MNI US OPEN - ECB Still See Sept Hike Debate as 'Open'

NEWS

ECB (BBG): ECB’s Guindos Says September Rate-Hike Decision Is 'Open'

European Central Bank Vice President Luis de Guindos said that while another interest-rate increase next month is all but assured, the outcome of the following meeting remains unclear and will be determined by economic data arriving in the interim. Guindos told Bloomberg TV on Wednesday that underlying inflation pressures may prove to be more stubborn than currently expected, with a strong summer tourist season likely to drive services costs higher.

ECB (MNI): Vujcic Comments Likely Confirm Sideline Balance Sheet Discussions at ECB

Worth noting this particular comment from ECB's Vujcic at Sintra on the ECB balance sheet: "There might be further decisions [on halting APP reinvestments] but at the moment I think this is what we will do" and "we might reconsider [PEPP]". Follows a report from BBG earlier today citing unnamed officials that were considering the acceleration of the unwind of the balance sheet, with options including active sales or phasing the out of reinvestment of PEPP bonds. In May, the ECB confirmed that PEPP reinvestments are set to continue through to end-2024, and the bank were "determined" to use rates as the main tool while QT runs in the background.

ECB (BBG): ECB’s Scicluna Says Prolonged Peak May Be Better Than Higher One

European Central Bank Governing Council member Edward Scicluna said it may be prefeable to hold borrowing costs at their peak for longer, rather than lift them ever higher. Sending rates higher may risk “creating so much financial instability, a bigger recession,” Scicluna told Bloomberg TV on Wednesday. If by staying “restrictive for longer you manage to obtain the same effect — definitely I’d go for that one.”

ECB (BBG): ECB Must Monitor Emerging Effects of Rate Hikes, Muller Says

The European Central Bank has to look closely at how its unprecedented bout of interest-rate hikes are feeding through to the economy, according to Governing Council member Madis Muller. Speaking to Bloomberg TV on Wednesday, the Estonian central bank chief wouldn’t comment on whether tightening will need to continue beyond the summer, saying any such decision will hinge on incoming data.

ECB (BBG): Some ECB Officials Weigh Faster Reduction of Bond Portfolio

Some hawkish European Central Bank officials are pondering options to speed up the reduction of the institution’s €5 trillion ($5.5 trillion) stash of bonds, according to people familiar with the debate. While some are open to considering sales of securities from the ECB’s portfolio to complement steps taken to date, others would prefer phasing out the reinvestments of bonds bought during the pandemic, said the people, who asked not to be identified because the matter is private.

MNI EUROZONE INFLATION PREVIEW – JUNE 2023

Eurozone annual headline inflation is expected to continue declining in June’s flash estimate, with Bloomberg consensus at 5.6% Y/Y (vs 6.1% prior). However, core is seeing accelerating to 5.5% Y/Y (vs 5.3% prior), following two months of disinflation. Current estimates for June’s EZ reading of course come prior to the key national inflation readings for Italy, Spain, Germany, the Netherlands, Belgium, and France, which together make up 85+% of the Eurozone HICP weighting – so by the time we get to the Eurozone-wide figure on Friday, the “consensus” will inevitably be stale.

US/CHINA (WSJ): US Considers New Curbs on AI Chip Exports to China

The Biden administration is considering new restrictions on exports of artificial intelligence chips to China, as concerns rise over the power of the technology in the hands of U.S. rivals, according to people familiar with the situation. The Commerce Department could move as soon as early next month to stop the shipments of chips made by Nvidia and other chip-makers to customers in China and other countries of concern without first obtaining a license, the people said.

MNI RIKSBANK PREVIEW - JUNE 2023: 25bp Hike Expected but Upside Risks

The big question ahead of this week's Riksbank meeting is whether there will be another hawkish central bank surprise. Every analyst preview that we have read and every respondent to the SEB investor survey expects a 25bp hike this week to 3.75%. We think there is a greater chance of a hawkish surprise than most analysts would suggest despite there having been two dissenters to the 50bp hike at the last meeting in April.

ITALY (MNI): ECB Rate Hikes Not Right Path For Many - PM Meloni

Speaking in the Chamber of Deputies ahead of tomorrow's European Council summit in Brussels, PM Giorgia Meloni states that the "simplistic approach of hiking rates by the ECB doesn't seem the right path to take for many...subsequent rate hikes may harm the economy." On ESM, Meloni states that it is "pointless to fuel internal debate over ESM reform, we need to focus on comprehensive economic governance negotiations".

JAPAN (BBG): Will Respond Appropriately to Excessive FX Moves - Kanda

Japan’s chief currency official Masato Kanda tells reporters that authorities will respond appropriately if there any excessive moves in the foreign exchange market. Monitoring moves in the FX market with a high sense of urgency, Kanda says.

JAPAN (MNI): BOJ Should Drop Yield Control Soon-Ex Deputy Gov

The Bank of Japan should move quickly to remove yield curve control, but keep short-term policy rates negative, former deputy governor Hirohide Yamaguchi told MNI, arguing that it will become too hard for the BOJ to keep control of bond markets as expectations build of rising inflation. Yamaguchi, who has in the past called for a relaxation of yield curve control by widening the target for the 10-year rate, said in an interview that while yields could rebound if the framework is lifted, the BOJ would still have many tools to stabilise markets.

CHINA (BBG): China’s Industrial Profits Slump on Soft Demand, Deflation

Profits at industrial firms in China kept dropping in May, reflecting the impact of soft demand and ongoing factory-gate deflation. Profits in May were down 12.6% from a year earlier, data published by the National Bureau of Statistics showed Wednesday. For the January-to-May period, profits declined 18.8%, which was somewhat slower than the almost 21% drop in the first four months of 2023.

CHINA (BBG): Xi Vows to Protect Foreign Investors in Charm Offensive

Chinese leader Xi Jinping pledged that his nation would do right by foreign investors, underscoring his government’s attempts to assuage worries about the economy and unpredictable policymaking. “Development is the top priority of the Communist Party of China in governing and rejuvenating the country,” Xi told New Zealand Prime Minister Chris Hipkins during his official visit to Beijing on Tuesday.

CHINA (MNI): S&P Affirm China's Sovereign Rating at A+; Outlook Stable

The ratings actions comes despite S&P downgrading their 2023 growth view for the country in recent weeks. Highlights from the report:

• Weak global demand and the overhang in its property sector are dampening [the] recovery.
• Fiscal position has deteriorated due to an increase in government debt and interest burden, but we expect some consolidation over the next two years.
• The outlook on the long-term ratings remains stable, reflecting our view that the economic recovery will continue, albeit at a slower pace, and China's fiscal performance will start to improve over the next two to three years.

DATA

ITALY DATA (MNI): Italy Flash HICP 6.7% y/y in June, Core Shows Promising Decline

• ITALY JUN FLASH HICP +0.1% M/M, +6.7% Y/Y

Flash HICP in Italy came in at 6.7% y/y and 0.1% m/m in June, largely in line with expectations and down from 8.0% y/y and 0.3% m/m in May. However, core inflation cooled from 6.0% y/y in May to 5.6% y/y in June. The ECB signaled strongly earlier this month that another 25bp hike to its three key rates is in prospect at its July monetary policy meeting, after a 25bp hike in June. However, Italy's promising core inflation data might give the ECB food for thought, if followed by similar outturns in German and French inflation data due for release on Thursday and Friday.

GERMAN DATA (MNI): GfK Consumer Confidence Dips as Uncertainty Increases

• GERMANY JUL GFK CONSUMER CONF -25.4 (FCST -23.0); JUN -24.4r

Germany consumer confidence eased in the GfK July projections, dipping by one point to -25.4 against expectations of a 1.2-point uptick. This breaks an eight-month streak of improvements. The index remains below Spring 2020 lockdown levels and in deeply pessimistic territory. Economic and income expectations moderated, with a strengthening of the propensity to save highlighting prevailing uncertainty experienced by German consumers at present. Inflation concerns remain at the forefront of weakening sentiment, alongside higher interest rates.

FRANCE DATA (MNI): Consumer Confidence Improves, Inflation Expectations Fall

• FRANCE JUN CONSUMER CONF 85 (FCST 84); MAY 83

French consumer confidence improved by two points to 85 in June, one point stronger than consensus expectations. Despite the recent upticks, the indicator remains well below the long-term average of 100. Improvements were recorded across how consumers see their future financial situation, the living standard in France and unemployment prospects. Inflation expectations continued to cool sharply, aiding the general view of a stabilising economic environment.

MNI CHINA LIQUIDITY INDEX: June Liquidity Tighter

China’s interbank liquidity tightened for the fourth straight month in June, as the People’s Bank of China’s end-H1 macro-prudential assessment (MPA) saw banks hoard funds to bolster balance sheets. Economic sentiment continued to decline, with traders concerned over sluggish data from real estate, exports and consumption, the latest MNI Liquidity Conditions Index showed.

AUSTRALIA DATA (MNI): Aussie CPI Slows to 5.6%

• AUSTRALIA MAY CPI 5.6% Y/Y; PRIOR 6.8%

Monthly consumer price inflation slowed over the 12 months to May to 5.6% from Aprils’ 6.8%, while CPI excluding volatile items printed at 6.4%, 10bp down from the previous month, according to Australian Bureau of Statistics data published Wednesday. Annual trimmed mean inflation was 6.1% in May, down from 6.7% in April. The Reserve Bank of Australia will monitor the decline in inflation as it gears for its next cash rate decision on Tuesday.

FOREX: Softer AUD CPI Drives Antipodean FX Lower

• AUD, NZD are among the session's poorest performers after a lower-than-expected CPI print from Australia. Headline CPI slowed unexpectedly to 5.6% vs. Exp. 6.1% - the lowest reading in just over a year. In response, traders marked down AUD/USD from ~0.6690 to ~0.6619 before stabilising through the European morning.
• JPY trades firmer, partially reversing the recent spell of weakness as Japan's top currency official Kanda again stressed the authorities' commitment to containing "excessive" FX volatility ahead. USD/JPY printed a new cycle high at 144.25 during overnight hours, but the price action has since reversed headed into the NY open. Spot continues to oscillate either side of the Y144.00 handle.
• Lastly, energy prices trade on the front foot, helping aide NOK toward the top-end of the G10 pile. A better-than-expected retail sales release has also helped, with May sales including auto fuel rising by 1.2% M/M vs. Exp. 0.2%. EUR/NOK reversed off a weekly high of 11.8537 in response.
• Focus ahead turns to US advance trade balance numbers as well as the rest of the ECB's Sintra policy conference - the main event today being a joint policy panel held between the heads of the ECB, Fed, BoE and BoJ at 1430BST/0930ET.

BONDS: Peripherals Biased Wider, Before Oil Weakness & Softer than Expected Italian CPI Lend Support

Peripherals have been biased wider vs. Bunds at the 10-Year point owing to this morning’s BBG sources piece which suggested that “some hawkish European Central Bank officials are pondering options to speed up the reduction of the institution’s €5 trillion stash of bonds.”

• The lack of broad, top-level discussion on the matter, per the same sources piece, as well as the apparent lack of agreement on how such a move would unfold, has probably limited broader market reaction.
• Subsequent ECB speak has been vague on that front, while various ECB speakers have generally reiterated their previously outlined views.
• Softer than expected Italian CPI data has capped the widening moves in recent trade, with weakness in crude oil futures and the data providing a bid in outright European FI dealing.
• Bund futures have moved to fresh session highs as a result, after a brief and limited foray below previous week to date lows early in the session. Cash Bunds see 1-3bp of richening, with light bull steepening in play. The remainder of the core-/semi-core EGB space is generally flat to a touch richer, while peripherals are more mixed given the aforementioned ECB sources piece.
• Italian critique of ECB policy remains evident, with PM Meloni the latest to criticise the Bank’s hiking cycle.

EQUITIES: E-Mini S&Ps Slightly Softer Wednesday; Hold Onto Majority of Tuesday's Gains

The Eurostoxx 50 futures uptrend remains intact and the pair has recovered from Monday’s low. A bearish cycle since Jun 16 resulted in a correction. The contract breached support at 4301.00, the Jun 8 low. This level represented a key short-term support and an extension lower would expose 4241.00, the May 31 low and an important medium-term support point. Key resistance and the bull trigger has been defined at 4438.00, the Jun 16 high. A bull theme in S&P E-minis remains intact and the recent pullback appears to be a correction. The latest move lower has allowed a recent overbought condition to unwind. Initial key support lies at the 20-day EMA, at 4365.83. A break of this average would strengthen a short-term bearish theme and signal scope for a deeper pullback. On the upside, the bull trigger is 4493.75, the Jun 16 high. A break would open 4512.24 the top of a bull channel.

• Japan's NIKKEI closed higher by 655.66 pts or +2.02% at 33193.99 and the TOPIX ended 44.79 pts higher or +1.99% at 2298.6.
• Elsewhere, in China the SHANGHAI closed lower by 0.067 pts or 0% at 3189.376 and the HANG SENG ended 23.92 pts higher or +0.12% at 19172.05.
• Across Europe, Germany's DAX trades higher by 105.03 pts or +0.66% at 15955.37, FTSE 100 higher by 27.65 pts or +0.37% at 7491.18, CAC 40 up 46.94 pts or +0.65% at 7264.15 and Euro Stoxx 50 up 27.23 pts or +0.63% at 4333.51.
• Dow Jones mini down 13 pts or -0.04% at 34171, S&P 500 mini down 11.5 pts or -0.26% at 4407.75, NASDAQ mini down 79.75 pts or -0.53% at 15034.25.

COMMODITIES: Gold Approaches Retracement Support at $1903

WTI futures remain in a bear mode condition and the sharp sell-off late last week reinforces this condition. Support at $67.21, the May 31 low, has recently been pierced, a clear break would open $64.41, the May 4 low. Moving average studies are in a bear mode position highlighting a downtrend. The contract is trading below resistance at $75.70, the Jun 5 high. A break of this level would signal a reversal. Trend conditions in Gold are unchanged and the outlook remains bearish following last week’s move lower. Trendline support has been breached - the line is drawn from the Nov 3 2022 low and the break reinforces a bearish condition. The focus is on $1903.5, 61.8% of the Feb 28 - May 4 bull cycle. Key resistance is $1985.3, the May 24 high. Initial resistance is at $1943.2, the 20-day EMA.

• WTI Crude down $0.35 or -0.52% at $67.33
• Natural Gas up $0.04 or +1.38% at $2.801
• Gold spot down $3.34 or -0.17% at $1910.41
• Copper down $1.3 or -0.34% at $377.5
• Silver down $0.09 or -0.41% at $22.7665
• Platinum down $9.73 or -1.05% at $917.05