MNI US OPEN - Eurozone Headline and Core Inflation Above Consensus

NEWS

FED (BBG): Fed’s Logan Says Policy May Not Be as Restrictive as Believed

Federal Reserve Bank of Dallas President Lorie Logan said high interest rates may not be restraining the economy as much as policymakers anticipate, emphasizing it’s important for officials to keep their options open for future adjustments. “It also may be that policy is just not as restrictive as we think it might have been relative to the level of interest rates before the pandemic,” Logan said Thursday at an event in El Paso, Texas. “It’s really important to keep all options on the table and that we continue to be flexible.”

US (BBG): Donald Trump Becomes First Former US President Guilty of Crimes

Donald Trump was found guilty in the first criminal trial of a former US president in the nation’s history, a verdict that could reshape the political landscape five months before Election Day. After two days of deliberation, a jury of 12 New Yorkers found Trump guilty of all 34 counts of falsifying business records to conceal a hush-money payment to a porn star, a conspiracy that prosecutors said deprived voters of vital information before the 2016 election.

US/UK/MIDDLE EAST (BBG): Yemen’s Houthis Say US and UK Have Carried Out Deadliest Strike

The US and UK struck 13 Houthi targets in Yemen, killing at least 16 people, the deadliest assault on the Iran-backed group since the start of a campaign to prevent its attacks on commercial ships in the Red Sea. US forces also destroyed eight unmanned aerial vehicles in Houthi-controlled areas of Yemen and surrounding waters, US Central Command said in a statement Friday. “It was determined that these UAVs and sites presented a threat to US and coalition forces and merchant vessels in the region,” Centcom said.

US/CHINA (MNI): Def Mins Hold First In-Person Meeting, Look to Bolster Military Comms

MNI (London) US Secretary of Defence Lloyd Austin III and his Chinese counterpart Admiral Dong Jun met in Singapore on the sidelines of the IISS' Shangri-La Dialogue for their first in-person meeting. The talks come amid an effort to avoid military miscommunication in the Indo-Pacific region that could risk unintentional escalations in tensions or even conflict. In a readout, the Pentagon says that Austin "emphasized the importance of maintaining open lines of military-to-military communication", voicing his support for the resumption of phone calls between theater commanders of each side, and "welcomed plans to convene a crisis-communications working group by the end of the year".

US/CHINA (BBG): US Cyber Chief Sees ‘Very Aggressive’ Chinese Hacking Strategy

A top US spy chief said China is increasingly using its companies to find vulnerabilities in their own computer networks and then tapping that knowledge to target foreign nations and industries. “We’re really seeing China be very aggressive,” General Timothy Haugh, the director of the National Security Agency and head of Cyber Command, said in an interview with Haslinda Amin on Bloomberg Television.

OIL (BBG): OPEC+ Works on Output Cut Accord That May Stretch Into 2025

OPEC+ is pressing on with informal talks aimed at finalizing an agreement on oil-output cuts this weekend, delegates said. Saudi Arabia and its partners are discussing whether to prolong roughly 2 million barrels a day of production curbs into the second half of the year, with the accord to be completed at Sunday’s online gathering, according to the delegates. They’re also considering the possibility of extending some restraints into 2025, they said, asking not to be identified because the talks are private.

ECB (MNI): ECB Must Avoid Policy Being Too Tight - Panetta

The European Central Bank must prevent monetary policy from becoming excessively tight and then “pushing inflation below ECB’s symmetric target”, Bank of Italy Governor Fabio Panetta said in a speech on Friday. He noted that if “the incoming data is consistent with the current projections, it will be appropriate to ease monetary conditions” and, referring directly to the path of rate cuts, stressed that “prompt and gradual action would contain macroeconomic volatility better than a tardy and hasty approach”.

CHINA (MNI): China Utility Prices Should Be Reasonable

MNI (Beijing) China should adjust public utilities prices only in a reasonable manner and take consumer rights seriously, the China Consumers Association said on Friday. Given the recent debate on overcharging utility bills, the group said authorities should especially consider low-income groups and fully demonstrate the necessity for price increases. China’s Ministry of Commerce's large-scale consumer goods trade-in programme alongside related fiscal and credit support will generate over CNY1 trillion of domestic demand by boosting automobile and household goods consumption, a high-ranking official recently told MNI.

RBNZ (BBG): RBNZ Governor Orr Faces Claim He Breached Code of Conduct

Reserve Bank of New Zealand Governor Adrian Orr is facing accusations that he breached the monetary authority’s code of conduct, according to Finance Minister Nicola Willis. The allegation was made by the New Zealand Initiative, a business-funded think tank, in a letter to Willis and RBNZ Chair Neil Quigley, the minister told reporters Friday in Wellington. She said she won’t be drawn into the issue, citing the central bank’s independence. “It’s my expectation that the Reserve Bank Board take responsibility for all employment matters,” she said. “I do not view those as matters that I am responsible for.”

NEW ZEALAND (BBG): New Zealand Plans to Increase Defense Spending, Minister Says

New Zealand plans to increase spending on its military as it looks to replace aging machinery and deepen ties with traditional partners, Defence Minister Judith Collins said. Collins will consider a defense capability plan in coming weeks that will address the government’s needs out to 2040, she said in an interview with Bloomberg Television Friday in Singapore, where she’s attending a defense summit.

SOUTH AFRICA (MNI): ANC Vote Share Falls Below Crucial 42% Mark w/55.6% Counted

The South African electoral commission has resumed updating its election portal, which now shows President Cyril Ramaphosa's African National Congress (ANC) sitting on 41.86% support with 55.63% of ballots counted. Crucially, this falls below the 42% mark that may have allowed the ANC to form a governing coalition with smaller parties at the national level that would have supported policy continuity and political stability.

RUSSIA (MNI): Medvedev - Russia 'Not Bluffing' on Use of Tactical Nukes

Dmitry Medvedev, former president and current deputy chairman of the Security Council, has said that Russia is 'not bluffing' when it comes to the potential deployment of tactical nuclear weapons against Ukraine. Medvedev added that the war in Ukraine was moving towards the 'worst-case scenario' and that "no one can rule out it escalating to the last stage". Medvedev's comments come after the Biden administration was seen to give permission to Kyiv to use US-made weapons to strike directly into Russia from territory around Kharkiv as Ukrainian forces seek to repel Russian advances in the region.

TURKEY (BBG): Turkish Economy Booms in Growth Spurt Before Rate Hikes Kick In

Turkey’s economy grew at a faster pace to start the year, remaining immune to a series of aggressive interest-rate increases meant to muffle domestic demand. In what’s probably a final spurt before an economic cooldown sets in, gross domestic product rose an annual 5.7% in the first quarter, in line with the forecasts of analysts surveyed by Bloomberg and up from 4% in the prior three months. Data on Friday also showed GDP growth ticked up to 2.4% from the previous quarter when adjusted for working days and seasonal changes.

INDIA (BBG): India’s Imports of Russian Oil Jump After China Buying Wanes

India’s imports of Russian ESPO oil have jumped after China’s buying of the grade tumbled following a slump in refining margins. Indian Oil Corp. and Reliance Industries Ltd. have bought a combined six cargoes of ESPO for delivery between April and June, according to Kpler. India’s imports in the second quarter are 50% higher than the first three months of the year, when four shipments were delivered to the nation, the figures show.

DATA

EUROZONE DATA (MNI): Service Inflation, Core and Headline All Higher Than Consensus

• EUROZONE MAY FLASH HICP +2.6% Y/Y
• EUROZONE MAY FLASH CORE HICP +2.9% Y/Y

Eurozone May flash headline printed a tenth above consensus while core inflation came in 2 tenths above, in line with MNI's tracking based on the national data released earlier today and yesterday. Headline HICP was 2.6% Y/Y (vs 2.5% cons; 2.4% prior) and 0.2% M/M (vs 0.2% cons; 0.6% prior). On an unrounded basis, headline was 2.57% Y/Y and 0.22% M/M. Core HICP came in a higher than expected at 2.9% Y/Y (vs 2.7% cons; 2.7% prior). This is a marginally larger surprise than the headline number. On an unrounded basis, core was 2.87% Y/Y and 0.44% M/M. Looking at the individual categories, services inflation is expected to reach highest levels of this year at +4.1% Y/Y after disinflating to +3.7% in April.

FRANCE DATA (MNI): France HICP Above Consensus, Flash CPI Below

• FRANCE MAY FLASH HICP +2.7% Y/Y (FCST: +2.7% Y/Y) APR +2.4% Y/Y
• FRANCE MAY FLASH HICP +0.2% M/M (FCST: +0.2% M/M) APR +0.6%
• FRANCE MAY FLASH CPI +2.2% Y/Y (FCST: +2.4% Y/Y); APR +2.2% Y/Y
• FRANCE MAY FLASH CPI +0.0% M/M (FCST: +0.2% M/M); APR +0.5% M/M

The latest set of national May flash inflation prints from France saw HICP figures come in a tenth above consensus while CPI figures come in below consensus. HICP came in at +2.7% Y/Y (vs +2.6% consensus, +2.4% prior) and +0.2% M/M (vs +0.1% consensus, +0.6% prior). CPI came in at +2.2% Y/Y (vs +2.4% consensus, +2.2% prior) and +0.0% M/M (vs +0.2% consensus, +0.5% prior). Looking at national CPI, Services CPI rose at a slower pace of +2.7% Y/Y (vs +3.0% prior), making it the lowest services print since January 2023. Note that services make up 51.6% of the national CPI index.

FRANCE GDP Q1 2ND EST +1.3% Y/Y (MNI)
FRANCE GDP Q1 2ND EST +0.2% Q/Q (MNI)
FRANCE APR PPI -3.6% M/M, -6.8% Y/Y (MNI)
FRANCE APR CONSUMER SPENDING -0.8% M/M, +0.2% Y/Y (MNI)

GERMANY DATA (MNI): Retail Sales Weaker in April But Projected to Pick Up

German retail sales (excl. cars) were weaker in April, declining by 1.2% M/M (real and seasonally- / calendar-adjusted; vs -0.3% cons; +2.6% prior, revised from +1.8%) and -0.6% Y/Y (calendar adjusted; vs +1.0% prior, revised from +0.3%). The upward revisions mean that the miss vs consensus was less severe than it seems on first sight. Food sales were -2.2% M/M, non-food sales -0.8%. April's data thus appears to be driven by a partial reversal of March's strong food turnover (+3.9% M/M), which was likely underpinned by the early Easter holiday this year.

ITALY FLASH HICP MAY 0.8% Y/Y (FCST: +0.7% Y/Y); APR +0.9% (MNI)
ITALY FLASH HICP MAY 0.2% M/M (FCST: +0.1% M/M); APR +0.5% M/M (MNI)
ITALY FINAL Q1 GDP +0.3% Q/Q (FLASH: +0.3% Q/Q); +0.2% Q/Q PRIOR (MNI)

SWISS APR RETAIL SALES +0.2% M/M, +2.7% Y/Y (MNI)

UK MAR M4 MONEY SUPPLY +0.1% M/M, +0.6% Y/Y (MNI)
UK BOE MAR MORTGAGE APPROVALS 61,140 (MNI)
UK BOE MAR CONSUMER CREDIT GBP0.73 BLN (MNI)
UK BOE MAR SECURED LENDING GBP2.41 BLN (MNI)

CHINA DATA (MNI): China May Mfg. PMI Contracts to Three-Month Low

• CHINA MAY MANUFACTURING PMI 49.5 VS 50.4 IN APR

MNI (Beijing) China's manufacturing Purchasing Managers' Index dropped by 0.9 points to 49.5 in May, falling below the breakeven 50 level after expanding for two consecutive months, tamed by weak demand and the high base formed by rapid manufacturing growth earlier, data from the National Bureau of Statistics showed Friday. The production sub-index fell 2.1 points to 50.8, still above the 50 mark. However, the new orders and new export orders sub-indexes fell 1.5 and 2.3 points, to 49.6 and 48.3.

JAPAN DATA (MNI): Japan May Tokyo Core CPI Rises 1.9% vs. April's 1.6%

• JAPAN MAY TOKYO CORE CPI +1.9% Y/Y; APRIL +1.6%
• JAPAN MAY TOKYO CORE-CORE CPI +1.7% Y/Y; APRIL +1.8%
• JAPAN MAY SERVICES PRICES +0.7% Y/Y; APRIL +0.8%

The year-on-year rise in the Tokyo core inflation rate accelerated to 1.9% in May from April's 1.6%, its first increase in three months but still below the Bank of Japan's 2% target for the second straight month, data from the Ministry of Internal Affairs and Communications showed on Friday. The faster core CPI was within BOJ forecasts, which expected the inflation data to rise as the pass-through of cost increases continued, albeit at a slower pace.

JAPAN DATA (MNI): Japan April Industrial Output Drops

• JAPAN APRIL INDUSTRIAL OUTPUT -0.1% M/M; MARCH +4.4%

Japan's industrial output fell 0.1% m/m in April, its first drop in two months, following March's 4.4% gain, due to weaker production of transport equipment excluding motor vehicles, data released by the Ministry of Economy, Trade and Industry showed on Friday. Production of motor vehicles fell 0.6% m/m in April for the first drop in two months following +9.9% in March.

JAPAN APRIL RETAIL SALES +2.4% Y/Y; MARCH +1.1% (MNI)
JAPAN APRIL RETAIL SALES +1.2% M/M; MARCH -1.2% (MNI)

RATINGS: Downgrade Risk for France at S&P After Hours, Fitch on Greece Also Eyed

Potential sovereign credit rating reviews of note scheduled for after hours on Friday include:

• Fitch on Greece (current rating: BBB-; Outlook Stable) & Ireland (current rating: AA-; Outlook Positive)
• Moody’s on Hungary (current rating: Baa2; Outlook Stable) & Italy (current rating: Baa3; Outlook Stable)
• S&P on Estonia (current rating: AA-; Outlook Negative), France (current rating: AA; Outlook Negative), Latvia (current rating: A+; Outlook Negative) & Lithuania (current rating: A+; Outlook Negative)
• Morningstar DBRS on Germany (current rating: AAA, Stable Trend) & Spain (current rating: A, Stable Trend)

FOREX: EZ Core CPI Underpins EUR Recovery into NY Hours

• The single currency trades slightly firmer, with EUR/USD touching new daily highs on the back of the firmer-than-expected May CPI estimate from the Eurozone. Headline CPI was 0.1ppts ahead of consensus, but it's the 0.2ppts beat for core CPI that will have troubled markets.
• JPY trades poorly, falling against all others in G10 as markets await the formal release from the Japanese finance ministry to confirm the extent of intervention across May. Expectations are for ~$60bln (Y9.4trl) to have been sold across two phases this month. Headlines cross at 1100BST/1900 local time.
• Chinese macro data overnight came in soft, with official manufacturing and non-manufacturing PMIs falling short of expectations - manufacturing was a particular source of weakness (49.5 vs. Exp. 40.5) and unexpectedly fell into contraction territory - a release that's worked against CNH, which trades softer against the greenback. 
• Focus ahead turns to the MNI Chicago PMI release for May, at which markets expect headline weakness to abate slightly, with a 41.5 reading from 37.9 previously. PCE data for April is also set to cross, at which markets expect another moderation in price pressures in the final reading before the June FOMC decision.

EGBS: Weaker Following Above-Consensus Core HICP Reading

EGBs are weaker after Eurozone core inflation printed two tenths above consensus in the May flash release.

• Weakness was already seen ahead of that release as national readings pointed to upside risks in the eurozone-wide print.
• The data suggests that underlying inflation pressures remain persistent and means the ECB may need to accompany its well-signalled 25bps cut with hawkish guidance at next week’s meeting.
• Bunds are -25 ticks at 128.93, after reaching an intraday low of 128.74 post-data.
• German and French cash yields are 2 to 4.5bps higher today, with 5s leading the sell-off.
• 10-year peripheral spreads to Bunds biased slightly tighter.
• ECB-dated OIS briefly probed last week’s hawkish extreme before retracing slightly, currently showing 57bps of cuts through the remainder of 2024.
• The strip shows very slim odds of back-to-back ECB cuts over the next couple of meetings.
• Focus now turns to the US, where April PCE data headlines.
• EGB month-end extensions are not seen as meaningful but may provide some modest background support later in the day.

GILTS: EUR CPI Weighs, Recent Ranges Intact

Spill over pressure from EGBs has been seen in gilts, with firmer-than-expected national European and then Eurozone-wide CPI data dominating headline flow.

• Futures have extended their pullback from yesterday’s failure at 96.00 as a result, last printing -9 at 95.70, a little above session lows of 95.62.
• Bears remain in technical control, with initial support seen at Wednesday’s low (95.33). Bulls need to overcome Wednesday’s high (96.43) to start turning the technical backdrop a little more in their favour.
• Cash gilt yields are 1.5-3.0bp higher, with 10s under the most pressure and the recent curve steepening theme intact.
• A reminder that the release of the DMO’s quarterly issuance calendar had little tangible market impact, as it failed to provide any meaningful surprises.
• SONIA futures are at/just off worst levels, although stick to narrow ranges, last flat to -1.5.
• The scope of the recent hawkish adjustment in both EUR & BoE-dated STIRs is probably limiting reaction here, with ~30bp of ’24 BoE cuts still priced into dated OIS markets.
• Cross-market spill over will be eyed for the remainder of Friday, with continued adjustments to the Eurozone inflation data and this afternoon’s U.S. PCE prints set to dominate.
• Gilt month-end extensions are not seen as meaningful but may provide some modest background support later in the day.

EQUITIES: E-Mini S&P Narrows Gap to Support at 50-day EMA

Eurostoxx 50 futures have traded lower this week and the contract remains soft. This week’s pullback - a correction - has resulted in a breach of the 20- and 50-day EMAs. The 50-day average lies at 4964.40 and a clear break of it would undermine the recent short-term bullish theme and signal scope for a deeper retracement. This would open 4894.90, a Fibonacci retracement. Initial resistance is seen at 5019.60, the 20-day EMA. The uptrend in S&P E-Minis remains intact, however, a corrective cycle has resulted in a pullback from the recent high of 5368.25 (May 23). The contract has traded through the 20-day EMA and this exposes a firmer support at 5209.88, the 50-day EMA. A clear break of this average would signal scope for a deeper retracement. On the upside, a resumption of gains and a break of 5368.25, would confirm a resumption of the uptrend.

• Japan's NIKKEI closed higher by 433.77 pts or +1.14% at 38487.9 and the TOPIX ended 46.29 pts higher or +1.7% at 2772.49.
• Elsewhere, in China the SHANGHAI closed lower by 4.865 pts or -0.16% at 3086.813 and the HANG SENG ended 150.58 pts lower or -0.83% at 18079.61.
• Across Europe, Germany's DAX trades higher by 7.61 pts or +0.04% at 18502.48, FTSE 100 higher by 25.95 pts or +0.32% at 8257.02, CAC 40 up 7.94 pts or +0.1% at 7986.45 and Euro Stoxx 50 up 8.76 pts or +0.18% at 4990.94.
• Dow Jones mini up 8 pts or +0.02% at 38237, S&P 500 mini down 5.25 pts or -0.1% at 5247.75, NASDAQ mini down 45.5 pts or -0.24% at 18561.

Time: 09:50 BST

COMMODITIES: Short-Term Bear Cycle in Gold Remains in Play

WTI futures have pulled back from Wednesday high of 80.62. The trend direction remains down and the latest recovery appears to have been a correction. A continuation lower would signal scope for a move towards $75.64, the Mar 11 low. On the upside, key resistance and the bull trigger is at $86.16, the Apr 12 high. Initial firm resistance to watch is at $83.63, the Apr 26 high. A short-term bear cycle in Gold remains in play, for now. The medium-term trend structure is bullish and the recent move down appears to be a correction that is allowing an overbought condition to unwind. Moving average studies are in a bull-mode position, highlighting an uptrend. A resumption of gains would open $2452.5 next, a Fibonacci projection. The 50-day EMA, at $2307.0, represents a key support.

• WTI Crude down $0.07 or -0.09% at $77.81
• Natural Gas down $0.03 or -1.01% at $2.547
• Gold spot up $0.01 or +0% at $2343.13
• Copper down $1.35 or -0.29% at $464.65
• Silver up $0.08 or +0.24% at $31.249
• Platinum down $0.86 or -0.08% at $1028.78

Time: 09:50 BST