MNI US OPEN - China LPR Rate Cut Reaction Proves Limited

NEWS

MNI WEBINAR: Livestreamed MNI Connect with ECB Simkus June 20

You are invited to listen to introductory remarks and Q&A by Gediminas Simkus, Chairman of the Central Bank of Lithuania & Member of the ECB Governing Council.

• Topic of discussion: 'Economic developments in the euro area: recent trends, lessons learned and challenges.'
• Format: Introductory remarks from the speaker followed by a livestreamed Q&A session
• Date: Tuesday 20th June, 2pm-3:30pm London time/9am-10:30am New York time
• This event is on the record and will run as a Zoom Webinar

ECB (BBG): ECB’s Rehn Says Underlying Inflation Easing ‘Only Gradually’

European Central Bank Governing Council member Olli Rehn warned that underlying price gains, which officials are using as a guide for how high to raise interest rates, aren’t easing as quickly as headline inflation. “The rise in consumer prices in the euro area is slowing, but not to the extent desired,” Rehn said Tuesday in a press release. “Inflation excluding energy and food is falling only gradually.” Addressing reporters later, he said a pullback in that measure is a pre-requisite for pausing rate hikes.

EU/UKRAINE (BBG): EU Readies €50 Billion Ukraine Package Ahead of Donor Summit

The European Union is ready to propose a financial aid package of around €50 billion ($55 billion) to support Ukraine as the country embarks on a critical counteroffensive to retake territory lost since Russia’s invasion more than a year ago. The proposal from the European Commission, the EU’s executive arm, will help finance the Ukrainian government’s current expenditures and pay for urgent reconstruction priorities, according to people familiar with the plan.

GERMANY/CHINA (MNI): Bilateral Gov't Forum Underway; Follows Hamburg Port Deal

The seventh Sino-German Intergovernmental Consultation is underway in Berlin involving German Chancellor Olaf Scholz, Chinese Premier Li Qiang, senior ministers from both countries and business delegations. The two-day visit has been seen as an effort by Beijing to repair ties with influential EU economies, and given Germany's more dovish historical stance towards close EU-China links Li making Berlin his first foreign destination as premier is seen as a sensible choice.

UK (BBG): UK Loses Competitiveness and Faces £560 Billion Investment Gap

Britain has fallen six places down the global economic competitiveness rankings because business leaders have lost confidence in the country, due in part to “government incompetence.” The annual World Competitiveness ranking from the International Institute for Management Development saw the UK plunge from 23rd to 29th out of 64 countries.

FINLAND (MNI): Orpo Confirmed as New PM, Set to Deliver About-Turn in Gov’t Policy

The Finnish Parliament has officially voted to approve centre-right National Coalition Party (NCP) chair Petteri Orpo as the new prime minister, replacing former Social Democratic Party (SDP) head Sanna Marin. Orpo now leads a four-party right-leaning gov't containing his NCP, the right-wing nationalist Finns Party (PS), the social conservative Christian Democrats (KD) and the minority interest Swedish People's Party (SFP). In policy terms the gov't is set to deliver a stark divergence from Marin's five-party left-leaning gov't that was seen as a bastion of progressive gov't in the EU.

CHINA (MNI): China Loan Prime Rate Cut 10bps to Boost Economy

China's Loan Prime Rate was cut on Tuesday to guide down funding costs and boost credit, according to a People's Bank of China statement. The one-year LPR, based on the PBOC’s Medium-term Lending Facility rate and quotes submitted by 18 banks, was reduced to 3.55% from 3.65% and the five-year plus maturity was lowered to 4.2% from 4.3% – the first cut since last July. The rate cut was expected as the PBOC reduced the MLF rate last week to 2.65% from 2.75%, also the first cut since last July.

CHINA (BBG): China, Cuba in Talks on New Military Training Site, WSJ Says

China and Cuba are discussing building a joint military training facility, according to the Wall Street Journal, a report that comes after the White House earlier said Beijing has a spy base on the island about 145 km (90 miles) from the US. The two countries were holding advanced talks about opening the facility in northern Cuba, the newspaper on Tuesday cited US officials as saying, adding that it could pave the way for Beijing to station troops there permanently and expand espionage activities.

CHINA (MNI): Summer Davos Theme Aligns with China’s Challenges

The World Economic Forum summer summit in China will focus on entrepreneurship, green energy and climate change, according to Chen Liming, chief representative officer, Greater China at the World Economic Forum. Speaking at the launch press conference for the event on Tuesday, Chen said China needed entrepreneurs to play an important role in the economic recovery, currently challenged by weak demand and low confidence. Entrepreneurs needed to “be brave and take risks”, he said.

RBA (MNI): Housing, Services Inflation Concerning - RBA Minutes

The strength of the Australian housing market continues to imply less drag on the consumer than the Reserve Bank of Australia had expected, while mortgage approvals suggest financial conditions may not be as tight as previously judged, according to the published minutes of the June 6 meeting. The increase in the housing market, likely driven by strong population growth and expectations that the interest-rate cycle was near its peak, was noted across all major cities in May.

RBA (MNI): RBA Targets NAIRU at 4.5% by Mid-2025

An unemployment rate of 4.5% with inflation back within the 2-3% target by mid-2025 would be consistent with some current estimates of the non-accelerating inflation rate of unemployment, according to Michele Bullock, deputy governor at the Reserve Bank of Australia. Speaking at an industry event Tuesday, Bullock noted an unemployment rate at 4.5% would resemble pre-pandemic levels. “In other words, the economy would be closer to a sustainable balance point,” she said.

DATA

EUROZONE DATA (MNI): Eurozone Construction Output Down 0.4% m/m

• EUROZONE APR CONSTRUCTION OUTPUT -0.4% M/M, +0.2% Y/Y

Eurozone construction output fell 0.4% m/m in April and rose 0.2% y/y, following the steeper 1.7% m/m and 0.7% y/y declines recorded in March. Building activity fell by 0.6% m/m in April, compared to a fall of 1.5% m/m in March. Looking forward, the HCOB Eurozone Construction PMI fell at its fastest rate year-to-date in May, dipping to 44.6 from 45.2 in April, pointing to a likely renewed deterioration in Eurozone construction output when May data is published. The eurozone construction PMI has been contracting for 13 months and is flagging a Q2 decline as rising interest rates squeeze already-weak demand.

GERMAN DATA (MNI): PPI Slows to Pre-Pandemic Levels

• GERMANY MAY PPI -1.4% M/M (FCST -0.7%); APR +0.3% M/M
• GERMANY MAY PPI +1.0% Y/Y (FCST +1.7%); APR +4.1% Y/Y

German factory-gate inflation slowed further in May, with prices declining by -1.4% m/m, implying seven deflationary m/m prints over the last eight months. PPI cooled by 3.1pp to +1.0% y/y, the lowest since pre-pandemic January 2021 (+0.9% y/y). Both headline prints were 0.7pp lower than anticipated. Intermediate goods declined -2.3% y/y and assisted by falling metal and raw material prices, whilst energy fell -3.3% y/y. The index excluding energy declined -0.4% m/m and slowed 1.6pp to +3.2% y/y, signalling a slower, albeit broad-based reduction in price pressures.

NEW ZEALAND DATA (MNI): Sentiment Improves but Remains Depressed

Q2 Westpac consumer confidence remained depressed at 83.1 but ticked up from77.7 in Q1, which was the second lowest, after Q4 2022, since the series began in 1988. The weakness is broad based. But with two consecutive quarterly increases, it may be signalling a turning point in not just sentiment but also real consumption growth. However, the outlook remains subdued.

FOREX: EURSEK Record High Holds

• EURSEK has failed to break the record high, but traded very close this morning, as market participants favoured fading.
• Some of the movese in the EUR against the SEK, has been attributed to potential divergence on the rate paths for the Riksbank and the ECB, with some desks hoping for a stop after June from the Riksbank, while the door is still ajar for the ECB past July.
• The USD is down 0.24% against the Yen, after the USDJPY perfectly tested the resistance at 142.25, was the 21st and 22nd November highs.
• And USDJPY now hovers 20 pips off the lows at the time of typing.
• The Dollar is circa flat against the EUR, SEK, CAD, GBP, and still leads against the Aussie, up 0.80%, following the Dovish RBA minutes overnight.
• Looking ahead, there's no tier 1 data, with most desks awaiting on the UK inflation tomorrow.
• There are still more scheduled speakers, which includes ECB Vujcic, Simkus, Guindos, Riksbank Thedeen, Fed Bullard, Williams, Barr.

BONDS: Tsys Bear Steeper in Return to Cash Trade, as Gilts Partially Recover

The US curve is modestly bear steeper in the return to cash trade after Monday's holiday, catching up to moves in futures and in Europe. Bunds and Gilts meanwhile have unwound some of Monday's selloff, with the German and UK curves bull flattening.

• The UK move is in some contrast to the sharp bear flattening prior, which included one of the weakest days of 2023 for the short end (2Y yields touched a fresh post-2008 high before pulling back). That said, Gilts are off highs slightly after a mediocre auction of new Jun-28.
• Central bank hike pricing sits fairly flat on the day, with BoE terminal implied standing out at -4bp on the day (at 5.91%, still well above the 5.84% at the end of last week).
• EGB periphery spreads are mostly tighter, led by Italy, which had led spreads wider on Monday.
• Data has been 2nd/3rd tier: Euro current account surplus pulling back sharply in April vs Mar, albeit construction was decent after a weak month. US housing data is the highlight for the rest of the session.
• Today's ECB speakers haven't brought much new - reminder that MNI hosts Lithuania's Simkus in a live event at 0900ET/1400UK. For the Fed: Bullard, Williams and Barr appear later.

Latest levels:

• Sep US 10Y futures (TY) down 4.5/32 at 112-29 (L: 112-23 / H: 113-7.5)
• Sep Bund futures (RX) up 24 ticks at 132.65 (L: 132.54 / H: 132.94)
• Sep Gilt futures (G) up 29 ticks at 94.24 (L: 93.88 / H: 94.52)
• Italy / German 10-Yr spread 1.9bps tighter at 158.5bps

EQUITIES: Eurostoxx 50 Futures Trade Close to June Highs

Eurostoxx 50 futures traded higher last Friday. Resistance at 4380.00, the May 29 high, was cleared and key resistance at 4434.00, the May 19 high, has been pierced. A clear break of this hurdle would represent an important bullish development and open 4448.00, the Jan 2008 high. Moving average studies remain in bull-mode condition highlighting an uptrend. Initial firm support to watch is at 4303.00, the Jun 7 low. S&P E-minis traded higher last week. This 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 4494.20, the top of a bull channel drawn from the Oct 2022 low. Initial support is at 4381.75, the Jun 13 low. A firmer support lies at 4332.90, the 20-day EMA.

• Japan's NIKKEI closed higher by 18.49 pts or +0.06% at 33388.91 and the TOPIX ended 6.65 pts lower or -0.29% at 2283.85.
• Elsewhere, in China the SHANGHAI closed lower by 15.441 pts or -0.47% at 3240.365 and the HANG SENG ended 305.81 pts lower or -1.54% at 19607.08.
• Across Europe, Germany's DAX trades lower by 118.91 pts or -0.73% at 16082.09, FTSE 100 higher by 2.69 pts or +0.04% at 7591.17, CAC 40 down 22.52 pts or -0.31% at 7291.53 and Euro Stoxx 50 down 17.28 pts or -0.4% at 4345.1.
• Dow Jones mini down 147 pts or -0.42% at 34455, S&P 500 mini down 21.25 pts or -0.48% at 4432.5, NASDAQ mini down 96.75 pts or -0.63% at 15170.75.

COMMODITIES: Bear Cycle in Gold Remains Intact Despite Trading Slightly Higher Tuesday

WTI futures continue to trade below resistance at $75.06, the Jun 5 high and the outlook remains bearish, despite last week’s recovery. The pullback from $75.06 reinforces a bearish theme. Support at $67.03, May 31 low, has recently 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 would signal a reversal. S/T gains are considered corrective. The bear cycle in Gold remains intact. The yellow metal breached trendline support last week, drawn from the Nov 3 2022 low. The trendline intersects at $1971.2. The break of this line reinforces a bearish condition 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 $0.13 or -0.18% at $71.65
• Natural Gas up $0.04 or +1.33% at $2.667
• Gold spot up $2.94 or +0.15% at $1953.41
• Copper down $2.65 or -0.68% at $387.6
• Silver down $0.02 or -0.1% at $23.9314
• Platinum down $7.38 or -0.75% at $971.12