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MNI US OPEN - BoJ Officials Mull Recommending July YCC Tweak


Figure 1: USD/TRY hits fresh record high amid cabinet re-shuffle


ECB (BBG): ECB’s Vujcic Says Inflation Risks Are Still Tilted to Upside

European Central Bank Governing Council member Boris Vujcic said the surge in consumer prices is only slowly abating, and the dangers of a resurgence exceed those of a more rapid retreat.“Disinflation is expected to be gradual, with the risks still tilted upward driven by risks coming from the tight labor market and underlying price pressures in the services sector,” the Croatian central bank chief told Bloomberg Saturday in Dubrovnik.

US/CHINA (BBG): US-China Handshake Fails to Stem Fears of Conflict in Asia

A highly anticipated defense forum in Singapore kicked off with a friendly handshake between Pentagon chief Lloyd Austin and Chinese Defense Minister Li Shangfu. It ended Sunday with few other signs of optimism that the world’s biggest economies could avoid an eventual collision. Austin used his speech at the Shangri-La Dialogue to chide China over its refusal to meet unless the US lifted sanctions on Li, saying that “a cordial handshake over dinner is no substitute for a substantive engagement.”

US/RUSSIA (MNI): Kremlin - We Welcome 'Positive' US Statement On Arms Control

Kremlin spox Dmitri Peskov states that Russia welcomes the 'positive' US statement last week from White House National Security Advisor Jake Sullivan regarding nuclear arms control, adding that Russia expects further diplomatic contact on the issue.

US (BBG): Biden Debt-Bill Signing Set to Unleash Tsunami of US Debt Sales

President Joe Biden’s signature of legislation suspending the federal debt ceiling has given the Treasury Department the green light to resume net new debt issuance after months of disruption. Ever since mid-January, when it hit the $31.4 trillion debt ceiling, the Treasury has been using special accounting measures to maintain payments on all federal obligations. There were just $33 billion of those left available as of May 31.

BOE (FT): BOE Looks to Broaden Reform of Deposit Guarantee Scheme

Bank of England is proposing to broaden reforms of its deposit guarantee scheme to better protect depositors in failing smaller banks, Financial Times reports, citing people familiar with the situation. BOE’s initial work focused on raising the £85,000 insurance threshold in the UK and ensuring more pre-funding of its deposit guarantee scheme, known as the Financial Services Compensation Scheme.

GERMANY (BBG): Germany Lines Up €50 Billion to Help Heavy Industry Go Green

Germany plans to help energy-intensive manufacturers transition to climate-neutral technologies with roughly €50 billion ($53.4 billion) in subsidies. The program, which still needs European Union approval, would run over 15 years and be open for companies with at least 10 kilotons of carbon emissions annually. That would include manufacturers in the steel, chemicals, cement, paper and glass sectors.

BOJ (MNI): BOJ Officials Mull Recommending July YCC Tweak

Bank of Japan staff are set to increase their inflation forecast for the BOJ’s July meeting and could recommend increasing the 0% rate currently targeted under yield curve control, though it is uncertain Governor Kazuo Ueda would follow such advice, MNI understands. In their July forecast, officials could revise higher the BOJ’s baseline view, frequently mentioned by Ueda, that the year-on-year rise of core CPI will fall below 2% toward the middle of this fiscal year.

JAPAN (BBG): Japan’s Rapid Return of Tourists Helping Fuel Inflation for BOJ

Foreign tourists packing flights to Japan are helping the economy climb out of a recession with spending power that is also fueling upward pressure on hospitality-sector pay and prices. Almost two million visitors arrived from overseas in April, compared with less than 140,000 a year earlier, according to Japan’s National Tourism Organization.

MNI RBA PREVIEW: JUNE 2023 - Close Call, Not “If” But “When”

The RBA remains very data dependent and the more moderate data over the last month gives it the opportunity to “watch and wait” and assess another month’s data including Q1 national accounts (due June 7). Given this and that the central bank says that policy is restrictive and working, we expect rates to be held at 3.85% in June, but the meeting is “live” and around a third of analysts expect a 25bp hike and the market is sitting on the fence.

RUSSIA/UKRAINE (MNI): Kremlin Claims It Has Repelled Large-Scale Ukrainian Assault

The Russian Defence Ministry has claimed that it has repelled a 'large-scale' attack from Ukrainian forces in the Donetsk oblast in what could be the launch of Kyiv's long-expected summer counteroffensive. The Ukrainian armed forces stated that no forewarning of an assault would be given, meaning that first reports are more likely to come from the Russian side.

TURKEY (MNI): President Erdogan Announces New Cabinet

President Erdogan officially appointed a new vice president and a cabinet to serve until 2028 with the intelligence chief, Hakan Fidan, becoming Turkey’s new foreign minister and economist Mehmet Simsek the country’s new finance and treasury minister. In his first remarks following the appointment, Simsek hinted at a return to conventional policies. “Turkey does not have any choice left other than returning to rational policy making,” he said.

OIL (BBG): Oil Rises on Saudi Arabia’s Go-It-Alone July Production Cuts

Oil advanced at the week’s open after Saudi Arabia pledged to shave an extra 1 million barrel-a-day from its production in July, taking output to the lowest level in years in an effort to stabilize the market. West Texas Intermediate jumped almost 5% early in the session before paring gains to trade below $73 a barrel with similar directional moves in the international marker Brent. Saudi Energy Minister Prince Abdulaziz bin Salman said he would do “whatever is necessary to bring stability to this market” following a tense OPEC+ meeting over the weekend.





SPAIN DATA (MNI): Tentative Signs of Softer Services Inflation in May PMI

  • SPAIN MAY SERVICES PMI 56.7, (FCST 57.0); APR 57.9

Despite cooling by 1.2 points to 56.7, the Spanish services PMI remained firmly expansive for a seventh consecutive month in May. New orders and total business activity again saw a strong month, albeit slightly softer than in April. Tourism demand is adding to the boost ahead of the summer holiday season. Inflationary pressures remained acute, with wage pressures cited as the key upwards contributor. Yet May saw tentative signs of cooling input and output inflation rates, with input cost inflation slowing to the softest pace in 20 months.

SWITZERLAND DATA (MNI): CPI Continues to Decelerate in May

  • SWITZERLAND MAY CPI +0.3% M/M (= FCST); APR 0.0% M/M
  • SWITZERLAND MAY CPI +2.2% Y/Y (= FCST); APR +2.6% Y/Y

Swiss inflation is continued to cool in the May data, matching expectations with 0.3pp deceleration to +2.3% y/y, the lowest since Feb 2022. On the month, prices re-accelerated by +0.3% m/m, largely on the back of increased housing, package holiday and food prices. Total goods inflation rose +0.3% m/m (largely boosted by food), slowing 0.8pp to +2.7% y/y, whilst services accelerated by +0.2% m/m and ticked down 0.1pp to +1.8% y/y.

CHINA DATA (MNI): Caixin PMIs Outperform Official Prints, Questions Remain if June Will See a Repeat

The Caixin services PMI printed above expectations in a similar fashion to the manufacturing PMI. The 57.1 outcome was a touch below the Mar outcome of 57.80,but is quite elevated from an historical standpoint. The composite PMI now stands at 55.6, which is the highest print since Dec 2020. These results are in contrast to the official PMI prints, which surprised on the downside for both manufacturing and services at the end of May. The official composite PMI was 52.9 (from 54.4 prior).

FOREX: Greenback Sits Firmer on NFP Follow Through

  • The greenback sits firmer through Asia trade and the European morning after the better-than-expected Nonfarm Payrolls release on Friday. USD/JPY trades back above the Y140.00 handle and within range of the cycle high posted last week at 140.93.
  • SEK sits at the other end of the G10 table, weaker against all others following May services and composite PMI, which fell short of expectations and signalled a bumpy recovery for activity from the 2023 low. EUR/SEK is through the Friday high, facing next resistance at 11.6641.
  • Outside of G10, TRY has slipped to another cycle low against the USD following confirmation of Mehmet Simsek as the new Turkish economy minister. Markets may be speculated that the more orthodox approach to markets could translate to less official intervention in the exchange rate - and a slower drawdown of FX reserves.
  • With markets now inside the Fed's media blackout period, central bank speak focus turns to the ECB, with Lagarde and Nagel both set to speak Monday. Mester will appear, but only delivering brief introductory remarks - not on monetary policy.
  • The ISM Services release is the data highlight, with markets expecting activity to rise to 52.4 from 51.9 previously - although markets may be gearing for a weaker release given the poorer-than-expected MNI Chicago PMI and ISM manufacturing.

BONDS: Continuation Lower after Friday's Payrolls

  • Treasuries continued their moves lower both on the week's open, through the Asian session and in early European trading while Bunds and EGBs also moved lower in early trading (both in continuation to the strong US payrolls print last week and the affirmation of France's AA status from S&P).
  • The selloff has stalled somewhat, however, with services PMI data through Europe generally marginally weaker than had been expected. EGB spreads have been mixed this morning.
  • Focus now switches to an appearance ahead of the ECON committee by ECB President Lagarde as well as the ISM services and US factory orders prints.
  • TY1 futures are down -0-11 today at 113-16 with 10y UST yields up 4.6bp at 3.741% and 2y yields up 4.0bp at 4.541%.
  • Bund futures are down -0.70 today at 134.94 with 10y Bund yields up 5.6bp at 2.367% and Schatz yields up 5.1bp at 2.846%.
  • Gilt futures are down -0.70 today at 963.37 with 10y yields up 6.1bp at 4.213% and 2y yields up 7.4bp at 4.422%.

EQUITIES: E-Mini S&P Trend Remains Bullish Following Move Higher Last Week

Eurostoxx 50 futures traded higher Friday as the contract recovered from last Wednesday’s low of 4216.00. For now, the climb appears to be a correction - price action earlier last week reinforced a bearish theme - support at 4252.00, the May 25 low has been breached. Price 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 trend conditions remain bullish and the contract traded higher Friday. Resistance at 4244.00, the Feb 2 high and a medium-term bull trigger, has been cleared. The break reinforces bullish conditions and confirms a resumption of the uptrend that started in October 2022. This opens 4327.50 next, the Aug 16 2022 high. The 50-day EMA, at 4144.35 remains a key support. A break of this average is required to signal a reversal.

  • Japan's NIKKEI closed higher by 693.21 pts or +2.2% at 32217.43 and the TOPIX ended 37.09 pts higher or +1.7% at 2219.79.
  • Elsewhere, in China the SHANGHAI closed higher by 2.372 pts or +0.07% at 3232.441 and the HANG SENG ended 158.56 pts higher or +0.84% at 19108.5.
  • Across Europe, Germany's DAX trades higher by 6.67 pts or +0.04% at 16058.23, FTSE 100 higher by 42.16 pts or +0.55% at 7649.57, CAC 40 down 2.41 pts or -0.03% at 7268.28 and Euro Stoxx 50 down 1.09 pts or -0.03% at 4322.43.
  • Dow Jones mini up 32 pts or +0.09% at 33849, S&P 500 mini down 1 pts or -0.02% at 4287, NASDAQ mini down 36.25 pts or -0.25% at 14539.

COMMODITIES: Gold's Bear Cycle Intact as Yellow Metal Trades Lower Again Monday

WTI futures traded higher overnight and in the process pierced resistance at $74.73, the May 24 high. The contract has pulled back from today’s high. 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 signal a top and this would once again expose key support at $63.90, the May 4 low. The bear cycle in Gold remains intact and recent short-term gains appear to have been a correction. The yellow metal is once again testing trendline support drawn from Nov 3 2022. A clear breach of this trendline, at $1946.9, would reinforce bearish conditions and open $1903.5, a Fibonacci retracement. Initial firm resistance is $1985.3, the May 24 high. Clearance of this level is required to signal a short-term reversal.

  • WTI Crude up $1.68 or +2.34% at $73.43
  • Natural Gas up $0.06 or +2.67% at $2.23
  • Gold spot down $6.83 or -0.35% at $1941.48
  • Copper down $1.15 or -0.31% at $371.5
  • Silver down $0.16 or -0.67% at $23.4485
  • Platinum up $0.36 or +0.04% at $1008.35

05/06/20231300/1500EUECB Lagarde Intro at ECON Hearing
05/06/20231345/0945***USIHS Markit Services Index (final)
05/06/20231400/1000***USISM Non-Manufacturing Index
05/06/20231400/1000**USFactory New Orders
05/06/20231530/1130*USUS Treasury Auction Result for 26 Week Bill
05/06/20231530/1130*USUS Treasury Auction Result for 13 Week Bill
05/06/20231700/1300*USUS Treasury Auction Result for Cash Management Bill
06/06/20232301/0001*UKBRC-KPMG Shop Sales Monitor
06/06/20230430/1430***AURBA Rate Decision
06/06/20230600/0800**DEManufacturing Orders
06/06/20230700/0900**ESIndustrial Production
06/06/20230730/0930**EUIHS Markit Final Eurozone Construction PMI
06/06/20230830/0930**UKIHS Markit/CIPS Construction PMI
06/06/20230900/1100**EURetail Sales
06/06/20230900/1000**UKGilt Outright Auction Result
06/06/20231230/0830*CABuilding Permits
06/06/20231255/0855**USRedbook Retail Sales Index
06/06/20231400/1000*CAIvey PMI
06/06/20231400/1000**USIBD/TIPP Optimism Index

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