MNI US OPEN - BOJ Said to Mull Reducing Bond Buys as Early as June

NEWS

MNI ECB PREVIEW - JUNE 2024: Expect an Insurance Cut in June

A June cut has been so well-telegraphed by the ECB that failing to deliver would result in significant loss of credibility. However, uncertainties over inflation persistence, the geopolitical backdrop, and the outlook for global monetary policy (principally the Fed) suggest that the June decision will be no more than an insurance cut at this stage with no new policy signals. Although still a relatively low probability outcome for now, we cannot fully discount the potential for a ‘one and done’ rate cut in 2024.

MNI BOC PREVIEW - JUNE 2024: GDP Last Building Block for Rate Cut

While reservations remain, soft inflation & growth data make too compelling an argument for cuts. GDP data provided final building block for June action over July. Market and analyst consensus are far from unanimous. OIS markets price a ~80% likelihood of a 25bps rate cut (priced at ~65% before GDP), while 1/3 analysts surveyed expect no change in policy.

US/MEXICO (NYT): Biden Is Expected to Sign Order Letting Him Seal Border With Mexico

President Biden is expected to sign an executive order on Tuesday allowing him to temporarily seal the U.S. border with Mexico to migrants when crossings surge, a move that would suspend longtime protections for asylum seekers in the United States. Mr. Biden’s senior aides have told members of Congress in recent days to expect him to sign the order at the White House alongside mayors from South Texas, according to several people familiar with the plans. The restrictions would kick in once the number of illegal crossings exceeds 2,500 in a day, according to several people who have been briefed on the order.

ISRAEL (BBG): Israel Says No Permanent Cease-Fire Unless Hamas Destroyed

Israeli Prime Minister Benjamin Netanyahu reiterated that there would be no permanent cease-fire in the war against Hamas in Gaza until the country’s conditions are met, which include the destruction of the militant group. Israel is willing to pause hostilities for the purpose of returning hostages but what happens next will be subject to further talks, Netanyahu said in a meeting with parliament’s Foreign Affairs and Defense Committee on Monday, according to his office. A proposal presented by President Joe Biden on Friday for a permanent cease-fire was only part of the package and there were details he didn’t make public, Netanyahu said, without being more specific.

BOJ (BBG): BOJ Is Said to Mull Reducing Bond Buys as Early as June Meeting

The Bank of Japan is likely to discuss the reduction of bond purchases as early as its policy meeting next week, according to people familiar with the matter. BOJ officials will probably consider if the timing is appropriate to slow the pace of bond buying from the current roughly ¥6 trillion ($38.4 billion) per month and whether they need to provide more details on the outlook to improve predictability, according to the people. The bank concludes its two-day policy meeting on June 14.Given that the central bank has no intention to surprise bond market participants, any shift will only be gradual and in stages with round numbers, the people said. BOJ officials didn’t indicate a specific amount as the next buying level, the people said.

JAPAN (MNI): Markets to Determine Long-term Rates - BOJ's Ueda

Bank of Japan Governor Kazuo Ueda said on Tuesday that markets will determine long-term interest rates but the Bank will prevent them from surging. Ueda told lawmakers that the BOJ will conduct daily operations to prevent surges in a flexible manner should long-term interest rates rise sharply. He also said the BOJ will adjust the degree of easy policy if the year-on-year rise in the consumer price index accelerates in line with the BOJ’s forecast. The BOJ will adjust its policy interest rate if the risks to economic activity and prices change, he said.

JAPAN (BBG): Japan’s Suzuki Says Currency Intervention Had Some Effect

Japan’s finance minister defended the government’s record intervention in the currency market in his first acknowledgment of the action. “We intervened in the market to counter excessive FX moves, which were driven by speculation,” Finance Minister Shunichi Suzuki told reporters Tuesday. “From that standpoint, we believe that it had a certain effect.”

JAPAN (BBG): BOJ Himino Says FX Warrants Attention, Analysis for Policy

Bank of Japan Deputy Governor Ryozo Himino said it’s important for authorities to monitor the impact of currencies on the broader economy, as a weak can affect imports in addition to having other affects. Himino speaks as part of a panel at event hosted by Columbia University and the Center on Japanese Economy and Business. Says monetary policy shouldn’t target levels of currencies. Notes that the underlying consumer inflation trend is rising toward 2%.

INDIA (MNI): Modi on Course for 3rd Term, But BJP Support Well Short of Expectations

Partial results from the Indian general election show that PM Narendra Modi and his National Democratic Alliance (NDA) allies are on course to secure a majority in the Lok Sabha that would give the PM a third term in office. However, so far the NDA is falling well short of pre-election expectations. Ahead of the vote, opinion polling showed the BJP and its allies were on course for a two-thirds 'special majority' that would have given the gov't powers to alter the Indian constitution. At present partial results show Modi's Hindu nationalist BJP itself could fall short of a majority in what would be a notable blow to the PM's prestige even as he embarks on a third term in office.

DATA

GERMANY MAY UE RATE (SA) 5.9% (FCST 5.9%); APR 5.9% (MNI)
GERMANY MAY UE TOTAL (SA) 2.762MN; APR 2.737MN (MNI)
GERMANY MAY UE NET CHANGE (SA) +25K; APR +11K (MNI)
GERMANY MAY JOB VACANCIES (SA) -5K; APR -8K (MNI)

SWITZERLAND DATA (MNI): Core Inflation Softer Than Expected

• SWISS MAY CPI +0.3% M/M, +1.4% Y/Y

Swiss CPI inflation printed in line with consensus at 1.390% Y/Y in May (vs 1.4% cons and prior), and 0.273% M/M (vs 0.3% cons and prior). Core CPI came in lower at 1.155% Y/Y (vs 1.3% cons; 1.2% prior) and 0.214% M/M. The upside risks to the Q2 SNB inflation forecast flagged by President Jordan have not yet materialized. For the Y/Y headline rate, this marks a stall after last month's increase. Core inflation was 0.1pp lower than consensus but almost rounded down to 0.2pp lower.

SPAIN DATA (MNI): Smaller-Than-Usual Fall in Unemployment Claims in May

Spanish registered unemployment fell by 58.65k persons in May, bringing the total stock of unemployed claimants to 2,608k. The Spanish Labour ministry reports that this is the lowest stock of unemployed persons in the month of May since 2008. The data are not seasonally adjusted. Looking at May data back to 2010, the median fall in unemployment claims is 84.08k. As such, today's reading indicates a smaller-than-usual fall. Services, which represents the largest proportion of unemployed (and employed) individuals, saw a 44.5k fall in May (vs a historical May median of -54.8k).

UK BRC MAY BY VALUE SHOP SALES LFL +0.4% YY, TOTAL +0.7% YY (MNI)

JAPAN DATA (MNI): Japan Q1 GDP to Be Largely Unchanged

Japan's economy in the January-March period contracted in line with initial estimates as major components, such as capital investment and private consumption, changed little, economists predicted in the wake of a key government survey. The median forecast by seven economists for revised Q1 GDP is -0.5% on quarter, or an annualised -2.1%, compared with the preliminary estimate of -0.5% q/q, or an annualised -2.0%.

AUSTRALIA DATA (MNI): Final Q1 GDP Partials Mixed, Current Account Prints Surprise Deficit

• AUSTRALIA Q1 BIZ INDICATORS INVENTORIES +1.3%

The final run of Q1 GDP partials have been released, which were mixed relative to expectations. Net exports were a 0.9% drag on growth (versus -0.7% forecast and +0.6% prior). Company profits fell -2.5% against a projected -0.9% drop (prior rise was 7.1%). Other data showed public consumption demand would add 0.2ppts to growth, but public investment would take 0.1ppts off growth. At this stage the market expects a 0.2% q/q rise in Q1 growth (unchanged from Q4), with this data out tomorrow. In y/y terms growth is projected at 1.2%, versus 1.5% in Q4 last year.

FOREX: Funding Currencies Firm, With CHF and JPY on Front Foot

• CHF trades well against broader G10 despite headline CPI coming in alongside expectations - although EU harmonized CPI showed some signs of life - as fading equity markets helped prop haven FX and funding currencies outperformed.
• On a similar vein, JPY is firmer against most others in G10. The pullback off last week's highs in USD/JPY continues, with the pair through yesterday's lows and narrowing the gap with next key support at the 50-day EMA / 50-dma at 154.65 / 154.74. Pullbacks at these levels are considered corrective above the trendline drawn off the Dec 28 low - crossing today at 153.81.
• The JPY trade-weighed index is now firmer for a second session (two consecutive positive closes would be the first since the early May intervention) as Japanese ministers defend the effectiveness of currency intervention (Suzuki overnight) and as BoJ members warn of the impacts of a weak currency (Himino this morning).
• Lastly, NOK sits at the bottom of the G10 pile as the ongoing sell-off in Brent crude futures continues to weigh, prompting NOKSEK to approach key support at 0.9918 (trendline drawn from the December 2023 low). The cross is currently 0.4% lower, having fallen around 0.7% yesterday.
• Focus for the remainder of the Tuesday session turns to JOLTS job openings data, at which markets are on watch for any leading signs of fragility in the labour markets, while final April durable goods orders should confirm the steady pace in the prelim update.
• The central bank speaker slate remains typically quiet given both the ECB, BoE and Fed remain inside media blackout periods (ECB and Fed due to upcoming rate decisions, BoE due to the July 4th general election). 

EGBS: BoJ Headlines Help Core FI Away From Highs; Peripherals Widen

Core/semi-core EGBs are off intraday highs after this morning’s rally lost steam. Headlines speculating on the BoJ’s bond purchase programme ahead of next week’s meeting have provided the latest source of pressure to the space

• The softer oil price backdrop provided support to core FI markets again this morning, with brent crude futures almost 2% lower and the EUR 5y5y inflation swap around 2bps softer.
• The downtick in European equity futures and a higher-then-expected Germany unemployed persons print also factored into the rally, though today’s supply calendar (RAGB/Schatz conventional auctions and an ongoing Green Bund syndication) may have helped limit moves to the upside.
• That leaves Bunds +22 ticks at 130.19, down from a high of 130.48 and back below the 20-day EMA at 130.28.
• German and French cash yields are 1 to 2bps lower today, while 10-year peripheral spreads to Bunds are wider with equities under pressure.
• Immediate focus now turns to today’s US JOLTS data, ahead of Friday’s non-farm payrolls release.

GILTS: Soft Pricing at Long End Supply and BoJ Speculation Sees Gilts Off Highs

Soft pricing metrics at the latest round of 40-Year gilt supply allow gilts to move away from session highs.

• While the bid to cover at the auction wasn’t low, pricing dynamics saw the LAP printing comfortably below prevailing mids at the time of the auction cut off.
• The latest round of speculation surrounding adjustments to BoJ bond purchases also provides some weight.
• A reminder that broader risk-off trade, including lower oil prices, supported core global FI markets early today.
• Gilt futures fall back to 97.30 post0-auction vs. highs of 97.53.
• A break of key short-term resistance (97.44) had deepened the bullish threat before the pullback.
• Fresh moves higher would target the May 17 high (98.12).
• Benchmark yields are either side of unchanged, with the early bull flattening morphing into twist flattening as gilts come back from highs.
• SONIA futures are flat to +2.5, while ’24 BoE-dated OIS contracts are little changed on the day, showing ~36bp of ’24 cuts.
• ’24 & ’25 SONIA futures continue to recover from recent cycle lows, but are off session highs,
• UK headline flow is still dominated by political matters, ahead of today’s initial Sunak-Starmer TV debate (21:00 London).
• Labour continues to hold a huge lead in the opinion polls, while Nigel Farage has announced his intention to run for a seat, leading the Reform UK Party.
• There is little to no scheduled UK data/event risk noted ahead of the previously flagged political debate.

EQUITIES: Eurostoxx 50 Futures Continue to Trade Above Last Week's Lows

Eurostoxx 50 futures continue to trade above Thursday's low of 4950.00. The recent move down appears to be a correction, but note that support at the 50-day EMA, at 4967.00, has been pierced. A clear break of the average would undermine the short-term bullish theme and signal scope for a deeper retracement, towards 4894.90, a Fibonacci retracement. Initial resistance is seen at 5082.00, the May 28 high. The uptrend in S&P E-Minis remains intact, however, a corrective cycle has resulted in a pullback from the recent high of 5368.25 (May 23). The latest move down resulted in a print below support at the 50-day EMA, at 5216.53 A clear break of this average would signal scope for a deeper retracement. The recovery from Friday’s low is a positive development, a continuation would open 5368.25 and a breach of this level resumes the trend.

• Japan's NIKKEI closed lower by 85.57 pts or -0.22% at 38837.46 and the TOPIX ended 10.59 pts lower or -0.38% at 2787.48.
• Elsewhere, in China the SHANGHAI closed higher by 12.71 pts or +0.41% at 3091.199 and the HANG SENG ended 41.07 pts higher or +0.22% at 18444.11.
• Across Europe, Germany's DAX trades lower by 109.75 pts or -0.59% at 18493.62, FTSE 100 lower by 46.45 pts or -0.56% at 8216.06, CAC 40 down 50.87 pts or -0.64% at 7946.07 and Euro Stoxx 50 down 36.26 pts or -0.72% at 4966.4.
• Dow Jones mini down 124 pts or -0.32% at 38543, S&P 500 mini down 20.25 pts or -0.38% at 5279.5, NASDAQ mini down 74.5 pts or -0.4% at 18582.75.

Time: 09:45 BST

COMMODITIES: Sharp Move Lower in WTI Futures Reinforces Bearish Theme

WTI futures traded sharply lower Monday, starting the week on a bearish note. The contract has cleared support at $76.15, the May 24 low, and breached $75.64, the Mar 11 low. This reinforces a bearish theme and signals scope for an extension near-term. Sights are on $73.24, a Fibonacci retracement. Note that moving average studies are in a bear-mode position, highlighting a downtrend. Initial firm resistance is at $80.62, the May 29 high. A bear cycle in Gold remains in play for now, and the yellow metal is trading closer to its recent lows. The medium-term trend structure is bullish and the recent move down appears to be a correction that is allowing an overbought condition to unwind. Moving average studies are in a bull-mode position, highlighting an uptrend. A resumption of gains would open $2452.5 next, a Fibonacci projection. The 50-day EMA, at $2309.5, represents a key support.

• WTI Crude down $1.05 or -1.41% at $73.16
• Natural Gas down $0.01 or -0.33% at $2.747
• Gold spot down $15.27 or -0.65% at $2334.32
• Copper down $6.1 or -1.31% at $460.6
• Silver down $0.71 or -2.31% at $29.97
• Platinum down $12.45 or -1.22% at $1004.99

Time: 09:45 BST