MNI US OPEN - European PMIs Re-Escalate Growth Concerns

NEWS

US (MNI): Yellen Sees Lower Recession Risks, But Consumer Spending Needs to Slow to Bring Inflation Down

US Treasury Secretary Yellen has stated that US recession odds are lower. She stated during a Bloomberg interview: "my odds of it, if anything, have gone down - because look at the resilience of the US economy the labor market, and inflation is coming down." She added that "I'm not going to say it's not a risk, because the Fed is tightening policy,", while adding ""We probably need to see some slowdown in spending in order to get inflation" under control.

US/INDIA (BBG): Biden Seeks to Bolster Ties With Modi While Soft-Pedaling Differences

At the White House, the president emphasized common ground with India’s prime minister and announced joint initiatives without making progress in enlisting help against Russian aggression. President Biden emphasized common ground with Prime Minister Narendra Modi of India during a lavish state visit on Thursday, publicly skirting points of friction over the government’s crackdown on human rights in India and Russia’s war in Ukraine in hopes of bolstering economic and geopolitical ties with the world’s most populous nation.

US (BBG): US Consumer Spending Grows, Led by Higher Earners, Survey Says

US consumer spending rebounded partially in May thanks to high-income earners, while those at the lower end of the pay scale continued to struggle, according to a new report. Inflation-adjusted outlays rose 6.2% after falling in the two prior months, according to data from decision intelligence company Morning Consult. The increase reflected greater spending on vacation and travel services, largely led by wealthier Americans.

GLOBAL (BBG): Macron Calls for Fresh Overhaul of Global Taxation

Emmanuel Macron called at a summit in Paris for another overhaul of the global taxation system to finance the fight against poverty and climate change, building on recent efforts for a minimum levy on corporations. The French president is hosting world leaders including Brazil’s Luiz Inacio Lula da Silva and Cyril Ramaphosa of South Africa, as well as US Treasury Secretary Janet Yellen and the Chinese premier, Li Qiang, to discuss new ways to raise climate financing.

CHINA/EU (MNI): Li Talks Down Decoupling in Paris Global Financing Speech

(MNI) London - Speaking at the Summit for a New Financing Pact in the French capital, Paris, Chinese Premier Li Qiang speaks on financing support for developing nations, but also broader China-Europe economic links. Says that "We need to improve the global financial safety net and step up global coordination on financing." Li: "We need to complete the new round of quotas and reforms agreed by the G20 to give more of a say to developing countries."

CHINA/JAPAN (BBG): China Purchases of Japanese Chipmaking Gear Fall to 3-Year Low

China imported $567 million worth of chipmaking machinery from Japan in May, the lowest level since January 2020, according to customs data. It marked the eighth straight month of year-on-year decline, down 21% on the previous May, as a US-led push to restrict China’s access to the most advanced gear takes effect. Japan announced in March that it would expand restrictions on its exports of semiconductor equipment to 23 categories, a move to align its technology trade controls with the US, albeit without naming China as the target.

BOJ (MNI): Ex-BOJ Maeda Sees YCC Adjustment in Q3

The Bank of Japan will adjust its yield curve control framework to make it more flexible as early as in the third quarter to head off the danger of a rise in interest rates as expectations build that that it will achieve its price target, a former BOJ executive director in charge of monetary policy told MNI. “If confidence increases in financial markets that the 2% price target will be achieved, market players will increase bond selling, making it difficult for the Bank to maintain YCC,” said Eiji Maeda, who left the BOJ in 2020 and is now president of the Chiba-Bank Research Institute.

RBA (MNI): Any RBA QT Sales to Be Gradual and Slow

The Reserve Bank of Australia would sell its bond holdings incrementally over a long time period to reduce impact on financial markets, while reducing its interest-rate risk, should the board decide to conduct quantitative tightening after Sept 30, MNI understands. Major banks will pay back a large proportion of money borrowed during the depths of the pandemic via the term-funding facility in September and a decision – if any – will come after the Reserve gauges the market impact of those maturities.

RBA (MNI): RBA Downgrading View of Preferred Wage Growth

The Reserve Bank of Australia’s disappointment with productivity growth is prompting it to downgrade its preferred rate of wage increases, making further upward revisions of its inflation projections and a more hawkish approach to rates-setting more likely, external economists and ex-board members told MNI.

MNI NORGES BANK REVIEW - JUNE 2023: Higher for Longer

A quicker pace of tightening, sharply higher policy path projections and stronger assumptions for wages drove a hawkish market response to the Norges Bank rate decision, and the bank went further – stressing that their job on inflation is not yet complete, with additional rate hikes required by the end of the Summer. This makes 2 further 25bps rate hikes highly likely, leaving the bank to communicate the next steps for policy at the September Monetary Policy report – at which the deposit rate will sit at 4.25%.

DATA

EUROZONE JUN FLASH MANUF PMI 43.6 (FCST 44.8); MAY 44.8 (MNI)
EUROZONE JUN FLASH SERVICES PMI 52.4 (FCST 54.5); MAY 55.1 (MNI)

GERMAN DATA (MNI): German PMI Flags Considerable Manufacturing Weakness, But Services Prices Stubborn

• GERMANY JUN FLASH MANUF PMI 41.0 (FCST 43.5); MAY 43.2
• GERMANY JUN FLASH SERVICES PMI 54.1 (FCST 56.3); MAY 57.2

• German economy lost considerable momentum at the end of the second quarter.
• Inflationary pressures continued to ease during June, with manufacturers recording the first decrease in output prices for over two-and-a-half years.
• Service sector costs and selling prices continued to rise sharply, driven in part by higher wages and increasing interest rates.
• Sentiment amongst services firms, although still positive overall, was the weakest for six months.

FRANCE DATA (MNI): Signs of Fading Price Pressures in France PMI

• FRANCE JUN FLASH MANUF PMI 45.5 (FCST 45.3); MAY 45.7
• FRANCE JUN FLASH SERVICES PMI 48.0 (FCST 52.1); MAY 52.5

Highlights from the PMI report:

• Worsening decline in manufacturing production was accompanied by a renewed reduction in activity across the services economy.
• Driving June's slump in activity was a further and faster deterioration in demand, particularly from abroad.
• Rates of input cost and output price inflation eased since May to 27- and 22-month lows respectively.

UK DATA (MNI): Bailey's Jab at Pay Growth Plays Out in Survey Data

• UK JUN FLASH MANUF PMI 46.2 (FCST 46.8); MAY 47.1
• UK JUN FLASH SERVICES PMI 53.7 (FCST 54.8); MAY 55.2

Highlights from the PMI report:

• Private sector output growth eases to three-month low.
• Another solid upturn in the service economy, whereas manufacturers continued to underperform as production volumes declined for the eleventh time in the past twelve months.
• Overall private sector output growth was the slowest since March, reflecting a much softer rise in new order intakes as some clients curtailed spending.

UK DATA (MNI): Consumer Confidence Continues to Improve in May

• UK JUN CONSUMER CONFIDENCE -24 (FCST -26); MAY -27

UK consumer confidence improved for a fifth month in June, rising by three points to -24; two points stronger than consensus expectations. An upswing in personal finance expectations drove the improvement, alongside rising economic situation outlooks. Joe Staton, Client Strategy Director, GfK highlighted that "consumers are showing remarkable resilience in the face of inflation that is currently refusing to yield. If consumers continue to weather the current economic storm, then this will provide a firm foundation for getting back to growth".

UK DATA (MNI): Retail Sales Does Little to Alter the MonPol Outlook

• UK MAY RETAIL SALES +0.3% M/M, -2.1% Y/Y
• UK MAY RETAIL SALES EX-FUEL +0.1% M/M, -1.7% Y/Y

Non-store retail sales (and fuel) provided all the positive growth as they were boosted by strong sales of "outdoor-related goods and summer clothing" helped by the warm weather with garden centres and DIY stores seeing growth too. Food sales fell back, and this was "exacerbated by many people ordering takeaways and drinking out more during the extra bank holidays."

SPAIN Q1 FINAL GDP +4.2% Y/Y (MNI)
SPAIN Q1 FINAL GDP +0.6% Q/Q (MNI)

JAPAN DATA (MNI): Japan May Core CPI Rises 3.2% Against Apr's 3.4%

• JAPAN MAY CORE CPI +3.2% Y/Y; APR +3.4%
• JAPAN MAY CORE-CORE CPI +4.3% Y/Y; APR +4.1%
• JAPAN MAY CPI FOOD EX-PERISHABLES +9.2% Y/Y; APR +9.0%
• JAPAN MAY CPI ENERGY COST -8.2% Y/Y; APR -4.4%

Japan's annual core consumer inflation rate printed at 3.2% y/y in May from April's 3.4%, Ministry of Internal Affairs and Communications data showed Friday. Higher food prices excluding fresh food and lower energy price drove the result and could force the BOJ to revise up its the median forecast for core CPI this fiscal year above 2% from April’s 1.8%. The strong price view may also prompt the BOJ to change its outlook that the y/y rise in core CPI will fall below 2% toward the middle of fiscal 2023.

FOREX: Central Bank Pricing Backtracks, Denting EUR

• The single currency is among the poorest performers in G10 so far Friday, following ECB market-implied pricing lower after a set of disappointing PMI releases from France and Germany.
• Prelim PMIs from both territories showed a distinct weakness in manufacturing relative to services, with both exhibiting a further pullback in price pressures as rate hikes begin to bite. The data knocked close to 10bps off peak ECB pricing, tiliting the implied peak rate back below 4.00% in deposit rate terms.
• Price action in EUR/USD extended the pullback from yesterday's high of 1.1012. The pullback is considered corrective - for now. Attention turns to support at 1.0853, the 20-day EMA. A clear break of this average would signal scope for a deeper pullback and this would open 1.0804, the Jun 15 low and 1.0733, the Jun 12 low.
• GBP trades more mixed - a softer PMI release initially dented the currency, but weakness was contained by evidence in the survey showing persistent strength in services prices - a key point of focus for the Bank of England. A firm set of May retail sales also got the currency off to a good start.
• US prelim PMIs take focus going forward, with markets expecting further weakness in manufacturing, and stubborn strength for services. CB speakers include Fed's Bullard & Mester as well as ECB's Vujcic, de Cos and Panetta.

BONDS: Bull Flattening in Focus as Growth Concerns Re-Escalate

Below-expected preliminary European PMI readings, a pullback in equities and a stronger dollar have benefited global core FI in early trade Friday as growth slowdown fears resurface.

• Eurozone and UK flash June PMIs disappointed on both the services and manufacturing prints. Bunds have led the global bull flattening rally, with Gilts lagging them slightly after UK retail sales showed signs of strength.
• 2s10s inversions are in focus: US is below -100bp for the first time since March, while UK and German are at post-2000 and post-1990 lows, respectively.
• ECB peak depo rate pricing has dipped back below 4%, with BoE up slightly hitting a fresh peak above 6.2%, and Fed pricing flat.
• ECB speakers include Vujcic, de Cos and Panetta.
• Prelim PMIs are likewise the US highlight, with KC Fed Services rounding off the week's data calendar. FOMC speakers include Cleveland's Mester (Bullard is delivering the same speech he's delivered 2x before).

Latest levels:

• Sep US 10Y futures (TY) up 11/32 at 113-2.5 (L: 112-22 / H: 113-7)
• Sep Bund futures (RX) up 123 ticks at 133.91 (L: 132.73 / H: 134.35)
• Sep Gilt futures (G) up 122 ticks at 96.5 (L: 95.32 / H: 97)
• Italy / German 10-Yr spread 0.3bps tighter at 163.4bps

EQUITIES: Uptrend in Eurostoxx 50 Futures Intact Despite Bearish Corrective Cycle This Week

The Eurostoxx 50 futures uptrend remains intact, however, a bearish corrective cycle this week has resulted in a correction. The contract has pierced support at 4301.00, the Jun 8 low. This is a key short-term support and a clear break would signal scope for a deeper retracement, exposing 4241.00, the May 31 low and a key support. 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 this week’s pullback appears to be a correction. This is allowing a recent overbought condition to unwind. Initial key support lies at the 20-day EMA which intersects at 4356.07. 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 4500.21, the top of a bull channel.

• Japan's NIKKEI closed lower by 483.34 pts or -1.45% at 32781.54 and the TOPIX ended 31.77 pts lower or -1.38% at 2264.73.
• Across Europe, Germany's DAX trades lower by 95.49 pts or -0.6% at 15891.95, FTSE 100 lower by 12.76 pts or -0.17% at 7489.02, CAC 40 down 18.21 pts or -0.25% at 7184.99 and Euro Stoxx 50 down 16.98 pts or -0.39% at 4287.31.
• Dow Jones mini down 85 pts or -0.25% at 34127, S&P 500 mini down 18.25 pts or -0.41% at 4405.5, NASDAQ mini down 88 pts or -0.58% at 15126.75.

COMMODITIES: Sharp Sell-Off in WTI Futures Thursday Reinforces Bearish Theme

WTI futures remain bearish and yesterday’s sharp sell-off reinforces this condition. Support at $67.21, 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. The bear cycle in Gold remains intact and the yellow metal traded lower Thursday. Trendline support was breached last week - the line is drawn from the Nov 3 2022 low and the break reinforces a bearish condition. Furthermore, yesterday’s sell-off marks a resumption of the downtrend. 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 $1951.7, the 20-day EMA.

• WTI Crude down $1.25 or -1.8% at $68.27
• Natural Gas down $0.03 or -1.15% at $2.578
• Gold spot up $4.54 or +0.24% at $1918.63
• Copper down $6.4 or -1.64% at $383.8
• Silver up $0.09 or +0.42% at $22.3398
• Platinum up $2.1 or +0.23% at $927.63