MNI US OPEN - BoC Decision Rests on June vs. July

NEWS

ECB (MNI): ECB Has 'Ground to Cover' On Rate Hikes - Schnabel

The European Central Bank remains data-dependent in its policy decision-making, but there is still more to do, Executive Board member Isabel Schnabel told Dutch paper De Tijd in an interview published Wednesday. "We have more ground to cover. It will depend on the incoming data by how much more rates will have to increase," she said. Pushed on whether market expectations of two more 25bps rate hikes were realistic, Schnabel again said it was dependent on incoming data.

US/CHINA (BBG): Blinken Plans Trip to Beijing in Bid to Stabilize US-China Ties

Secretary of State Antony Blinken plans to visit China in the coming weeks for talks with top officials, possibly including President Xi Jinping, people familiar with the matter said, as the US looks to resume high-level communication despite continued tensions. Blinken had planned to visit Beijing in February but scrapped the trip after the US identified what it said was a Chinese spy balloon crossing over the continental US. The exact timing for Blinken’s visit is still fluid, according to the people, who asked not to be identified discussing private deliberations.

MNI BOC PREVIEW: JUNE 2023 - A Decision to Hike Now or in July

The BoC is seen having a close decision between hiking this week or waiting five weeks until July. Consensus leans to no change although market pricing has increased to 50/50 chance of a hike and we edge into the hike camp this week. It comes down to the strength of domestic data vs the timing of BoC commentary with the far more thorough MPR landing with the July meeting and the recently emerged Fed skipping narrative.

UK (BBG): Sunak to Seek Closer Economic Ties in First White House Trip

UK Prime Minister Rishi Sunak will seek closer economic ties with the US during his first visit as leader to the White House, even as Joe Biden’s administration maintains a freeze on talks on a free-trade agreement. The two-day visit, in which Sunak will meet congressional leaders and company executives, will be his most extensive interaction with Biden — and their fourth meeting in as many months. They’re also due to discuss Russia’s war in Ukraine, Chinese aggression and the regulation of artificial intelligence.

GLOBAL (MNI): Fed, ECB Near Rate Peak and Holding Until Late 2024 - OECD

The Federal Reserve and ECB are close to peak interest rates, but will need until late next year before they ease up in a global economy facing a fragile recovery and stubborn core inflation, the OECD said Wednesday.in the United States, the federal funds rate is projected to "peak at 5.25-5.5% from the second quarter of 2023. Two modest rate reductions are projected in the second half of 2024, as core inflation declines towards 2%," the Paris-based group's latest Economic Report said

CHINA (MNI): Slowing Economy, Credit Fears Weigh On China Bank Stocks

Narrowed interest margins and fears of official calls for banks already heavily-exposed to property and local government debt to do more to prop up a slowing economy are eroding investor confidence in China’s state-owned banks despite a government drive to lift their share prices, policy advisors and analysts told MNI.

JAPAN (BBG): Japan’s Kishida Set to Unveil Policy Wish List, Documents Show

Japanese Prime Minister Fumio Kishida is set to propose a long list of policy targets for this year, according to a draft of the government’s fiscal policy proposal set to be unveiled amid speculation over a potential early election.The draft, which was obtained by Bloomberg Wednesday morning, doesn’t include any figures on the total cost of the suggested policies, or how they will be funded, leaving the question of how these goals will be achieved unanswered.

JAPAN (MNI): Japan Could Delay Planned Tax Hike To Finance Increased Defence Spending

Jiji reports that a special panel appointed by the ruling Liberal Democratic Party is looking to recommend that the government starts raising taxes to finance higher defence spending "no earlier than in 2025" rather than at "an appropriate time in or after 2024" under the current plan.

JAPAN (MNI): BOJ to Sell ETF Holdings at Market Value - Ueda

Bank of Japan Governor Kazuo Ueda said on Wednesday the Bank will sell its exchange traded-fund holdings at market value when the time comes. He said the exact method of the ETFs sale would be communicated after the Japanese economy achieves the BOJ's 2% price target. He did not elaborate further, but added the disposal would occur without confusing financial markets.

MNI RBA REVIEW: June 2023 - More Tightening as Inflation Risks Rise

The RBA surprised markets and most analysts again with a 25bp hike bringing rates to 4.1%, a cumulative 400bp of tightening this cycle. Increased upside inflation risks and growing concerns regarding meeting the inflation target by mid-2025 drove the move. In the accompanying statement, the Board noted that “this further increase in interest rates is to provide greater confidence that inflation will return to target within a reasonable timeframe.”

TURKEY (MNI): Signal of Easing Bank Interventions as TRY Plunges to Fresh Low

The pace of TRY depreciation has quickened Wednesday morning, potentially signalling that policymakers are scaling back interventions to prop up the currency. The lira fell as much as 7% this morning, with USD/TRY breaking through both the 22.00 and 23.00 handles. The O/N forward implied yield has also spiked around 100 points to 140 - providing further evidence of notable offshore interest in shorting the currency. President Erdogan’s appointment Mehmet Simsek as his new treasury and finance minister has hinted of a return to more orthodox monetary policy and raised the prospect of reduced intervention in markets.

WHEAT (MNI): Black Sea Grain Deal Talks Take Place 9 June In Geneva-RIA

Russia's state-run RIA reporting that according to its sources, talks on the Black Sea Grain Initiative will take place this Friday 9 June in Geneva. The current agreement that sees Russia and Ukraine enabled to export grain and fertilisers from Black Sea ports under the eye of the UN and Turkey is due to expire on 17 July. As was the case with the previous deadline in May, Russia has voiced negative prospects for an extension (although in that case Moscow did eventually agree to continue with the deal).

DATA

GERMAN DATA (MNI): Industrial Production Records Muted April Uptick

• GERMANY APR INDUST PROD +0.3% M/M (FCST +0.6%); MAR -2.1% M/M
• GERMANY APR INDUST PROD +1.6% Y/Y (FCST +1.5%); MAR +2.3% M/M

German industrial production recorded muted growth at +0.3% m/m in April, 0.3pp softer than consensus expectations. Production rose +1.6% y/y. This follows an expansionary French print (+0.8% m/m) and contractive Spanish (-1.8% m/m) so far in a mixed month for April eurozone production. German production across sectors was divergent: Construction rebounded (+2.0% m/m), pharmaceuticals jumped (+6.4%), whilst auto slumped (-0.8%) alongside engineering (-0.5%).

SWISS MAY UNEMPLOYMENT -2.7% M/M, -10.1% Y/Y (MNI)

CHINA DATA (MNI): China May Exports Slow, Down 7.5% Y/Y

• CHINA MAY TRADE SURPLUS +$65.81 BLN; APR +$90.21 BLN
• CHINA MAY EXPORTS -7.5% Y/Y; APR +8.5% Y/Y
• CHINA MAY IMPORTS -4.5% Y/Y; APR -7.9% Y/Y

China's exports slowed in May, falling 7.5% y/y for the first time in three months, driven by shrinking demand and the high-base effect, while imports registered a third monthly fall on falling commodity prices, data released by China Customs on Wednesday showed. May's fall, which follows April's 8.5% y/y growth, beat the market consensus of a 0.9% y/y drop. Exports in the first five months of 2023 totaled USD1.4 trillion, or 0.3% over the same period last year.

CHINA DATA (MNI): Consumption Rises First Time In Two Months - BOJ

The Bank of Japan's Consumption Activity Index posted the first m/m rise in two months, up 0.1% in April following March 1.9% decline, supporting the view that private consumption has increased moderately, despite being affected by price rises, data released on Wednesday showed. Solid spending on services and durable goods drove April’s rise, although spending linked to non-durable goods fell.

AUSTRALIA DATA (MNI): Growth Slows But Domestic Demand Strengthens

Q1 GDP was slightly lower than expected at 0.2% q/q and 2.3% y/y after an upwardly-revised 0.6% q/q and 2.6% y/y in Q4. The headline looks weaker than the details with domestic demand rising 0.6% q/q, driven by capex. GDP was impacted by detractions from net exports driven by higher imports and from the statistical discrepancy. While quarterly growth was the slowest since the pandemic, solid domestic growth is likely to maintain pressure on domestically-driven prices.

FOREX: Steady FX Trade Leaves Little Dent in Ranges

• Steady FX trade has left little material dent in market prices ahead of the NY crossover. The USD Index is softer, but holds just above the 104.00 handle at typing. The modestly negative equity backdrop has done little to underpin any strength in haven currencies - with the JPY and CHF distinctly mid-range.
• NOK sits modestly firmer, with USD/NOK just above yesterday's lows. Moves come ahead of this Friday's CPI release, providing the last look at inflation ahead of the June Norges Bank rate decision. Markets look for core inflation to remain sticky, leaving the board with little choice but to hike rates further, and indicate further tightening will be required to rein in inflation.
• Outside of developed markets, TRY's slide has accelerated, with the USD/TRY and EUR/TRY rates spiking to new alltime highs. The moves come as the pace of state bank intervention slows, a firm indication of a return to more orthodox economic management under the new economy minister Simsek.
• US trade balance data marks the sole data release Wednesday ahead of the Bank of Canada rate decision. The BoC is seen having a close decision between hiking this week or waiting five weeks until July.
• Consensus leans to no change although market pricing has increased to 50/50 chance of a hike and we edge into the hike camp this week. Our full BoC preview found here: https://roar-assets-auto.rbl.ms/files/53365/BOCPre...

BONDS: Core FI Pulls Back As Euro Supply Weighs

Global core bonds have pulled back early Wednesday, with cash yields mostly higher and curves mixed.

• Some modest bear flattening has been seen in the US and UK curves, with Germany's twist flattening. Treasury and Bund futures have descended from overnight levels, with Gilts reversing after a sharp rally in early trade. But all three contracts are trading well within Tuesday's ranges so far.
• Periphery EGB spreads continue to drift wider, with BTPs underperforming.
• With little in the way of data or speakers catalysing the moves, and assets trading mixed (oil has regained ground, with equities lower, and the USD flat/mixed), the common denominator in bond weakness has been heavy supply in Europe (both corporate and sovereign, the latter including Spain 10Y syndication).
• This morning's Oct-25 Gilt auction appeared well-absorbed, with Bobl auction held shortly.
• In data, German industrial production was weak (but more than offset by higher revisions), while Italy retail sales were slightly soft but basically in line.
• Another slow US data docket includes April's trade balance, with pre-FOMC blackout meaning no Fed speakers.

Latest levels:

• Sep US 10Y futures (TY) up 3/32 at 113-28 (L: 113-26 / H: 114-2.5)
• Sep Bund futures (RX) up 10 ticks at 134.2 (L: 134.07 / H: 134.67)
• Sep Gilt futures (G) up 9 ticks at 96.61 (L: 96.51 / H: 96.87)
• Italy / German 10-Yr spread 1.3bps wider at 179.7bps

EQUITIES: Eurostoxx 50 Futures, E-Mini S&Ps Respect Recent Ranges

Eurostoxx 50 futures remain above 4216.00, the May 31 low and a key support. For now, the recent move higher appears to be a correction. Price action last week reinforced a bearish theme - support at 4252.00, the May 25 low, has been breached. The contract has also pierced support at 4233.00, the May 4 low and a key short-term level. Resistance to watch is 4362.00, May 29 high, a break would be bullish. S&P E-minis are in a consolidation mode but the trend condition is bullish following recent gains. Resistance at 4244.00, Feb 2 high and a bull trigger, has recently been cleared. The break reinforces bullish conditions and confirms a resumption of the uptrend that started in October 2022. The focus is on 4327.50 next, the Aug 16 2022 high (cont). The 50-day EMA, at 4155.00 remains a key support. A break is required to signal a reversal.

• Japan's NIKKEI closed lower by 593.04 pts or -1.82% at 31913.74 and the TOPIX ended 29.98 pts lower or -1.34% at 2206.3.
• Elsewhere, in China the SHANGHAI closed higher by 2.419 pts or +0.08% at 3197.759 and the HANG SENG ended 152.72 pts higher or +0.8% at 19252.
• Across Europe, Germany's DAX trades lower by 56.83 pts or -0.36% at 15936.03, FTSE 100 higher by 0.01 pts or +0% at 7627.47, CAC 40 down 22.28 pts or -0.31% at 7185.81 and Euro Stoxx 50 down 12.46 pts or -0.29% at 4282.25.
• Dow Jones mini down 45 pts or -0.13% at 33579, S&P 500 mini down 4.75 pts or -0.11% at 4285.75, NASDAQ mini down 30.75 pts or -0.21% at 14555.25.

COMMODITIES: Bear Cycle in Gold Intact as Yellow Metal Trades Lower Wednesday

WTI futures traded higher Monday, piercing resistance at $74.73, the May 24 high. However, the contract has failed to hold on to its latest gains. A clear break of $74.73 would strengthen a bullish condition and signal scope for an extension higher. This would open $76.74, the Apr 28 high. For bears, a stronger reversal would instead highlight a top and expose key support at $63.90, the May 4 low. First support to watch is $70.00, the Jun 2 low. The bear cycle in Gold remains intact and the yellow metal on Monday once again tested trendline support drawn from Nov 3 2022. The trendline intersects at $1951.3. A clear breach of this line would reinforce bearish conditions and open $1903.5,61.8% of the Feb 28 - May 4 bull cycle. Initial firm resistance is $1985.3, the May 24 high. Clearance of this level would signal a short-term reversal.

• WTI Crude up $0.09 or +0.13% at $71.87
• Natural Gas up $0 or +0.18% at $2.266
• Gold spot down $1.55 or -0.08% at $1960.64
• Copper up $3.6 or +0.96% at $380.75
• Silver down $0.04 or -0.15% at $23.5091
• Platinum up $5.47 or +0.53% at $1042.96