for the next PCE release, set for June 28th. The central bank speaker slate is quieter, although Fed's Williams is set to interview the US Treasury Secretary Yellen at 1700BST/1200ET, which could elicit interest.

EGBS: Remain Below Pre-FOMC Levels; Peripherals Wider

Core/semi-core EGBs are still below yesterday’s U.S. CPI-driven highs, with spill over surrounding the FOMC decision dominating.

• A reminder that Fed dot plot dynamics drove the initial hawkish post-FOMC reaction.
• Bund futures are 12 ticks softer at 130.98.
• This morning’s heavy Italian supply will have weighed on BTPs in the run-up to the 1000BST bidding deadline, but the auction was well-digested.
• A weaker-than-expected round of Eurozone industrial production data was not a major market mover but may have helped limit moves to the downside.
• This morning’s ECB speakers (Muller, Vasle) added little new to the debate, noting that wage growth remains strong, while reiterating that the road to 2% inflation may be bumpy through 2024.
• The German and French cash curves have bear flattened today, while the 10-year OAT/Bund spread sits slightly wider, around 62bps.
• 10-year peripheral spreads to Bunds are also wider, with European equities trading on the defensive.
• The remainder of today’s regional calendar is light. US PPI provides the major focal point today, especially in the wake of yesterday’s soft CPI reading.

GILTS: Reversing Some of Yesterday’s Rally

Gilts have seen the early pullback from yesterday’s best levels extend further.

• Futures print as low 97.65 on the move, before recovering a little to trade -23 at 97.78.
• Technically, yesterday’s strong rally in futures resulted in a break of resistance at 97.86 and 98.05, although that has since been countered. This breach cancelled a recent bearish threat and instead highlights a resumption of the bull cycle that started May 29. A continuation higher would signal scope for a climb towards 98.89, the May 16 high and a key resistance. Initial support lies at 97.12, the 20-day EMA.
• Cash gilt yields are 3-4bp higher across the curve, with light bear flattening seen.
• This has allowed 2s to pull further away from yesterday’s multi-week yield lows.
• SONIA futures and BoE-dated OIS operate around pre-gilt open levels.
• The former shows -0.25 to -4.0 through the blues, while the latter shows ~38bp of ’24 cuts vs. ~41bp late yesterday.
• Domestic focus now falls on the impending release of the Labour Party election manifesto (with the event due to start around 11:00 London), as the Party still holds a commanding lead in the opinion polls.
• Tomorrow’s Bank of England/Ipsos Inflation Attitudes Survey provides the next domestic data point of note.

EQUITIES: Move Higher Wednesday Reinforces Uptrend in E-Mini S&P

The trend condition in Eurostoxx 50 futures remains bullish and the recent pullback is considered corrective. A resumption of gains would refocus attention on key resistance and the bull trigger at 5110.00, the May 16 high. Clearance of this level would confirm a resumption of the uptrend. On the downside, support at 4947.00, the Jun 4 low, has been pierced. A clear break of it would be bearish and instead expose 4894.90, a Fibonacci retracement. The uptrend in S&P E-Minis remains intact and the contract traded higher yesterday. Price has recently cleared 5368.25, the May 23 high and bull trigger. The move confirmed a resumption of the uptrend. The continuation higher has resulted in a break of the 5400.00 handle. This opens 5462.77 next, a Fibonacci projection. Key short-term support has been defined at 5205.50, the May 31 low. Initial support lies at 5322.72, the 20-day EMA.

• Japan's NIKKEI closed lower by 156.24 pts or -0.4% at 38720.47 and the TOPIX ended 24.66 pts lower or -0.89% at 2731.78.
• Elsewhere, in China the SHANGHAI closed lower by 8.549 pts or -0.28% at 3028.919 and the HANG SENG ended 174.79 pts higher or +0.97% at 18112.63.
• Across Europe, Germany's DAX trades lower by 147.6 pts or -0.79% at 18483.54, FTSE 100 lower by 37.78 pts or -0.46% at 8177.69, CAC 40 down 60.17 pts or -0.77% at 7804.53 and Euro Stoxx 50 down 34.04 pts or -0.68% at 5000.39.
• Dow Jones mini down 124 pts or -0.32% at 38628, S&P 500 mini up 6.75 pts or +0.12% at 5434.25, NASDAQ mini up 135.5 pts or +0.7% at 19632.

Time: 10:00 BST

COMMODITIES: Trend Direction in WTI Futures Bearish Despite This Week's Recovery

WTI futures have traded higher this week. For now, short-term gains are considered corrective and the trend direction remains bearish. However, resistance at $78.37, the 50-day EMA, has been pierced. A clear break of this average would expose the key short-term resistance at $80.62, the May 1 high, where a break is required to cancel a bear theme. On the downside, a resumption of weakness would open $71.33, the Feb 5 low. Gold is trading closer to its recent lows. A sharp sell-off on Jun 7 reinforces a short-term bearish theme. The yellow metal has traded below the 50-day EMA, at 2314.1. The break confirms a resumption of the reversal that started May 20 and signals scope for a deeper correction. This has opened $2277.4, the May 3 low. Clearance of this price point would strengthen a bearish theme. Initial firm resistance to watch is $2387.8, the Jun 7 high.

• WTI Crude down $0.41 or -0.52% at $78.1
• Natural Gas up $0.04 or +1.15% at $3.079
• Gold spot down $9.38 or -0.4% at $2315.62
• Copper down $3.4 or -0.75% at $452.5
• Silver down $0.39 or -1.3% at $29.3376
• Platinum down $11.28 or -1.17% at $950.32

Time: 10:00 BST