MNI US OPEN - BoJ Raises Policy Rate to 0.25%, Cuts JGB Buying

EXECUTIVE SUMMARY

• MNI FED PREVIEW - SEPTEMBER SIGNALS IN SPOTLIGHT
• BOJ RAISES POLICY RATE TO 0.25%, CUTS JGB BUYING
• STRIKES ON HEZBOLLAH & HAMAS FIGURES CHANGES SECURITY LANDSCAPE
• AUSTRALIA MONTHLY CPI IN LINE WITH FORECASTS

MNI (LONDON) - Figure 1: Eurozone headline inflation edges higher to +2.6% Y/Y in July

Source: Eurostat

NEWS

MNI FED PREVIEW - JULY 2024: September Signals in Spotlight

The Fed will hold rates for an 8th consecutive meeting at its July meeting, putting immediate attention on any signals about rate cuts beginning in September. While inflation and the labor market cooled in the second quarter, providing a clear path to rate cuts by year-end, underlying demand has remained resilient in defiance of what FOMC officials see as “sufficiently restrictive” policy. With the lingering memory of various data "head fakes" in mind on both the upside and downside of the inflation and rate cycles, yet a “soft landing” still seen in reach, the FOMC is likely to express only cautious optimism.

MNI BOE PREVIEW - AUGUST 2024: First Cut Now or Later?

We have characterised the August rate decision as 50/50 for some time due to a number of factors – a lack of communication from the MPC (due to the election and the pre-meeting blackout periods), a changing composition of the MPC (with Lombardelli replacing Broadbent) and some inconclusive data. We have made no updates to our subjective hawk-dove spectrum of MPC members since publishing our BOE Review following the June meeting. Then we assigned around a 60% probability that Pill votes for unchanged rates and around a 60% probability that Lombardelli votes for a 25bp cut. Assuming Bailey and Breeden also vote for a cut, this would deliver a 5-4 vote in favour of a cut.

BOJ (MNI): BOJ Raises Policy Rate to 0.25%, Cuts JGB Buying

The Bank of Japan on Wednesday raised its unsecured overnight call loan rate to 0.25% from a range of zero percent to 0.1%, the first rate hike since March when the BOJ ended the negative interest rate policy. The BOJ also decided to lower its purchase of JGBs by JPY400 billion quarterly. The scale of JGB buying will fall to JPY2.9 trillion monthly by Q1 2026. “The bank judged it appropriate to adjust the degree of monetary accommodation from the perspective of sustainable and stable achievement of the price stability target of 2%,” the BOJ said in a statement.

BOJ (MNI): BOJ to Raise Further, No Clues on Timing - Ueda

Bank of Japan Governor Kazuo Ueda said on Wednesday that the Bank will continue to raise the policy interest rate and adjust the degree of easy policy in future, but he did not offer clues on the pace or timing, which will depend on economic activity and prices. Ueda noted the upside risk to prices caused by the rise in import prices led by the weak yen was behind the decision to raise the policy interest rate to 0.25%. “We decided to raise the policy rate today as economic activity and prices are moving in line with our expectations," he told reporters. "In fact, the forecasts for economic growth and prices weren’t changed from those of April."

BOJ (MNI): BOJ's FY26 Inflation View Flat; Upside Risk to FY24

The Bank of Japan board expects the core consumer price index and core-core CPI in fiscal 2026 to rise 1.9% and 2.1%, unchanged from the previous forecast made in April, according to the Bank's latest Outlook Report. However, the BOJ noted significant upside risk to prices exists in FY2024 and 2025. The board’s forecast for core CPI in FY2025 was revised up to 2.1% from April’s 1.9% and the price view this fiscal year was revised down to 2.4% from 2.8% made in April.

POLITICAL RISK (MNI): Strikes on Hezbollah & Hamas Figures Changes Security Landscape

Two notable strikes against senior figures within militant groups opposed to Israel within the past 24 hours could have a significant impact on the security outlook for the Middle East. Below we offer some initial thoughts on the potential impacts and responses in the region. Late on 30 July, Israel carried out an air strike on a suburb of the Lebanese capital, Beirut, hitting a building containing senior Hezbollah commander Fuad Shukr. Israel claims that Shukr was killed in the attack, while Hezbollah has only confirmed that he was in the building.

US (RTRS): New US Rule on Foreign Chip Equipment Exports to China to Exempt Some Allies

The Biden administration plans to unveil a new rule next month that will expand U.S. powers to stop exports of semiconductor manufacturing equipment from some foreign countries to Chinese chipmakers, two sources familiar with the rule said. But shipments from allies that export key chipmaking equipment - including Japan, the Netherlands and South Korea - will be excluded, limiting the impact of the rule, said the sources who were not authorised to speak to media and declined to be identified.

US (BBG): Harris Wipes Out Trump’s Swing-State Lead in Election Dead Heat

Kamala Harris has wiped out Donald Trump’s lead across seven battleground states, as the vice president rides a wave of enthusiasm among young, Black and Hispanic voters, according to the latest Bloomberg News/Morning Consult poll. Harris was backed by 48% of voters to 47% for Trump - a statistical dead heat - in the swing states that will likely decide November’s election. That’s a stronger showing than the two-point deficit for President Joe Biden before he dropped out of the race. The Democratic vice president overtook her GOP rival in Arizona and Nevada, and more than doubled Biden’s lead over Trump in Michigan.

US (BBG): Trump, Harris Ad Buys Focus on Five States in Revamped 2024 Race

Former President Donald Trump and Vice President Kamala Harris are concentrating 98% of their ad-buying firepower in just five swing states, a key indication of how both campaigns are strategizing their path to the White House. Trump, Harris and their respective super political action committees have currently booked $122 million in advertising time through the end of August, according to data from AdImpact, which tracks ad spending, with nearly all of the total committed to markets in Pennsylvania, Michigan, Georgia, Wisconsin and Arizona.

US (BBG): Harris To Launch Battleground State Tour With VP Pick Next Week

Kamala Harris and her yet-to-be-named running mate will launch a tour of seven battleground states next week, looking to seize upon momentum against Republican Donald Trump in the US election. Harris is expected to pick a vice presidential candidate in the coming days. Her shortlist is said to include Pennsylvania Governor Josh Shapiro, Minnesota Governor Tim Walz and Arizona Senator Mark Kelly, though the process remains fluid. Harris will conduct interviews this week, according to a person familiar with the matter.

VENEZUELA (BBG): Venezuela Lawmaker Seeks Machado’s Arrest as Maduro Cracks Down

Venezuela hardened its crackdown on any resistance to President Nicolás Maduro’s self-declared election win by calling for the arrests of opposition leaders María Corina Machado and Edmundo González. Speaking on state television on Tuesday, head of congress Jorge Rodríguez said González was leading a “fascist conspiracy,” and that his campaign with Machado aimed to spark a civil war. Shortly after, Maduro said González was a “coward” if he didn’t assume responsibility for his actions.

COMMODITIES (BBG): Iron Ore Climbs as Top Miner Rio Tinto Sees Stable China Demand

Iron ore rebounded from Tuesday’s decline after the biggest miner of the raw material offered upbeat comments for the demand outlook.  The steelmaking metal surged as much as 3%, following comments from Rio Tinto Group that demand from China was fairly robust and stable. Iron ore has shed 28% so far this year, with the Asian nation’s prolonged property crisis hampering metals consumption. 

COMMODITIES (BBG): China’s Copper Buyers Make Cautious Return After Prices Slump

China’s copper market is showing a tentative improvement after a months-long slump in demand that stunned bullish investors and dragged prices down from a record high. While there’s no major turnaround so far, analysts and traders in China say that buyers in the world’s biggest copper market are starting to dip in again after prices crashed from above $11,000 a ton in May to below $9,000 this week. 

CORPORATE (BBG): Microsoft Says Azure Outage Began as DDoS Cyberattack

Microsoft Corp. said an outage of Azure cloud applications was triggered by a distributed-denial-of-service cyberattack. The DDoS attack began early Tuesday and an error in Microsoft’s automated protection mechanisms worsened the impact rather than mitigating it, the company said in a status update. Customers were affected in multiple regions, including services running on Azure. For example, mobile ordering at Starbucks Corp. was disabled for hours because of the issues affecting Azure, according to a person familiar with the matter.

DATA

EUROZONE DATA (MNI): EZ Headline Inflation Edges Higher in July

• EUROZONE JUL FLASH HICP +2.6% Y/Y
• EUROZONE JUL FLASH CORE HICP +2.9% Y/Y

Eurozone July flash headline printed in-line with MNI's tracking estimate at 2.6% Y/Y (vs 2.5% cons; 2.5% prior) and 0.0% M/M (vs -0.1% cons; 0.2% prior). On an unrounded basis, headline was 2.59% Y/Y and -0.02% M/M. Core HICP also printed a tenth above consensus on a rounded basis, remaining  at 2.9% Y/Y for the third consecutive month (vs 2.8% cons; 2.9% prior), but with the surprise boosted by rounding. On an unrounded basis, core was 2.86% Y/Y and -0.15% M/M. Looking at the individual categories, services inflation fell slightly to 4.0% Y/Y after two months at 4.1% but is yet to show signs of meaningful further disinflationary progress having plateaued at an average 4.0% Y/Y since November.

ITALY PRELIM JULY HARMONIZED CPI FALLS 0.8% M/M; EST. -1.2% (BBG)
ITALY PRELIM JULY (NIC) CPI RISES 1.3% Y/Y; EST. +1.1% (BBG)
ITALY PRELIM JULY (NIC) CPI RISES 0.5% M/M; EST. +0.3% (BBG)

FRANCE DATA (MNI): France Flash Inflation Softer Than Expected

• FRANCE FLASH JULY HICP +2.6% Y/Y, +0.2% M/M
• FRANCE FLASH JULY CPI +2.3% Y/Y
• FRANCE JUN PPI -0.3% M/M, -6% Y/Y

The latest set of July flash inflation prints from France saw HICP and CPI both on an annual and monthly basis come in softer than expected. HICP came in at +2.6% Y/Y (vs 2.7% consensus, 2.5% prior) and 0.2% M/M (vs 0.3% consensus, 0.2% prior). CPI came in at 2.3% Y/Y (vs 2.4% consensus, 2.1% prior). Looking at national CPI, services CPI (which makes up 51.6% of the national CPI index) fell to 2.5% Y/Y (vs 2.9% in June) - the lowest reading since March 2022. On a monthly basis however, services prices rose 1.2% (vs 0.3% prior), driven by the seasonal increase in transport and accommodation prices, which had been highlighted ahead of the release due to the Olympics.

GERMANY JUL UE RATE (SA) 6.0% (FCST 5.9%); JUN 6.0% (MNI)
GERMANY JUL UE NET CHANGE (SA) +18K; JUN +20K (MNI)
GERMANY JUL UE TOTAL (SA) 2.802 MN; JUN 2.784 MN (MNI)

CHINA DATA (MNI): China July PMI Contracts For Third Straight Month

• CHINA JUL MANUFACTURING PMI 49.4 VS 49.5 IN JUN

MNI (Beijing) China's Manufacturing Purchasing Managers Index shrank for a third straight month in July, registering 49.4, down from June's 49.5 reading, as off-season, weak demand, and extreme weather weighed, data from the National Bureau of Statistics showed Wednesday. The production sub-index fell 0.5 points to 50.1, still above the 50 mark. However, the new orders sub-index fell by 0.2 points to 49.3. External demand was seen to stabilise and pick up, with the new export orders sub-index rising 0.2 points to 48.5.

JAPAN DATA (MNI): Japan June Factory Output Drops on Weaker Autos

• JAPAN JUNE INDUSTRIAL OUTPUT -3.6% M/M; MAY +3.6%
• JAPAN JUNE RETAIL SALES +3.7% Y/Y; MAY +2.8%
• JAPAN JUNE RETAIL SALES +0.6% M/M; MAY +1.6%

Japan's industrial output fell 3.6% m/m in June for the first drop in two months following May's 3.6% gain due to weaker production of motor vehicles and machinery, data released by the Ministry of Economy, Trade and Industry showed on Wednesday. Production of motor vehicles fell 8.9% m/m in June for the first drop in two months following May's 18.1% growth. Bank of Japan officials expected industrial production to rise due to a recovery of automobile manufacturing.

AUSTRALIA DATA (MNI): Aussie CPI In Line With Forecasts

• AUSTRALIA MONTHLY JUN CPI 0.4% MM, 3.9% YY
• AUSTRALIA Q2 CPI +1% Q/Q
• AUSTRALIA Q2 TRIMMED CPI +0.8% Q/Q
• AUSTRALIA JUN RETAIL SALES +0.5% M/M

Headline Australian Q2 inflation printed at 3.8% y/y, or 1.0% q/q – in line with market expectations – 20 basis points higher than Q1, while trimmed mean fell 10bp to 3.9%, lower than the expected 4%, data from the Australian Bureau of Statistics showed.
The monthly consumer price indicator also recorded 3.8% y/y growth. The Reserve Bank of Australia had expected headline Q2 CPI at 3.8% within its latest forecasts, however, trimmed mean was 10bp stronger than expected. Housing (+1.1%), food and non-alcoholic beverages (+1.2%) represented the most significant contributors to the June quarter rise, according to the ABS.

FOREX: AUD/JPY Through Late April Lows on CPI, BoJ Surprise

• Central banks continue to roil markets, with the surprise rate hike from the BoJ of 15bps to 0.25% leaning against expectations split between no change and a 10bps hike. The resultant JPY strength was compounded by Ueda's tone in the post-decision press conference, at which Ueda strongly suggested the BoJ are only at the beginning of their tightening cycle, and 0.50% would be no ceiling for rates in the near-term.
• USD/JPY has traded through to new pullback lows and - importantly - through 151.94, the low from last week and key pivot level on several occasions since 2022. Both 151.10 support and the 200-dma have also given way, while a close below 97.78 in AUD/JPY would entirely reverse the rally off the late April low.
• While JPY trades firmer, AUD is the weakest in G10, slipping as CPI came in soft relative to expectations. Both the weighted- and trimmed-mean CPI release for Q2 came in soft, helping usher in AUD/NZD sales and a move below 1.10 for the cross.
• The Fed decision takes focus later today, at which markets are on watch for any signal from the FOMC that the bank are closing in on a potential rate cut at the September meeting. Outside of the Fed meeting, MNI Chicago PMI is also due, as well as the US ADP Employment Change states for July, and Canada's May GDP update. 

BONDS: Higher Than Expected July Inflation Data Helps Bunds Off Highs

The higher-than-expected Italian and Eurozone flash July CPI prints helped Bund futures off intraday highs, currently +10 ticks at 133.48.

• Bunds reached a high of 133.76 prior to the Italian data (which was released early as a result of technical issues) after pushing through yesterday’s high at 133.60 this morning.
• There wasn’t much material reaction in EGBs to the BoJ’s decision overnight, where rates were hiked 15bp (in line with local media reporting in the run up to the decision) and bond purchases were tapered.

• Instead, core FI took positive cues from a build-up of geopolitical tensions in the Middle East, after Hamas confirmed its political leader was killed by Israeli strikes. 
• German cash yields are around 1bp lower today, while 10-year peripheral spreads to Bunds are slightly tighter (with this morning’s chip-led rally in European equities countering the  negative impetus from the geopolitical tensions).
• The bidding deadline for today’s short 7-year Bund supply has just passed.
• The US quarterly refunding announcement will attract interest at 1330BST, though today’s FOMC decision at 1900BST remains the primary focus. 

GILTS: Early Rally Fades A Little on Eurozone CPI, Bull Steepening Still Intact

Gilt futures are back from early highs, with recent pressure coming from firmer-than-expected Italian & Eurozone CPI readings.

• Heightened tension in the Middle East, as well as softer-than-expected French & Australian CPI data, drove the early rally.
• The rally stopped shy of key resistance at the June 21 high (99.23), with the contract back to 98.88 vs. best levels of 99.16, last ~15 ticks higher on the day.
• Yields last 1-3bp lower across the curve, bull steepening.
• Gilt bulls couldn’t hold a move below 4.00% in 10-Year yields, with the early April low in 10s (3.978%) remaining untouched.
• SONIA futures last unchanged to +6.0, back from highs alongside gilts.
• BoE-dated OIS shows 13bp of cuts for tomorrow’s meeting and ~54bp of easing through year end, little changed and ~2bp lower on the day respectively.

EQUITIES: Latest Bounce in Eurostoxx 50 Futures Appears Corrective

Eurostoxx 50 futures traded lower last week, and a bearish threat remains present. The contract has breached 4846.00, the Apr 19 low. A clear break of this level would pave the way for an extension towards 4734.54, the 200 day MA (cont). Moving average studies are in a bear-mode set-up, highlighting a downtrend. The latest bounce appears to be a correction. Initial firm resistance to watch is 4980.00, Jul 23 high. S&P E-Minis traded lower last week and the move down resulted in a break of both the 20- and 50-day EMAs. This reinforces the short-term bearish cycle and signals scope for an extension near-term. Note that the move down is considered corrective. Potential is seen for a move towards 5396.09, the lower band of a MA envelope, ahead of 5370.62 a Fibonacci retracement. Gains are considered corrective, key S/T resistance is 5629.75, Jul 23 high.

• Japan's NIKKEI closed higher by 575.87 pts or +1.49% at 39101.82 and the TOPIX ended 39.81 pts higher or +1.45% at 2794.26.
• Elsewhere, in China the SHANGHAI closed higher by 59.449 pts or +2.06% at 2938.749 and the HANG SENG ended 341.69 pts higher or +2.01% at 17344.6.
• Across Europe, Germany's DAX trades higher by 113.72 pts or +0.62% at 18528.12, FTSE 100 higher by 112.31 pts or +1.36% at 8384.99, CAC 40 up 80.67 pts or +1.08% at 7558.53 and Euro Stoxx 50 up 50.98 pts or +1.05% at 4893.15.
• Dow Jones mini up 172 pts or +0.42% at 41133, S&P 500 mini up 54 pts or +0.99% at 5527.75, NASDAQ mini up 299.75 pts or +1.58% at 19242.75.

Time: 09:50 BST

COMMODITIES: WTI Futures Bounce Off Tuesday's Lows, Bearish Threat Remains

A bear threat in WTI futures remains present and the contract has traded lower this week. The recent breach of both the 20- and 50-day EMAs, reinforces the bear theme. A continuation lower would open $72.23, the Jun 4 low and the next key support. For bulls, a reversal higher would instead refocus attention on the key resistance points at $83.58, the Jul 5 high, and $84.36, the Apr 12 high. The recent move down in Gold is considered corrective, however, the yellow metal has managed to pierce support at the 50-day EMA - at $2363.9. A clear break of this average would signal scope for a deeper retracement towards $2277.4, the May 3 low and a key support. For bulls, this week’s gains are constructive. A stronger reversal would refocus attention on $2483.7, the Jul 17 high, and a bull trigger. Clearance of this hurdle resumes the uptrend.

• WTI Crude up $1.75 or +2.34% at $76.46
• Natural Gas up $0.01 or +0.52% at $2.139
• Gold spot up $9.79 or +0.41% at $2420.39
• Copper up $5.75 or +1.41% at $414.05
• Silver up $0.18 or +0.63% at $28.5585
• Platinum up $2.45 or +0.25% at $967.11

Time: 09:50 BST

Date	GMT/Local	Impact	Country	Event
31/07/2024	1100/0700	**	US	MBA Weekly Applications Index
31/07/2024	1215/0815	***	US	ADP Employment Report
31/07/2024	1230/0830	***	US	Employment Cost Index
31/07/2024	1230/0830	***	CA	Gross Domestic Product by Industry
31/07/2024	1230/0830	***	US	Treasury Quarterly Refunding
31/07/2024	1345/0945	***	US	MNI Chicago PMI
31/07/2024	1400/1000	**	US	NAR Pending Home Sales
31/07/2024	1430/1030	**	US	DOE Weekly Crude Oil Stocks
31/07/2024	1800/1400	***	US	FOMC Statement
01/08/2024	2300/0900	**	AU	S&P Global Manufacturing PMI (f)
01/08/2024	0030/0930	**	JP	S&P Global Final Japan Manufacturing PMI
01/08/2024	0130/1130	**	AU	Trade Balance
01/08/2024	0130/1130	**	AU	Trade price indexes
01/08/2024	0145/0945	**	CN	S&P Global Final China Manufacturing PMI
01/08/2024	0715/0915	**	ES	S&P Global Manufacturing PMI (f)
01/08/2024	0745/0945	**	IT	S&P Global Manufacturing PMI (f)
01/08/2024	0750/0950	**	FR	S&P Global Manufacturing PMI (f)
01/08/2024	0755/0955	**	DE	S&P Global Manufacturing PMI (f)
01/08/2024	0800/1000	**	EU	S&P Global Manufacturing PMI (f)
01/08/2024	0830/0930	**	GB	S&P Global Manufacturing PMI (Final)
01/08/2024	0900/1100	**	EU	Unemployment
01/08/2024	1100/1200	***	GB	Bank Of England Interest Rate
01/08/2024	1100/1200	***	GB	Bank Of England Interest Rate
01/08/2024	1130/1230		GB	BoE Press Conference
01/08/2024	-	***	US	Domestic-Made Vehicle Sales
01/08/2024	1230/0830	***	US	Jobless Claims
01/08/2024	1230/0830	**	US	WASDE Weekly Import/Export
01/08/2024	1230/0830	**	US	Preliminary Non-Farm Productivity
01/08/2024	1300/1400		GB	BOE Monthly Decision Maker Panel Data
01/08/2024	1345/0945	***	US	S&P Global Manufacturing Index (final)
01/08/2024	1400/1000	***	US	ISM Manufacturing Index
01/08/2024	1400/1000	*	US	Construction Spending
01/08/2024	1430/1030	**	US	Natural Gas Stocks
01/08/2024	1530/1130	*	US	US Bill 08 Week Treasury Auction Result
01/08/2024	1530/1130	**	US	US Bill 04 Week Treasury Auction Result
01/08/2024	1615/1715		GB	BOE's Pill MPR virtual Q&A