MNI US OPEN - BOJ Holds, Bond Reduction Details Due July

NEWS

BOJ (MNI): BOJ Holds, Bond Reduction Details Due July

The Bank of Japan board on Friday kept the unsecured overnight call loan rate in a range of between zero percent and 0.1% but decided to reduce the scale of Japanese government bond buying. The policymakers will decide on a more detailed plan for the reduction of its purchase amounts over the next one to two years or so at the July 30-31 meeting. For now, the BOJ decided to maintain its JGB buying at the same JPY6 trillion level decided on at the March meeting. “Japan’s economy has recovered moderately, although some weakness has been seen in part,” the statement said. “Japan’s economy is likely to keep growing at a pace above its potential growth rate."

BOJ (MNI): JGB Reduction Scale to Be "Suitable" - BOJ's Ueda

Bank of Japan Governor Kazuo Ueda said on Friday that BOJ would pursue a suitable reduction to its JGB buying programme, but declined to elaborate on any specific numbers. Ueda told reporters that the BOJ needs to ensure the flexibility of long-term rates and also increase the predictability of market players with regard to the outlook for future JGB reduction. He also said that stock effects stemming from the BOJ's huge JGB balance will likely continue. As for monetary policy, the BOJ will set appropriate policy interest rates on a meeting-by-meeting basis, while carefully examining the probability of achieving the 2% target, Ueda added.

US/MIDDLE EAST (NYT): U.S. Strikes Targets in Yemen as Houthis Step Up Attacks on Red Sea Ships

The U.S. military launched airstrikes that destroyed three anti-ship cruise missile launchers in Houthi-controlled Yemen late on Thursday, as the armed rebel group stepped up its attacks on ships in the Red Sea, the U.S. Central Command said. The latest strikes from U.S. forces came as the Houthis, an Iranian-backed group that controls much of Yemen, intensified their campaign in the Red Sea, firing missiles toward two ships on Thursday after crippling a vessel the previous day, maritime security monitors said.

ISRAEL/HAMAS (NYT): Israel and Hezbollah Trade Strikes as Fighting Intensifies

Israel was reported to have stepped up missile and artillery strikes in southern Gaza while also hitting Hezbollah military targets in Lebanon. Hezbollah replied on Thursday to Israeli airstrikes in Lebanon with what the Israeli military called Hezbollah’s most serious rocket and drone assault in more than eight months of hostilities. It was the second straight day of ramped-up attacks in a conflict that has raised fears of a full-fledged war, even as Israel continued to press its military offensive against Hamas in the Gaza Strip.

G7 (MNI): 2nd Day of Summit Underway; Migration, Econ Security, Energy & AI on Agenda

The second day of the G7 summit in Apulia, Italy is underway with migration (0930CET), the Indo-Pacific and economic security (1115CET), and AI, energy and the Africa-Mediterranian region (1415CET) on the agenda. Today's summit will include meetings with non-G7 leaders including for the first time at a G7 His Holiness Pope Francis. The closing session starts at 1845CET (1245ET, 1745BST) at which the joint commiunique will be signed and published. This document will formalise the major outcomes from and decisions made at the summit.

ECB (RTRS): ECB's Kazaks Backs Market Bets on Cuts if Data Holds

The European Central Bank can continue to lower interest rates broadly how the market expects if inflation keeps easing as envisaged, ECB policymaker Martins Kazaks told Reuters on Friday. The ECB lowered its policy rate from a euro-era high last week but held back from any promise to follow up its move, which came with caveats about wages and services inflation staying strong. Kazaks said inflation would be bumpy and move sideways this year but he continued to believe that it was on its way to the ECB's 2% target next year, justifying more cuts provided that the data continued to come in as the central bank expects.

ECB (BBG): ECB Rate Cuts Likely to Be Slower Than Hikes Were, Vasle Says

The European Central Bank is unlikely to loosen monetary policy as quickly as it tightened it as risks to inflation retreating to 2% linger, according to Governing Council member Bostjan Vasle. “There’s a high probability that the process of cutting rates will be significantly different, slower, than the process of hiking rates was,” the Slovenian official told a conference Friday in Brdo. Policymakers lowered the deposit rate from its record 4% last week but aren’t committing to further moves due to uncertainty around everything from euro-zone wage gains to geopolitics and the actions of their counterparts at the Federal Reserve.

FRANCE (BBG): French Finance Chief Warns Left-Wing Win Would Mean EU Exit

French Finance Minister Bruno Le Maire warned that victory by a new left-wing alliance in the upcoming election would lead to the country’s exit from the European Union.The program of the Popular Front, which is made up of four left-leaning parties, would cause “economic collapse,” he said on Franceinfo radio Friday.“Their program is complete madness,” Le Maire said. “It will guarantee downgrade, mass unemployment and an exit from the European Union.”

CHINA (BBG): Xi Has Few Options to Punish EU Without Starting Trade War

China is likely to adopt limited and targeted retaliation against the European Union after the bloc unveiled tariff increases on Chinese electric cars, with Beijing wary that a more robust response could backfire. The EU move to take levies on Chinese vehicles to as high as 48% starting next month has it joining the US, Turkey and other nations in acting to limit a surge in imports from the Asian nation. China’s Commerce Ministry and its chamber of commerce in the EU blasted the step by Brussels after the Wednesday announcement.

RBA (MNI): Hold Likely as Economy Softens

The Reserve Bank of Australia board is likely to hold its cash rate at 4.35% after it meets over June 17-18, but weak GDP growth, continued pressure on household spending and decelerating wage gains could soften its language regarding the prospect of further increases. While inflation according to the monthly CPI indicator has edged slightly higher, the broad trend of price rises continues to ease and the RBA’s sharpened focus on employment will make it less inclined to make its first hike since May 2023 barring a larger shock, former staffers have told MNI.

SOUTH AFRICA (BBG): South African Unity Government Partners Agree Deal on Key Posts

South African political parties that support a broad alliance to form the next government agreed to back candidates for president and the two highest positions in parliament, according to people familiar with the matter. The African National Congress, the centrist Democratic Alliance and other parties that back the so-called government of national unity will support Cyril Ramaphosa as the ANC’s candidate for president, said the people who asked not to be identified because they’re not authorized to comment on discussions that are private. The position of speaker will be taken by an ANC candidate, while the deputy position will go to the Democratic Alliance, the people said.

PERU (BBG): Peru Unexpectedly Halts Key Rate Cuts Over Core CPI Fears

Peru unexpectedly kept borrowing costs unchanged as policymakers fret about stubborn core inflation. The central bank held its key rate at 5.75% on Thursday, as forecast by three of 12 analysts in a Bloomberg survey. The other nine had expected the bank to cut rates for a third straight month to 5.5%. “Inflation excluding food and energy is showing some persistence associated with the services industry,” the bank said in its statement.

DATA

UK DATA (MNI): UK Inflation Expectations Remain Stable

BOE/Ipsos inflation expectations saw expectations in 2 years unchanged at 3.1% and remained at 3.1% in the long-run i.e. 5-years (for reference the pre-covid 2017-2019 average was 3.5%). Looking through the other questions there are no real meaningful changes elsewhere in the survey either.

FRANCE DATA (MNI): Final HICP Breadth of Disinflation at Highest Since Oct'21

• FRANCE MAY HICP +0.1% M/M, +2.6% Y/Y
• FRANCE MAY CPI +0% M/M, +2.3% Y/Y

Final HICP data for May came in a touch softer than flash on an annual basis at +2.6% Y/Y (vs +2.7% flash, +2.4% prior), the non-seasonally adjusted M/M figure also came in slightly softer than flash at +0.1% (+0.2% flash, +0.6% in April). Recall that the flash French Y/Y print was 0.1pp above-expectation. This was a mixed report: as was suspected from flash release, the lesser extent of slowdown in CPI was driven by Services, although overall slowdown continues to be driven by both core and non-core components.

SWEDEN DATA (MNI): Services Inflation Pushed Higher by Concert-related Categories

• SWEDEN MAY CPIF +2.3% Y/Y

Swedish May inflation was higher-than-expected, with CPIF ex-energy at 3.0% Y/Y (vs 2.6% cons, 2.9% prior). This actually means that CPIF ex-energy prints 0.1pp above the Riksbank's March MPR forecast of 2.9%. In the previous two months, the forecast error was -0.4pp. The probability of a June rate cut was already very small, but this data all but confirms an on-hold decision at the May 27 meeting. Main interest now is whether the Riksbank's guidance for 2 cuts in H2 2024 will change - we don't think there is enough evidence for that just yet.

CHINA JAN-MAY TSF CNY14.8 TRLN VS JAN-APR CNY12.73 TRLN (MNI)
CHINA JAN-MAY NEW LOANS CNY11.14 TRLN VS JAN-APR CNY10.19 TRLN (MNI)
CHINA END-MAY M0 +11.7% Y/Y VS +10.8% Y/Y END-APR (MNI)
CHINA END-MAY M1 -4.2% Y/Y VS -1.4% Y/Y END-APR (MNI)
CHINA END-MAY M2 +7% Y/Y VS MEDIAN +7.1%; END-APR +7.2% Y/Y (MNI)

FOREX: USD Trades New Monthly High as EUR Stress Stems From EGBs

• The greenback trades well, firmer against all others ahead of the NY crossover as volatility stemming from European bond markets works its way into currency markets. The USD Index has cleared resistance at the weekly highs, hitting the best levels since early May and extending the rally off the post-CPI lows to 1.3%.
• The widening German/French bond yield spread has weighed heavily on the single currency, as concerns around Macron's popularity are compounded by an election pact formed among the left wing - providing another hurdle to the centrist alliance parties to retain power after the two election phases later this month.
• JPY intraday vol has picked up. While the BoJ kept policy unchanged, the press conference with Ueda was of the most interest, who triggered a phase of JPY weakness by failing to disclose the specifics around the trimming of bond buys - helping tip USD/JPY back above Y158.00 and to another post-intervention high of 158.26. The backtrack in USD/JPY only came as the BoJ governor talked up the possibility of a July rate hike, should data prove supportive.
• Import/export price indices cross later today ahead of the prelim University of Michigan sentiment survey. Markets may be particularly sensitive to any unexpected step lower in inflation expectations as part of this release, a weak number would add to the dovish pressure stemming from the PPI, CPI prints earlier in the week. 

EGBS: Bunds Just Off Intraday Highs; Political Uncertainty Dominates Discussions

Bunds are just off intraday highs, currently +137 ticks at 132.70, with French political uncertainty continuing to dominate discussions regionally.

• Recent gains in Bund futures from 129.37, the May 31 low, still appear to be a correction, but today’s price action suggests potential for a stronger corrective bounce and possibly even a short-term reversal. The next key resistance to watch is 132.83, May 16 high.
• OAT futures underperform Bunds as a result of the political uncertainty (+51 ticks at 124.18), while BTP futures lag, currently +46 at 116.53.
• French final HICP was a touch softer than the flash reading on a rounded basis (2.6% Y/Y vs 2.7% prior) but was not a market mover.
• ECB speakers Vasle and Kazaks largely reiterated previous remarks. Possible comments from Chief Economist Lane from a panel discussion may also filter through this morning.
• There was limited reaction to the BoJ decision and subsequent press conference overnight/this morning.
• The German and French cash curves have bull steepened, while the 10-year OAT/Bund spread has pulled back a touch from early wides, currently around 4bps wider at 73bps. 
• 10-year peripheral spreads to Bunds are also wider, with European equities under pressure from the continued political uncertainty.
• Scheduled appearances from ECB’s Schnabel (1430BST) and Lagarde (1830BST) will likely attract interest later today, albeit with the latter appearing after this week’s cash close.

GILTS: Another Resistance Level Breached in Futures, Fresh 2-Month Lows for 2-Year Yields

Gilt futures trade to fresh session highs, with political uncertainty in France continuing to underpin core global FI markets.

• Futures last +83 at 98.76, with the resumption of the bull cycle that started on May 29 extending further.
• The 1.00 projection of the May 29 -Jun 4-10 price swing (98.65) has been breached, with bulls now targeting the nearby May 16 high/key resistance (98.89).
• Cash gilt yields are 4-6bp lower, with the curve bull flattening.
• 2s register fresh multi-week lows, while the remaining benchmarks haven’t tested May lows.
• Bulls now eye the early April low in 2-Year yields (4.136%), which is a little less than 5bp below prevailing levels.
• SONIA futures are little changed to +9.0 through the blues, at/just off highs.
• BoE-dated OIS shows ~44bp of ’24 cuts vs. ~42bp late yesterday, with 80% odds of the first 25bp cut showing come the end of the Sep MPC.
• Domestically, political headwinds remain evident for PM Sunak, with the Conservative party slipping behind the Reform UK party in the latest YouGov poll, in another first for British politics.
• The BoE-Ipsos inflation attitudes survey saw a ~0.2ppt fall in the 1-year ahead measure, while the 2- & 5-Year metrics held steady.
• The local schedule is effectively empty into the weekend, leaving wider macro matters at the fore.

EQUITIES: E-Mini S&P Remains Close to Wednesday's High

The trend condition in Eurostoxx 50 futures remains bullish and the recent pullback is considered corrective. Yesterday’s sell-off resulted in a break of support at 4943.00, the Jun 11 low. This highlights potential for a deeper short-term retracement and sights are on 4894.90, a Fibonacci retracement. Initial resistance is seen at 5046.00, the Jun 12 high. A break of this hurdle would signal a resumption of the uptrend. The uptrend in S&P E-Minis remains intact and the contract traded higher Wednesday. 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 5333.75, the 20-day EMA.

• Japan's NIKKEI closed higher by 94.09 pts or +0.24% at 38814.56 and the TOPIX ended 14.83 pts higher or +0.54% at 2746.61.
• Elsewhere, in China the SHANGHAI closed higher by 3.714 pts or +0.12% at 3032.633 and the HANG SENG ended 170.85 pts lower or -0.94% at 17941.78.
• Across Europe, Germany's DAX trades lower by 97.94 pts or -0.54% at 18167.46, FTSE 100 lower by 13.69 pts or -0.17% at 8150.08, CAC 40 down 104.54 pts or -1.36% at 7603.11 and Euro Stoxx 50 down 39.61 pts or -0.8% at 4895.93.
• Dow Jones mini down 171 pts or -0.44% at 38508, S&P 500 mini down 7 pts or -0.13% at 5431.25, NASDAQ mini up 34 pts or +0.17% at 19636.75.

Time: 09:50 BST

COMMODITIES: This Week's Gains in WTI Futures Considered Technically Corrective

WTI futures have traded higher this week. For now, short-term gains are considered corrective and the trend direction remains bearish. However, resistance at $78.38, 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 2313.7. 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 $0.54 or -0.69% at $78.1
• Natural Gas down $0 or -0.07% at $2.958
• Gold spot up $12.15 or +0.53% at $2316.2
• Copper up $0.75 or +0.17% at $448.75
• Silver up $0.1 or +0.36% at $29.073
• Platinum up $2.23 or +0.23% at $955.07

Time: 09:50 BST