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MNI US OPEN - ECB Survey Shows Loan Demand Falling Faster Than Forecast


Figure 1: ECB bank lending survey shows credit demand falling faster than expected


ECB (MNI) Bank Lending Standards Tighten Further - ECB Survey
Demand for bank loans fell again across the eurozone in the three months to June, as policy tightening by the European Central Bank appears to take a firmer grip on the economy, the latest Bank Lending Survey, published on Tuesday showed. Banks said credit standards tightened further for all loan categories, while demand for loans decreased strongly for both firms and households.

MNI ECB Preview - July 2023: Another 25bp Hike. September Remains Open
The ECB will almost certainly hike by 25bp this week after President Lagarde guided markets to another hike at the June meeting. Although economic activity data has recently weakened and several policymakers have highlighted the lagged impact on the economy of previous policy rate hikes, the labour market remains tight and inflation is still someway from target. On balance, there is little to suggest that the ECB would feel compelled to ratchet up the hiking pace, or hit the pause button – both of which represent risk scenarios for this meeting that would be major market moving events.

FRANCE (BBG): France Plans Slower Tax Cuts as Finances Under Pressure
French Finance Minister Bruno Le Maire said billions of euros of promised tax cuts will be spread out gradually over several years as the government tries to reduce its budget deficit. President Emmanuel Macron has pledged to slash a further €2 billion ($2.2 billion) in taxes on households and had planned to complete the second half of an €8 billion reduction in a levy on industrial production, known as CVAE, in 2024.

US (The Times): Ron DeSantis overtaken as Trump’s main rival
Ron DeSantis is no longer Donald Trump’s main challenger for the Republican nomination, polls suggest, as his campaign to be US president continues to falter. Amid signs that wealthy backers have doubts, the Florida governor has been caught up by Vivek Ramaswamy, 37, a right-wing biotech entrepreneur. Both had the support of 12 per cent of Republican primary voters in a Kaplan Strategies poll. A Harvard/Harris survey put DeSantis on 12 per cent and Ramaswamy on 10 per cent. There was more bad news for DeSantis in the early primary state of South Carolina, where Nikki Haley, its former governor, polled at 14 per cent, ahead of his 13 per cent, for Fox Business News.

RBA (MNI): RBA To "Look Past" Rental Inflation
The Reserve Bank of Australia is likely to accept continuing high housing rental prices even as it wrestles overall inflation back to its 2-3% target band, presenting it with a tough communication challenge, a former RBA economist told MNI. Paul Ryan, senior economist at REA Group and a former housing market specialist at the Reserve, noted rental prices will likely grow about 1.43% over the June quarter, slightly below the 1.53% recorded over the March quarter, but remain sticky throughout the year at about 5% annualised.

BOJ (MNI): YCC Tweak In Focus, But Downside Risks Persist
The Bank of Japan’s meeting ending on Friday is likely to see discussion on allowing more movement around its 0% 10-year-yield target or widening its 100-basis-point trading band, but there is no consensus for such a move among the BOJ Board’s nine members, MNI understands. While officials do not think yield curve control is causing the bond market distortions seen previously, a rise in inflation and falling real interest rates could argue for a move.

JAPAN (MNI): Kyodo-Kishida Pushes Parties To Agree On Defence Export Relaxation
Kyodo News reporting that Japanese Prime Minister Fumio Kishida is instructing senior members of his conservative Liberal Democratic Party (LDP) and its coalition allies Komeito to accelerate talks on an agreement to export defence equipment. Permission to defence equipment and tech would provide a boost to the arms manufacturing sector, but would also put Japan in NATO's good books by allowing Tokyo to export weaponry to Ukraine for use in its defence against Russia's invasion.

INDONESIA (BBG): Indonesia Holds Key Rate, Unveils Perks to Boost Lending
Bank Indonesia kept its key rate steady at a four-year high to shield the rupiah ahead of an expected US Federal Reserve tightening while offering new incentives to revitalize slowing credit expansion, signaling that it’s keeping a close eye on economic growth.

CHINA (BBG): Metals Buoyed by China Politburo But Actual Policy Still to Come
A meeting of China’s top decision-making body flagged more help for commodities, but stopped short of unveiling any big-bang stimulus that would have given markets a sharp jolt. Providing more support for the beleaguered property sector and reducing the local-government debt burden were key messages from the meeting of the Communist Party’s Politburo on Monday, according to a readout from Xinhua. There was, however, no language indicating major fiscal or monetary loosening.

CHINA/RUSSIA/NORTH KOREA (BBG): China, Russia Envoys Make First North Korea Visit Since Covid
Envoys from China and Russia are set to become the first foreign delegations to enter North Korea since the pandemic started, a sign of opening by the isolated country. The Russian delegation will be led by Defense Minister Sergei Shoigu and will pay “a congratulatory visit” to mark the 70th anniversary on Thursday of the end of fighting in the 1950-1953 Korean War, North Korea’s official Korean Central News Agency reported Tuesday.



Japan's Trimmed Mean Rises 3.0% Vs. May 3.1% - BOJ
Japan's trimmed mean measure of underlying inflation slowed to 3.0% y/y in June from May's 3.1% as import import prices fall from a year earlier and despite continued pass-through of cost increases, data released by the Bank of Japan showed on Tuesday.

BOND SUMMARY: Grinding lower

  • Outside of a spike higher in Bunds on the release of the ECB's Bank Lending Survey and German IGO this morning, the general direction of travel for core FI has been a little lower with EGBs/gilt respecting yesterday's ranges while UST futures have moved to their lowest level since US CPI was released on 12 July.
  • Curves are lacking a bit of direction with the UST curve bear steepening, the German curve seeing a largely parallel shift while the gilt curve has bear flattened.
  • With only second tier data on the docket for the rest of the day, markets are already looking forward to tomorrow's FOMC policy decision, and to a lesser extent the ECB meeting on Thursday and BoJ meeting on Friday.
  • TY1 futures are down -0-8 today at 111-26 with 10y UST yields up 1.7bp at 3.891% and 2y yields up 0.4bp at 4.866%.
  • Bund futures are down -0.27 today at 133.45 with 10y Bund yields up 2.3bp at 2.442% and Schatz yields up 2.2bp at 3.048%.
  • Gilt futures are down -0.14 today at 966.66 with 10y yields up 0.4bp at 4.253% and 2y yields up 2.9bp at 4.936%.

FOREX: EUR Hits New Pullback Lows on Bank Lending, IFO Data

  • The EUR is sinking against all others, with the ECB bank lending survey as well as the soft German IFO release working against the single currency. The ECB bank lending survey showed the fastest contraction on record for corporate loan demand, and also described the tightening impact on the Eurozone so far as 'substantial' - thereby working against expectations of subsequent tightening beyond this week's assumed 25bps hike.
  • Compounding the pressure on the EUR was the poorer-than-expected IFO release, with both current assessment and headline business climate releases dropping short of expectations.
  • EUR/USD slipped to new pullback lows of 1.1052, extending the correction and moderating the previously overbought condition in the pair. The pair is now lower for the sixth consecutive session.
  • The EUR is the poorest performer in G10, while the AUD is the strongest. Underlying expectations of fresh measures to support domestic demand in China (and thereby commodities) is helping support currencies tied to industrial metals as well as oil.
  • Focus Tuesday turns to the US Philly Fed Non-Manufacturing Index as well as the July consumer confidence release. The latter is expected to improve from 109.7 previously to 112.0 - the highest since early 2022. There are no central bank speakers on the docket, with both the ECB and the Federal Reserve remaining inside their pre-decision media blackout periods.

EQUITIES: E-mini S&P Remains Within Range of Contract Highs

The E-mini S&P contract is trading below last week’s high of 4609.25 (Jul 19). Prices have recently tested the top of the bull channel drawn off the March 13 low - the channel top intersects at 4622.12 today. Eurostoxx 50 futures remain in consolidation mode but continue to trade closer to their recent highs and price is holding above the 50-day EMA at 4351.00. Attention is on key resistance and the bull trigger at 4447.00, the Jul 3 high.

  • Japan's NIKKEI closed lower by 18.43 pts or -0.06% at 32682.51 and the TOPIX ended 4.2 pts higher or +0.18% at 2285.38.Elsewhere, in China the SHANGHAI closed higher by 67.36 pts or +2.13% at 3231.521 and the HANG SENG ended 766.25 pts higher or +4.1% at 19434.4.
  • Across Europe, Germany's DAX trades higher by 4.8 pts or +0.03% at 16195.52, FTSE 100 higher by 12.46 pts or +0.16% at 7691.24, CAC 40 up 3.07 pts or +0.04% at 7430.38 and Euro Stoxx 50 up 5.23 pts or +0.12% at 4388.26.
  • Dow Jones mini up 6 pts or +0.02% at 35586, S&P 500 mini up 9 pts or +0.2% at 4592.5, NASDAQ mini up 63 pts or +0.4% at 15624.5.

COMMODITIES: Gold Conditions Remain Bullish

Gold conditions remain bullish for now and the latest pullback is considered corrective. Last week’s print above $1985.3, the May 24 high, reinforces current conditions. A resumption of gains would pave the way for a climb towards $1998.1. The uptrend in WTI futures remains intact and yesterday's rally confirmed a resumption of the bull cycle. The break above $77.15, the Jul 13 high signals scope for a climb towards the next key resistance at $81.44.

  • WTI Crude down $0.39 or -0.5% at $78.36
  • Natural Gas up $0.02 or +0.89% at $2.705
  • Gold spot up $7.7 or +0.39% at $1962.62
  • Copper up $5 or +1.3% at $390.4
  • Silver up $0.25 or +1.02% at $24.6082
  • Platinum up $14.65 or +1.52% at $975.53

25/07/20230800/1000***DEIFO Business Climate Index
25/07/20230900/1000**UKGilt Outright Auction Result
25/07/20231000/1100**UKCBI Industrial Trends
25/07/20231230/0830**USPhiladelphia Fed Nonmanufacturing Index
25/07/20231255/0855**USRedbook Retail Sales Index
25/07/20231300/0900**USS&P Case-Shiller Home Price Index
25/07/20231300/0900**USFHFA Home Price Index
25/07/20231300/1500**BEBNB Business Sentiment
25/07/20231400/1000***USConference Board Consumer Confidence
25/07/20231400/1000**USRichmond Fed Survey
25/07/20231530/1130*USUS Treasury Auction Result for Cash Management Bill
25/07/20231700/1300*USUS Treasury Auction Result for 5 Year Note
26/07/20230130/1130***AUCPI Inflation Monthly
26/07/20230130/1130***AUCPI inflation
26/07/20230600/1400**CNMNI China Liquidity Suvey
26/07/20230645/0845**FRConsumer Sentiment
26/07/20231100/0700**USMBA Weekly Applications Index
26/07/20231400/1000***USNew Home Sales
26/07/20231430/1030**USDOE Weekly Crude Oil Stocks
26/07/20231530/1130**USUS Treasury Auction Result for 2 Year Floating Rate Note
26/07/20231730/1330CABOC minutes from last rate meeting
26/07/20231800/1400***USFOMC Statement
MNI London Bureau | +44 203-865-3809 |
MNI London Bureau | +44 203-865-3809 |

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