MNI US OPEN - BoJ Keep YCC, Economic Assessment Unchanged

NEWS

BOJ (MNI): BOJ Keeps YCC, Economic Assessment Unchanged

The Bank of Japan board on Friday decided unanimously to keep yield curve control policy and pledged to continue patiently with monetary easing amid high economic and financial market uncertainty. The BOJ also kept the forward guidance for the policy rates and pledged to take additional easing measures if necessary. "The BOJ will patiently continue with monetary easing while nimbly responding to developments in economic activity and prices as well as financial conditions,” the Board said in a statement.

BOJ (MNI): Prices Falling Slower than Expected - BOJ's Ueda

Bank of Japan Governor Kazuo Ueda said Friday he will carefully analyse future price moves following the slower-than-expected y/y drop of core consumer prices in April. He said prices were falling and they could decline further towards the middle of this fiscal year. "The BOJ is focused on whether price fall will catch up with the forecast and we will examine how prices evolve carefully ahead of the July meeting,” he noted at a press conference.

BOJ (MNI): BOJ Recovery, Exports, Production View Unchanged

The Bank of Japan board Friday left its overall economic assessment unchanged, noting the country's economy had picked up, "despite being affected by factors such as past high commodity prices.”The BOJ also maintained the near-term economic recovery scenario, but warned it expects downward pressure due to past high commodity prices and a slowdown in the pace of recovery overseas.

JAPAN (MNI): No Confidence Motion Voted Down After Upper House Backs Def Spending Bill

The no confidence motion presented against the gov't of PM Fumio Kishida by the opposition Constitutional Democratic Party (CDP) has, as anticipated, been voted down in the House of Representatives. The vote came after the upper house of the Federal Diet, the House of Councillors, approved legislation that will see defence spending increased substantially in the years ahead.

ECB (BBG): Nagel Says ECB May Need to Keep Raising Rates After Summer

The European Central Bank may have to continue lifting borrowing costs after the summer to contain inflation, according to Bundesbank President Joachim Nagel. “As I see it, we still have more ground to cover,” Nagel said Friday in a speech. “We may need to keep raising rates after the summer break.”

Austrian central bank Governor Robert Holzmann said Friday that an “adjustment” in rates may be required in September if the current trend in consumer prices continues. He stressed that underlying inflation, which remains elevated, is the key measure to watch.

ECB (BBG): ECB’s Vasle Sees Another Hike in July, Open on September Move

European Central Bank Governing Council member Bostjan Vasle said he supports another quarter-point interest-rate move next month and may back another at the following meeting. “Current data and projections show inflation will persist at higher levels for some time,” the Slovenian central bank chief told Radio Prvi on Friday. “It will therefore be appropriate to continue with the gradual tightening of monetary policy,” including another rate hike “before the summer holidays.”

ECB (BBG): ECB Interest Rates Have Not Yet Reached Their Peak, Muller Says

“Interest rate hikes of the European Central Bank are probably not over yet,” Governing Council member Madis Muller said in a blog post on Friday. “The reason for this is the expectation that the price increase in the euro area will remain clearly faster than the central bank’s target of 2% for more than a year.”

ECB (BBG): ECB’s Simkus Says Still Too Early to Commit on September Action

“It’s still too early to say what’s going to happen in September,” European Central Bank Governing Council member Gediminas Simkus told reporters in Vilnius. “We’ll have a few inflation reports, a GDP estimate, it’s still to early at this point with many uncertainties.”

EUROZONE (MNI): IMF Urges Further ECB Tightening to Tame Inflation

The euro area will see growth pick up slowly throughout 2023 and 2024 and inflation, although peaked, will remain above the 2% target, the IMF conclude in the latest Article IV report. With inflation looking stickier than previously thought, the IMF recommends monetary policy should continue to tighten and maintain a tightening bias. The latest ECB projections, published Thursday alongside the latest 25 bps hike in benchmark rates, point to inflation at 2.2% at the end of the current forecast horizon.

EUROZONE (MNI): Time Not Unlimited On Fiscal Rules Debate - Gentiloni

EU Economy Commissioner Paolo Gentiloni warned Friday that time is not unlimited to get to an agreement on reform of the EU’s fiscal rules as Germany continues to push for the imposition of tougher debt reduction rules. Speaking ahead of a discussion on the topic by EU finance ministers, Gentiloni warned that a delay to the end-2023 deadline for agreement would mean that the new rules would not be in place for the 2025 budget cycle.

GERMANY (MNI): Bundesbank Sees Sluggish Growth, Sticky Inflation

Inflation in Germany is set to slow, but still be above target over the next few years, the Bundesbank said Friday in its latest projections for the domestic economy. Coming a day after the ECB upped its inflation projections for 2025 by 0.1 percentage point, the German data also shows harmonised national inflation above 2% at the end of the forecast horizon, with headline seen at 2.7% and core at 2.8%.

CHINA (BBG): China Urged to Boost Fiscal Stimulus After Central Bank Cuts

Expectations are growing that China’s government will boost spending, especially on infrastructure, as part of a broader stimulus push following the central bank’s interest rate cuts. Authorities may increase the quota for local government special bonds, allowing them to borrow more to finance infrastructure investment, according to Nomura Holdings Inc., Standard Chartered Plc and Morgan Stanley.

CHINA (MNI): High-Tech Focus Won’t Support H2 Growth - Economists

China’s economy continued an unbalanced recovery in May, with economists telling MNI that policymakers' focus on flagship high-tech industrial upgrading may not offset weakness in the private sector and real estate during the second half of the year, as the country targets GDP growth of about 5%.High-tech industrial fixed-asset investment rose by 12.8% y/y in May, with medical and communication equipment up 18.8% and 16.1%, according to National Bureau of Statistics data on Thursday.

CHINA (MNI): Zhejiang High-Quality Zone Key for Policy - NDRC

The National Development and Reform Commission will learn from its Zhejiang High Quality Development & Common Prosperity Development Zone when it formulates policy to raise household incomes nationwide. At a press conference on Friday, an NDRC spokesperson said policymakers would take successful measures from the zone, such as boosting the digital economy and increasing disabled workforce participation, and apply them nationwide.

CHINA (BBG): Xi Tells Gates China Is Willing to Engage in Tech Cooperation

President Xi Jinping said China is willing to work with the world on technology innovation and global challenges including pandemic prevention during a meeting with American billionaire Bill Gates. “You are the first American friend I’ve met in Beijing this year,” Xi told the Microsoft Corp. co-founder on Friday, according to state broadcaster China Central Television.

DATA

EUROZONE DATA (MNI): Eurozone Final Inflation Confirmed at 6.1% y/y in May

• EUROZONE MAY FINAL HICP +0% M/M, +6.1% Y/Y
• EUROZONE MAY FINAL CORE HICP +0.2% M/M, +5.3% Y/Y

Final Eurozone headline CPI came in at 6.1% y/y in May (down from 7.0% y/y in April) and was flat m/m, confirming the flash estimates. Core inflation inflation was confirmed at 5.3% y/y and 0.2% m/m. June's Eurosystem staff macroeconomic projections added 0.1 percentage point to headline inflation across the forecast horizon versus March, to 5.4% in 2023, 3.0% in 2024 and 2.2% in 2025.* The continued inflationary pressures from food and energy prices and wage agreements across the zone remain central to the ECB's hawkish stance.

ITALY MAY FINAL HICP +8.0% Y/Y (FLSH +8.1%) (MNI)

FOREX: JPY Remains Under Pressure

• The Dollar remains on the back foot, despite showing flat against the CAD, EUR, CHF, AUD, SEK and NZD overnight, the Dollar falls lower on the European cash Govie open, with buying orders going through in Equities.
• Expect some potential Gamma volatility in Equites today.
• After a mixed early start, the USD is now back to flat against the GBP, CHF, EUR, NZD, CAD, and in the green against the Yen, up 0.51%, and NOK up 0.16%.
• In terms of technical, resistance in EURUSD is at 1.0986 61.8% retracement of the Apr 26 - May 31 downleg, but only printed a 1.0962 high so far today.
• Cable cleared the 1.2800 psychological level but failed to test the next resistance at 1.2849 0.618 proj of the Mar 8 - May 10 - May 25 price swing, printed a 1.2818 high.
• For the AUDUSD, the 0.6900 figure held, and printed a 0.6900 high so far today.
• Above the latter, would see of 0.6921 High Feb 20.

BONDS: Holzmann and UK Inflation Expectations Drive Markets Idiosyncratically

• There appears no overarching driver across FI space this morning with markets having seemingly already digested this week's Fed and ECB decisions.
• The main talking points this morning for EGBs stem from comments from ECB's Holzmann, who is normally on the hawkish side of the spectrum but was discussing data dependence today.
• For gilts, the BOE/Ipsos inflation attitudes survey showed inflation expectations falling back - which has seen gilts as the outperformers this morning amongst core FI.
• Looking ahead we are due to receive Michigan confidence data later today along and we are also due to hear from ECB's Villeroy and Fed's Waller and Barkin.
• TY1 futures are down -0-3 today at 113-11+ with 10y UST yields up 1.2bp at 3.731% and 2y yields up 3.7bp at 4.683%.
• Bund futures are up 0.17 today at 132.86 with 10y Bund yields down -1.6bp at 2.485% and Schatz yields up 0.9bp at 3.121%.
• Gilt futures are up 0.39 today at 952.24 with 10y yields down -3.0bp at 4.350% and 2y yields down -1.1bp at 4.881%.

EQUITIES: Eurostoxx 50 Futures Maintain Bullish Theme Post-ECB

Eurostoxx 50 futures traded higher Wednesday and the contract is trading just off its recent highs. Resistance at 4380.00, the May 29 high has been cleared. This is a bullish development and signals scope for an extension higher towards key resistance at 4434.00, the May 19 high. Clearance of this hurdle would represent an important bullish development. Initial support to watch is at 4303.00, the Jun 7 low. S&P E-minis traded higher again Thursday. The move confirms a resumption of the uptrend and maintains the bullish price sequence of higher highs and higher lows, marking an extension of the bull cycle that started in October 2022. The focus is on a climb towards 4491.19, the top of a bull channel drawn from the Oct 2022 low (cont). Firm support is at 4320.18, the 20-day EMA. Initial support is at 4381.75, the Jun 5 high.

• Japan's NIKKEI closed higher by 220.59 pts or +0.66% at 33706.08 and the TOPIX ended 6.39 pts higher or +0.28% at 2300.36.
• Elsewhere, in China the SHANGHAI closed higher by 20.359 pts or +0.63% at 3273.334 and the HANG SENG ended 211.45 pts higher or +1.07% at 20040.37.
• Across Europe, Germany's DAX trades higher by 42.01 pts or +0.26% at 16331.96, FTSE 100 higher by 42.01 pts or +0.55% at 7670.22, CAC 40 up 47.13 pts or +0.65% at 7338.04 and Euro Stoxx 50 up 16.71 pts or +0.38% at 4381.83.
• Dow Jones mini up 9 pts or +0.03% at 34429, S&P 500 mini up 5.25 pts or +0.12% at 4431.75, NASDAQ mini up 27.75 pts or +0.18% at 15218.5.

COMMODITIES: Gold Holds Onto Thursday's Gains

WTI futures continue to trade below resistance at $75.06, the Jun 5 high and the outlook remains bearish, despite the latest recovery. The pullback from $75.06 reinforces a bearish theme. Support at $67.03, May 31 low, has been pierced, a clear break would open $63.90, May 4 low. Moving average studies are in a bear mode position highlighting a downtrend. A break of $75.06 is required to signal a reversal. S/T gains are considered corrective. The bear cycle in Gold remains intact. The yellow metal is trading below trendline support drawn from the Nov 3 2022 low - the trendline intersects at $1966.8. The break of this line reinforces bearish conditions and marks a resumption of the downtrend. The focus is on $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 resistance would signal a short-term reversal instead.

• WTI Crude down $0.05 or -0.07% at $70.57
• Natural Gas up $0.02 or +0.59% at $2.547
• Gold spot up $5.78 or +0.3% at $1963.36
• Copper up $0.05 or +0.01% at $390.7
• Silver up $0.17 or +0.7% at $24.016
• Platinum up $1.87 or +0.19% at $993.7