MNI US OPEN - ECB Set to Hike 25bp

NEWS

MNI ECB PREVIEW - JUNE 2023: Tightening Towards the Stop

The ECB will hike rates by 25bp and confirm the previous decision to end APP reinvestments in July. Absent a sharp drop in core inflation, we would expect the ECB to hike again in July. Even if the ECB were to raise rates further in September, this would likely be the last turn of the screw.

MNI BOJ PREVIEW - JUNE 2023: On Hold, Inflation Outlook & YCC in Focus

We are in line with the broad consensus that looks for no change at this week's meeting. Market expectations have moved away from a potential YCC tweak this week, with July now seen as a more likely window for an adjustment. Our recent bias has leant into a July YCC tweak, when the Bank will have its revised economic projections to hand. An upward revision to the inflation outlook is likely at the July policy meeting. This could pave the way for a YCC shift, which is the rough sell-side consensus.

GLOBAL (MNI): Global Banks Over-Levered - Ex Basel Head Ingves

Bankers and politicians are allowing banks around the world to operate with capital at a fraction of safe levels, former Basel Committee on Banking Supervision chairman Stefan Ingves told MNI, saying that society had effectively chosen to favor short-term gains despite growing risks.

US (BBG): Biden Touts Climate Efforts as Advocacy Groups Back Reelection

President Joe Biden defended his record confronting climate change and earned the endorsement of major conservation groups as he sought to consolidate support for his 2024 reelection campaign at a gathering of climate activists Wednesday. “Your work has never been more important than it is today,” Biden said at the annual dinner of the League of Conservation Voters in Washington.

US/INDIA (BBG): India, US Near Deal to Build Jet Engines in Boost to Modi

The US and India are likely to agree to jointly manufacture fighter jet engines in the South Asian nation when Prime Minister Narendra Modi visits Washington next week, a sign of closer military cooperation between the two countries in the face of China’s growing assertiveness. The deal is close to the finish line, according to people with knowledge of the matter, who asked not to be identified as the details are confidential.

US/CHINA (BBG): Top US Chip Gearmaker Accuses China Rival of 14-Month Spy Spree

Applied Materials Inc. is suing a Chinese-owned rival over what it says was a 14-month effort to steal some of its most valuable secrets, allegedly including an orchestrated employee-poaching spree and surreptitious transfers of semiconductor equipment designs. The biggest US supplier of chipmaking equipment accused Mattson, a Fremont, California-based company acquired by Beijing-backed Beijing E-Town Dragon Semiconductor Industry Investment Center in 2016, of hiring away 17 of its most senior engineers over just more than a year.

CHINA (MNI): PBOC Cuts MLF Rate by 10bps, Net Injects CNY37 Billion

The People's Bank of China cut the one-year medium-term lending facility rate by 10bp on Thursday as the economy suffered headwinds. According to the PBOC's website, the rate was reduced to 2.65% from 2.75%, the first cut since last July. The markets expected the cut after the central bank reduced rates of both the 7-day reverse repo and standing lending facility by 10bp respectively on Tuesday.

CHINA/AUSTRALIA (MNI): MofCOM Talks up Links after Positive Comments from Trade Min

Wires carrying comments from the Chinese Ministry of Commerce(MOFCOM) regarding the country's international trading relationships. Following comments last week from Australian Trade Minister Don Farrell last week stating that the two sides had "set down a pathway to resolving all of the outstanding disputes," MOFCOM says the 'Next step is to focus on the long-term development of China-Australia relations, seeking common ground while reserving differences.' Adds that the two 'Will expand common interests on the basis of equality and mutual benefit.'

TAIWAN (BBG): Taiwan Pauses Rate Hikes as Focus Shifts to Flagging Economy

Taiwan’s central bank kept its key rate on hold for the first time since 2021 at its board meeting Thursday, signaling a shift in policymakers’ priorities away from inflation to bolstering the flagging economy. The monetary authority maintained its benchmark rate at 1.875%, its first pause since December 2021, in line with the forecasts of 20 out of 24 economists surveyed by Bloomberg.

DATA

FRANCE DATA (MNI): Flash Data Confirms Easing Core Pressures

• FRANCE MAY FINAL HICP -0.1% M/M; +6.0% Y/Y (=FLASH); APR +6.9% Y/Y

The French final inflation print confirmed the downside surprise in the May flash, which saw HICP fall -0.1% m/m, cooling by 0.9pp to +6.0% y/y. Falling energy and oil prices, alongside slowing food and services inflation drove the decline in headline inflation prints. Food CPI remains elevated at +14.3%. Core CPI decreased by 0.5pp to +5.8% y/y; the first decline in seven months. As alluded to in the flash report, the deceleration in French manufactured goods by 0.5pp to +4.1% y/y and in services by 0.2pp to +3.0% y/y underpinned this core decline.

JAPAN DATA (MNI): Japan May Exports Slow But Auto Exports Rise

• JAPAN MAY EXPORTS +0.6% Y/Y; APR +2.6%
• JAPAN MAY IMPORTS -9.9% Y/Y; APR -2.3%
• JAPAN POSTS JPY1.37 TLRN TRADE DEFICIT IN MAY

Japan recorded slower export growth in May of 0.6% y/y – 27th straight monthly gain – down from April's 2.6% increase, due to a decline in overseas demand. The Bank of Japan anticipated the deceleration as the U.S. economy slows, which has put downward pressure on Japan’s exports and production. The Ministry of Finance data released today also showed imports had fallen 9.9% y/y for the second straight drop following April's 2.3% fall – the first drop in 27 months.

JAPAN DATA (MNI): May Real Export Index Drops 3.5% M/M - BOJ

The Bank of Japan's real export index, calculated using Ministry of Finance trade data, fell 3.5% m/m in May for the first drop in four months following an unrevised 2.7% gain in April, data released Thursday showed .The figures were calculated by MNI based on BOJ data and confirmed by bank officials. The BOJ will release details of the index on Tuesday. The average index for April-May rose 1.5% over the average index for Q1.

CHINA DATA (MNI): China Economy Continues to Recover in May

• CHINA JAN-MAY RETAIL SALES +9.3% Y/Y VS JAN-APR +8.5% Y/Y
• CHINA MAY INDUSTRIAL OUTPUT +3.5% Y/Y VS MEDIAN +3.8% Y/Y
• CHINA JAN-MAY INDUSTRIAL OUTPUT +3.6% Y/Y VS JAN-APR +3.6% Y/Y
• CHINA MAY UNEMPLOYMENT RATE +5.2% VS MEDIAN +5.2%

China's economy continued to recover over the last five months with production and consumption growing steadily, and industry upgrading, data released by the National Bureau of Statistics on Thursday showed. Industrial production increased 3.5% y/y in May, decelerating from April's 5.6% y/y increase, and weaker than the market consensus of 3.8%. The deceleration maintained the January-May period industrial output at 3.6% y/y.

AUSTRALIA DATA (MNI): Persistent Labour Market Tightness, RBA Meetings Remain "Live"

• AUSTRALIA MAY UNEMPLOYMENT RATE +3.6%
• AUSTRALIA MAY LABOR PARTICIPATION RATE +66.9%
• AUSTRALIA MAY EMPLOYED PERSONS CHANGE 75.9K
• AUSTRALIA MAY F-T EMPLOYED PERSONS CHANGE 61.7K

May employment was significantly stronger than expected at +75.9k after a 4k drop in April. It was driven by rises in both full-time (+61.7k) and part-time(+14.3k). The unemployment rate fell to 3.6% while the participation rate rose to 66.9%. This is strong data and signals that April weakness was not a new trend and that the labour market is very tight. So the RBA is likely to tighten further, especially given week's survey inflation indicators.

NEW ZEALAND DATA (MNI): Technical Recession, Details Not as Soft Though

GDP fell 0.1% q/q in Q1 after -0.7 in Q4, which was in line with consensus but weaker than the RBNZ's 0.3% forecast. On a year ago it rose 2.2%, which was lower than expected as Q1 2022 was revised up to +0.1% q/q from -0.5%. The other quarters of 2022 were revised down. Expenditure-based GDP fell 0.2% q/q after -0.9% to be up 1.8% y/y down from 2.4%. While this means that NZ is technically in recession, the details look better with robust Q1 domestic demand and the weakness due to a large inventory drawdown. But the economy is clearly slowing.

FOREX: Focus is on the ECB

• The Dollar has pared some of its overnight losses, and trade more mixed against G10s, as Equities drift lower with Bonds ahead of the ECB.
• Best performer is the NOK, up 0.31%, while the Yen remains the worst performer, down 0.69%, albeit off its low, at the time of typing.
• The main focus in FX is back on the Yen, with the big divergence in rate stance between Europe and Japan, with rate decision tomorrow for Japan, the EURJPY trades at its highest level since 2008.
• The BoJ's Dovish stance and the lack of intervention comment has the Yen also down across the board, albeit off its worst level going into the European session.
• Next resistance in EURJPY will be at 153.00, and in USDJPY at 141.61 High Nov 23 2022.
• Looking ahead, ECB with an expected 25bps hike, and out of the US retail sales/IJC/IP.
• Speakers include, Lagarde, Villeroy, BoE Cunliffe.

BONDS: Fed Done, Now for the ECB

• Core fixed income and STIR futures are all lower this morning, following on from the Fed's more hawkish-than-expected dot plot at yesterday's meeting (although we note that EGBs and gilts are off the lows seen near the European cash open while Treasuries are also off their lows of the day, and the UST intraday low remains above yesterday's low).
• Focus now switches to the ECB where a 25bp hike today is widely expected along with confirmation of the previous decision to end APP reinvestments in July. Absent a sharp drop in core inflation, we would expect the ECB to hike again in July. Even if the ECB were to raise rates further in September, the MNI Markets team expects that this would likely be the last turn of the screw.
• Later today will also see US retail sales, import/export prices, industrial production and business inventory data.
• TY1 futures are down -0-2+ today at 112-25+ with 10y UST yields up 1.8bp at 3.807% and 2y yields up 3.5bp at 4.724%.
• Bund futures are down -0.47 today at 132.82 with 10y Bund yields up 4.6bp at 2.494% and Schatz yields up 6.8bp at 3.068%.
• Gilt futures are down -0.12 today at 945.56 with 10y yields up 1.8bp at 4.406% and 2y yields up 4.8bp at 4.856%.

EQUITIES: E-Mini S&Ps Remain Close to Pre-Fed Levels

Eurostoxx 50 futures traded higher Wednesday and are trading just off the recent highs. Resistance at 4362.00, the May 29 high has been cleared. This is a bullish development and signals scope for an extension higher towards key resistance at 4409.50, the Nov 18 2021 high on the continuation chart. Clearance of this hurdle would represent an important bullish development. Initial support to watch is at 4285.30, the 50-day EMA. S&P E-minis traded higher again Wednesday. The move 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 a climb towards 4452.42, a Fibonacci projection. Firm support is at 4304.28, the 20-day EMA. Initial support is at 4348.75, the Jun 5 high.

• Japan's NIKKEI closed lower by 16.93 pts or -0.05% at 33485.49 and the TOPIX ended 0.56 pts lower or -0.02% at 2293.97.
• Elsewhere, in China the SHANGHAI closed higher by 23.986 pts or +0.74% at 3252.975 and the HANG SENG ended 420.5 pts higher or +2.17% at 19828.92.
• Across Europe, Germany's DAX trades lower by 48.91 pts or -0.3% at 16262.47, FTSE 100 lower by 3.17 pts or -0.04% at 7599.58, CAC 40 down 36.27 pts or -0.49% at 7292.26 and Euro Stoxx 50 down 14.45 pts or -0.33% at 4361.53.
• Dow Jones mini down 18 pts or -0.05% at 33972, S&P 500 mini down 7.75 pts or -0.18% at 4366.5, NASDAQ mini down 57 pts or -0.38% at 14955.75.

COMMODITIES: Gold Trades at Lowest Since March; Bear Cycle Intact

WTI futures continue to trade below resistance at $75.06, Jun 5 high, and the outlook remains bearish The pullback from this level reinforces a bearish theme. Support at $67.03, May 31 low, has 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 is required to signal a reversal. Short-term gains are considered corrective. The bear cycle in Gold remains intact. The yellow metal is trading below trendline support drawn from the Nov 3 2022 low - the trendline intersects at $1964.6. The break of this line reinforces bearish conditions 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 up $0.09 or +0.13% at $68.38
• Natural Gas up $0.01 or +0.38% at $2.351
• Gold spot down $10.86 or -0.56% at $1931.79
• Copper down $2.6 or -0.67% at $385.05
• Silver down $0.6 or -2.49% at $23.3346
• Platinum down $14.41 or -1.47% at $966.78