MNI US OPEN - Core CPI Seen Easing Slightly as FOMC Meeting Begins

NEWS

MNI US CPI PREVIEW: JUNE 2023: Core CPI Seen Easing Only Slightly as FOMC Meeting Begins

Consensus puts core CPI inflation at 0.4% M/M in May but with skew to the downside. Used car inflation, despite still strong estimates, is seen as the largest single drag on the month relative to April after a particularly strong increase. It could however be offset by a bounce in hotel prices. For core services, key rent measures are seen softening slightly after a mild and expected re-acceleration in April, whilst non-housing inflation should accelerate but with market reaction muddied after significant differences with the PCE equivalent last month.

MNI FED PREVIEW - JUNE 2023: How to Communicate a Hawkish Hold

The FOMC’s tightening cycle is likely to “skip” June’s meeting, with the Committee holding rates at 5.00-5.25% while signalling that it currently expects to hike at the following meeting in July. While data and events since early May have on balance probably justified another 25bp hike, some data have left room for doubt, and the FOMC has set a fairly high bar to further tightening. In an effort to maintain a hiking bias, the Statement’s forward rate guidance is likely to remain unchanged, with the updated economic projections showing that an additional rate hike is expected by year-end.

US (BBG): Rebel Republicans Seek Spending, Power Concessions From McCarthy

Hard-line conservatives angered by House Speaker Kevin McCarthy’s debt-ceiling deal are insisting on power-sharing and budget-cutting concessions in exchange for allowing legislation to move on the House floor. In agreeing Monday to temporarily lift a nearly week-long blockade of the House floor, some of the lawmakers threatened to stall business again if McCarthy didn’t meet their demands.

US (BBG): Trump Heads to Court to Start Fighting Espionage Act Charges

Donald Trump is due in a Miami federal court Tuesday afternoon to face charges alleging he jeopardized national security by violating the Espionage Act, even as he leads the Republican field for next year’s presidential race. Trump is accused of willfully retaining and mishandling classified documents, including top-secret nuclear information and war plans, after he left office.

US (NYT): Trump Has Options for Fighting Charges, but They Might Face Challenges

The former president has already tested a variety of arguments to challenge his indictment in the classified documents case. They could be hard to sustain in court. Former President Donald J. Trump and his advisers have been scrambling down to the wire to assemble a legal team for his first scheduled court appearance on Tuesday after being charged with mishandling classified documents and obstructing the government’s efforts to retrieve them.

US (BBG): GOP Senator Questions Trump’s Electability on Eve of Arraignment

Donald Trump’s stranglehold on the Republican Party showed some signs of weakening Monday as an influential GOP senator questioned the twice-indicted former president’s electability. Trump remains the front-runner for the 2024 Republican nomination even as he awaits arraignment Tuesday on 37 federal charges pertaining to his mishandling classified information.

US (NYT): US Lawmakers Ask White House to Punish South Africa for Supporting Russia

South Africa is accused of helping supply Russia with weapons for the Ukraine war, a charge that South Africa denies. A bipartisan group of American lawmakers has asked the Biden administration to punish South Africa for what it sees as the country’s support of Russia’s war in Ukraine by moving a major trade conference scheduled to be held in South Africa this year to another country.

NATO (MNI): NATO to Boost Links with Asian Partners, Could Open Tokyo Office - Nikkei

Nikkei is reporting NATO plans to enhance its links with four major Indo-Pacific partners - namely Australia, Japan, New Zealand and South Korea - through the preparation of Individually Tailored Partnership Programs (ITPPs). Under these programs, NATO and the 'AP4' as these countries are known will boost cooperation on areas such as cyber security, space, and combating disinformation.

NATO (NYT): NATO Members Use a Major Air Exercise to Send a Message to Russia

More than 200 planes from 25 countries gathered in Germany for the largest-scale war games in decades, held with an eye on the war in Ukraine. The largest military air exercises in Europe since the end of the Cold War began on Monday as 25 nations took to the air in fighter jets, bombers and cargo planes in a pointed demonstration to Russia. The war games have been planned since 2018, but took on added urgency after the invasion of Ukraine.

PBOC (MNI): PBOC Cuts Key Policy Rate 10bps to Shore up Economy

The People’s Bank of China cut the 7-day repo rate by 10bps on Tuesday due to increasing economic headwinds. The key policy rate was reduced to 1.9% from 2%, the first cut since last August. MNI reported the possible cut last week, citing advisors and analysts. Market speculation over a reduction to the medium-term lending facility’s rate, due this Thursday, has also risen after the cut.

CHINA (BBG): China Considers Developing Its Domestic High-Yield Bond Market

Chinese regulators are considering promoting the development of the domestic high-yield bond market to expand financing channels for the economy, at a time when riskier borrowers are struggling to raise money. Officials from government agencies including People’s Bank of China and China Securities Regulatory Commission invited market participants including fixed-income investors, investment bankers, lawyers, rating firms and accountants to multiple rounds of in-person meetings in recent months to seek their suggestions on the topic, people familiar with the matter said.

BOJ (MNI): BOJ to Keep Yield Curve Control This Year

There is no prospect that the Bank of Japan will scrap yield curve control this year, because even if policymakers become confident of a virtuous cycle between wage hikes and price rises they would still want to avoid any sharp rise in interest rates, MNI understands. Whilst it is possible that the BOJ could adjust the parameters of its yield curve policy, perhaps by modifying the zero percent target rate at the centre of its -0.5% to 0.5% tolerance band for the 10-year bond, this would only be to mitigate unwanted bond market distortions.

BOJ (MNI): BOJ Sees No Need to Alter JGB Wide Range

The Bank of Japan will likely maintain its wide ranging government bond buying operations due to uncertainties over the global economy and financial markets, MNI understands. The operation's wide range decided late March is aimed at increasing the BOJ's flexibility following the instability of the U.S. financial markets earlier in the year. While the U.S. financial system has calmed, the impact of past Federal Reserve rate hikes on markets and the economy will become clearer in or after the middle of this year.

ASIA (MNI): US, Japan, South Korea Security Advisors to Hold Tokyo Meeting

The South Korean presidential office has confirmed that National Security Adviser Cho Tae-yong will visit Tokyo from 14-15 June for talks with his US and Japanese counterparts, National Security Adviser Jake Sullivan and National Security Secretariat Secretary General Takeo Akiba.

RBA (MNI): House Price Strength Thwarts RBA Models

The recent strength of the Australian housing market has unexpectedly reduced the drag on household consumption factored into Reserve Bank of Australia models, catching the RBA off-guard and potentially raising the chance rates could move higher if strong house-price growth persists, MNI understands. If rising house prices add to a stronger consumption outlook than expected, this will mean the balance between supply and demand has not shifted in line with the Reserve's view, adding upward pressure on rates.

UKRAINE (NYT): Ukraine Claims More Small Advances in Counteroffensive, but No Breakthroughs

Military analysts said it would take weeks or months to gauge the success of the attacks Ukraine mounted last week across a broad stretch of the front lines.Ukraine claimed small advances on Monday in its counteroffensive in the southeast of the country, hunting for a place to drive a wedge through Russian defenses, a key to its hopes for recapturing wide swaths of territory lost to the Russian invasion last year.

COMMODITIES (BBG): Iron Ore Powers Higher as China Said to Weigh Bigger Stimulus

Iron ore rallied after China was said to be considering a broad package of stimulus measures to reboot growth in the second-biggest economy. China’s government is mulling at least a dozen measures aimed at supporting areas such as real estate and domestic demand, according to people familiar with the matter. A key focus will be help for the property sector, where a chronic slowdown has battered steel and metals markets.

DATA

UK (MNI): Strong UK Jobs Market Ups Pressure on BOE

• UK APR ILO UNEMPLOYMENT RATE +3.8%
• UK MAY CLAIMANT RATE +3.9%
• UK MAY CLAIMANT CHG -13600
• UK APR AVE WEEKLY EARNINGS +6.5% YY
• UK APR AVE WEEKLY EARNINGS EX-BONUS +7.2% YY

The total number of employed people in the UK rose to 30 million for the first time in May, as another strong set of labour market data increases the pressure on the Bank of England ahead of their June policy meeting. Office for National Statistics data showed payrolls in May increased by 23,000 to 30 million, coming on top of a strong upward revision of 7,000 to the April figure -- which initially showed a surprise decline of 136,000.

GERMANY JUN ECONOMIC SENTIMENT INDEX -8.5 (MNI)
GERMANY JUN ZEW CURRENT CONDITIONS -56.5 (MNI)

GERMANY FINAL MAY HICP -0.2% M/M (= FLASH); APR +0.6% M/M (MNI)

SPAIN MAY HICP -0.1% M/M, +2.9% Y/Y (MNI)

NORWAY APR MAINLAND GDP -0.4% M/M, AGG GDP -0.3% M/M (MNI)

CHINA DATA (MNI): China New Loans Rise in May, Below Expectations

• CHINA END-MAY M2 +11.6% Y/Y VS MEDIAN +12.0%; APR +12.4% Y/Y
• CHINA MAY NEW LOANS CNY1.36 TRLN VS MEDIAN CNY1.5 TRLN
• CHINA END-MAY M1 +4.7% Y/Y VS +5.3% Y/Y END-APR
• CHINA END-MAY M0 +9.6% Y/Y VS +10.7% Y/Y END-APR

China’s new loans rose in May, with lending to the household and business sectors increasing, People's Bank of China data showed Tuesday. New loans grew CNY1.36 trillion, up from last month's CNY718.8 billion increase, but missing expectations of CNY1.5 trillion. Short-term household and business sector loans increased CNY233.8 billion, while medium and long term loans grew CNY938.2 billion.

JAPAN DATA (MNI): Industry & Manufacturing Conditions Rebound In Q2

Japan's Q2 BSI all industry conditions rebounded to +2.7 from -3.0 in Q1. This is the highest level since Q4 2021 for the print. The manufacturing reading also rose back to -0.4 from -10.5. The non-manufacturing side also saw improvement to 4.1 from 0.6 in Q1. All sectors expect a further improvement in conditions as we progress through 2023, although medium sized firms remain more optimistic compared to smaller firms.

AUSTRALIA DATA (MNI): Aussie Housing Market Strengthens over Mar Quarter

The total value of residential dwellings in Australia rose by AUD140.0 billion to AUD9.9 trillion over the March quarter, snapping the downward trend in prices recorded since the Reserve Bank of Australia began hiking rates in May 2022, according to the Australian Bureau of Statistics. The strength of Australian house prices has shocked the Reserve, unexpectedly reducing the drag on household consumption factored into its models and raising the chance rates could move higher if strong house-price growth persists.

FOREX: GBP Posts Shallow Rally on Solid Wages Data

• US CPI takes focus going forward, with the greenback modestly softer headed into the figure. Markets expect inflation to have faded further in May - helping justify a possible pause in rate hike increases this Wednesday - putting M/M CPI at 0.1% and Y/Y at 4.1%, although core metrics are expected to stay sticky.
• UK wage data out at the open provided the latest catalyst for another move higher in UK rates. The front-end of the UK yield curve surged to the highest level since 2008 as weekly earnings came in ahead of expectations (6.5% vs. Exp. 6.1%).
• This further complicates the BoE's inflation outlook and has prompted a small number of sell-side analysts to add to expectations of renewed tightening beyond Summer. A number of MPC members are set to speak Tuesday, with Governor Bailey and MPC's Dhingra set to follow incoming policy maker Megan Greene, who testifies in front of the Treasury Select Committee.
• GBP gained on the back of the jobs release, putting GBP/USD back toward the Monday high. 1.2599 marks the next upside level, and a break above puts the pair back toward mid-May highs. Nonetheless, a broader rally for the currency is lacking, as GBP/USD failed to stage any material test on Monday's 1.2599.
• EUR sits slightly firmer, helping keep EUR/GBP within range of yesterday's best levels and holding the bulk of the cross rally. 0.8636 is the key test for any further upside.

BONDS: Attention Turns to US CPI

• A 54 ticks range for Bund, dipped lower on the open following the UK Employment and Earning beat, but price action has been limited, with Real Money on the sidelines ahead of the awaited US CPI.
• Bobl and BTP, underpeform, weighted by heavy German 5yr Bobl supply and heavy Italian short and long supply.
• Move in EGBs, sees widening between core and semi core, with Italy leading, 2.3bps wider against the German 10yr.
• Gilt trades in a 38 ticks range after gaping lower on the open, following the UK Data, but the contract has failed to extend losses and has found a bid, but is still short of the opening gap that would be back up to 95.26, printed a 95.18 high so far, and trading at 95.00 at the time of typing.
• Worth keeping an eye on the Gilt/Bund spread, now trading at 198.3bps, ahead of the psychological 200bps.
• US Treasuries continue to trade within their overnight ranges, with desk positioned for a weaker CPI, with median consensus looking for the MoM reading falling to 0.1% vs 0.4% last.
• Looking ahead, the main event is the US inflation report.
• Speakers include, BoE Greene, Bailey, Dhingra, and ECB de Cos.

EQUITIES: E-Mini S&Ps Trade to Fresh YtD High

Eurostoxx 50 futures are trading higher today. Attention turns to resistance at 4362.00, the May 29 high. Clearance of this level would be a bullish development and signal scope for an extension higher towards key resistance at 4409.50, the Nov 18 2021 high on the continuation chart. The recent break of a number of support levels still highlights a potential bearish threat. A reversal lower would expose 4216.00, May 31 low and bear trigger. S&P E-minis traded higher Monday, starting the week on a bullish note. 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 the 4400.00 handle next. The 50-day EMA, at 4217.21 marks a key support. A break would signal a reversal. Initial firm support is at 4279.15, the 20-day EMA.

• Japan's NIKKEI closed higher by 584.65 pts or +1.8% at 33018.65 and the TOPIX ended 26.02 pts higher or +1.16% at 2264.79.
• Elsewhere, in China the SHANGHAI closed higher by 4.84 pts or +0.15% at 3233.673 and the HANG SENG ended 117.11 pts higher or +0.6% at 19539.24.
• Across Europe, Germany's DAX trades higher by 54.53 pts or +0.34% at 16175.75, FTSE 100 higher by 14.27 pts or +0.19% at 7576, CAC 40 up 34.3 pts or +0.47% at 7296.51 and Euro Stoxx 50 up 21.35 pts or +0.49% at 4343.31.
• Dow Jones mini up 15 pts or +0.04% at 34106, S&P 500 mini up 12.5 pts or +0.29% at 4353.75, NASDAQ mini up 91 pts or +0.61% at 14880.25.

COMMODITIES: WTI Futures Pierce Support at $67.03 May 31 Low

WTI futures continue to trade below resistance at $75.06, the Jun 5 high. The pullback from this level reinforces a bearish theme and yesterday’s sell-off marked an extension of the latest move lower. Support at $67.03, May 31 low, has been pierced, a clear break would open $63.90, the May 4 low. Moving average studies are in a bear mode position highlighting a downtrend. A break of resistance at $75.06 is required to signal a reversal. The bear cycle in Gold remains intact. The yellow metal continues to challenge trendline support drawn from the Nov 3 2022 low. The trendline intersects at $1960.2. A clear breach of this line would reinforce bearish conditions and open $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 up $0.52 or +0.77% at $67.62
• Natural Gas up $0.04 or +1.63% at $2.311
• Gold spot up $6.36 or +0.32% at $1963.33
• Copper up $5.6 or +1.49% at $381.55
• Silver up $0.16 or +0.66% at $24.2276
• Platinum down $1.14 or -0.11% at $998.83