MNI US OPEN - Eurozone Headline Inflation Softest Since Jan '22

NEWS

FRANCE (MNI): Spread of Protests Not Yet Significant Cause for Concern for Macron

The spread of protests and rioting across cities in France following the killing of a young working-class man by a police officer in the outskirts of Paris is not yet a cause for concern regarding the country's political stability. Interior Minister Grald Darmanin confirmed that 667 individuals had been arrested in a third night of rioting that has spread from the Paris suburbs to cities and towns including Lille, Marseille, and Dijon. At present the protests have not had any notable market impact. However, should they prove sustained and spread further it would come as the second period of major social unrest in less than a year.

CHINA (BBG): China’s PBOC Sticks With Yuan Support as Currency Losses Deepen

China took steps to slow a decline in the yuan for a fourth time this week, as its weakness intensified on souring sentiment toward the world’s second-largest economy. The central bank set its so-called fixing for the managed currency at a stronger-than-expected level on Friday, after the offshore yuan extended a seven-month low. The move came after reports that regulators have stepped up scrutiny of currency trading and cross-border capital flows, in a bid to stabilize the yuan.

CHINA (BBG): China Has $3 Trillion of ‘Hidden’ Currency Reserves, Setser Says

China is sitting on a $6 trillion pile of money, half of which is “hidden,” and that presents a new kind of risk to the global economy, according to Brad Setser. A lot of the country’s foreign-exchange reserves don’t show up in the official books of the People’s Bank of China, the former US trade and Treasury official wrote in a report on The China Project, a New York-based news platform. Instead, what can be called “shadow reserves” appear among the assets of entities such as state commercial lenders and policy banks, Setser said.

CHINA (RTRS): PBOC Surveyed Some Foreign Banks About USD Deposit Rates

China's central bank has surveyed some foreign banks in the past week about the interest rates they offer to their clients for dollar deposits, two sources with direct knowledge of the matter said. The central bank also guided one commercial lender to lower such rates, one of the sources said, as recent weakness in the yuan prompts authorities to more closely scrutinize foreign exchange dealings. The move could potentially nudge companies, especially exporters, to convert more of their foreign exchange receipts into the yuan

CHINA (MNI): China Should Prioritise Reform, Not Stimulus

Flagging market-oriented reform to boost the confidence of entrepreneurs, rather than relying on policy stimulus, should be a top priority for Chinese policymakers, as economic pain stemming from Covid persists and relations with the U.S. remain troubled, a prominent liberal economist told MNI in an interview. “The Chinese economy faces two major challenges – the external shock from Covid and legacy internal issues… Covid simply exacerbated the existing slowing trend,” said Zhang Weiying, professor at National School of Development of Peking University.

BOJ (MNI): Price-Wage Cycle In Climax - BOJ's Himino

Bank of Japan Deputy Governor Ryozo Himino said a virtuous wage-price cycle existed, but doubted its sustainability, Mainichi Shimbun reported Friday. In an interview with the newspaper, Himino added the BOJ must continue patiently with easy policy. He also noted the long-term interest rate should stay below 0.5%, an upper end of the perceived target range, while market function had greatly improved compared to the past.

JAPAN/SOUTH KOREA (BBG): South Korea Plans First Samurai Bond as Japan Ties Improve

South Korea plans to issue its first yen-denominated foreign exchange stabilization bonds in Japan this year, in another sign of warmer ties between the two countries. The bonds will provide investment opportunities to Japanese financial institutions and also boost yen bond issuance by Korean companies in the future, Choo Kyung-ho said at a meeting with Japanese banks on Friday, according to an statement from Korea’s finance ministry. Choo didn’t give other details, such as the size of the issuance or timing of the sale.

COMMODITIES (BBG): Aluminum Outlook Dims as Heavy China Rains Drive Supply Rebound

Aluminum is on course to be the worst-performing industrial metal this month and risks falling further in the second half as Chinese smelters ramp up production. Heavy rainfall in the southwestern Yunnan province, a key hub for the energy-intensive metal, is filling up hydro dams and easing a power shortage that was crimping output. Smelters there aim to restart 1.4 million tons of annual capacity by August — out of around 2 million tons that was idled — Chinese industrial news portal Baiinfo said this week.

DATA

EUROZONE DATA (MNI): Headline Inflation Softest Since Jan '22, Core Up on Services

• EUROZONE JUN FLASH CPI +0.3% M/M (= FCST); MAY 0.0% M/M
• EUROZONE JUN FLASH CPI +5.5% Y/Y (FCST +5.6%); MAY +6.1% Y/Y
• EUROZONE JUN FLASH CORE CPI +0.3% M/M, +5.4% Y/Y (FCST +5.5%); MAY +5.3% Y/Y

Eurozone June HICP was 0.1pp below consensus estimates in the flash data cooling by 0.6pp to +5.5% y/y. This was the lowest since January 2022, before the inflationary effects of the Russia-Ukraine war. Prices accelerated by +0.3% m/m, after having stalled in May. Core also was 0.1pp lower than expected, however ticked up to +5.4% y/y (vs +5.3% in May). Stronger services inflation drove this increase, quickening from +5.0% y/y in May to +5.4% y/y in June. This uptick had largely been foreshadowed by yesterday's German data.

EUROZONE MAY UNEMPLOYMENT RATE 6.5% (MNI)

FRANCE DATA (MNI): French HICP Eases to 5.3% y/y in June

• FRANCE JUN HICP +0.2% M/M, +5.3% Y/Y
• FRANCE JUN CPI +0.2% M/M, +4.5% Y/Y
• FRANCE MAY PPI -1.4% M/M, +5.8% Y/Y

French flash HICP eased in June to 5.3% y/y from 6.0% y/y in May, while flash CPI eased to 4.5% from 5.1%. Both HICP and CPI were 0.1pp lower than consensus expectations. HICP and CPI both rose 0.2% m/m in June after both declined 0.1% in May. The encouraging decline in HICP corroborates French June consumer confidence data, which showed inflation expectations continuing to cool sharply. The June drop in inflation was largely due to a slowing of energy price increases, and to a lesser extent food prices.

UK Q1 GDP +0.1% Q/Q, +0.2% Y/Y (MNI)

GERMANY MAY RETAIL SALES +0.4% M/M, -3.6% Y/Y (MNI)
GERMANY JUN UE RATE (SA) 5.7% (FCST 5.6%); MAY 5.6% (MNI)

SWISS MAY RETAIL SALES +2.1% M/M, -1.1% Y/Y (MNI)
SWISS KOF JUN ECONOMIC BAROMETER 90.8 (MNI)

CHINA DATA (MNI): Manufacturing PMI Contracts for Third Consecutive Month

• CHINA JUNE MANUFACTURING PMI 49 VS 48.8 IN MAY

China's Purchasing Managers' Index contracted for the third straight month, registering 49 in June, rebounding slightly from 48.8 in May though still below the breakeven 50 mark, data from the National Bureau of Statistics showed Friday. The production sub-index marked 50.3 in June, higher than May's 49.6 reading and rising back to the expansion zone as factory activities accelerated, the NBS said. The new orders sub-index – a gauge of demand – printed at 48.6, an improvement from last month's 48.3.

JAPAN DATA (MNI): Tokyo CPI Rises 3.2% In June Vs. May 3.1%

• JAPAN JUNE TOKYO CORE CPI +3.2% Y/Y; MAY 3.1%
• JAPAN JUNE TOKYO CORE-CORE CPI +3.8% Y/Y; MAY +3.9%
• JAPAN JUNE TOKYO CPI FOOD EX-PERISHABLES +8.9% Y/Y; MAY +8.9%
• JAPAN JUNE TOKYO CPI ENERGY COSTS -6.9% Y/Y; MAY -8.2%

The y/y rise in the Tokyo core inflation rate accelerated to 3.2% in June from May's 3.1% on the back of continued high food prices, indicating that the nationwide June core CPI could rise from May's 3.2%, Ministry of Internal Affairs and Communications data showed Friday. The core-core CPI (excluding fresh food and energy) – a key indicator in the underlying trend of inflation – rose 3.8% y/y in June, decelerating from May's 3.9%.

JAPAN DATA (MNI): Japan May Production Posts 1st Drop In Four Months

• JAPAN MAY INDUSTRIAL OUTPUT -1.6% M/M; APR +0.7%

Japan's industrial production fell 1.6% m/m in May for the first drop in four months, following 0.7% in April, due to weaker production for motor vehicles, electrical machinery and information, and communication electronics, the Ministry of Trade and Industry said Friday. The weak May data will not prompt the Bank of Japan to change its view that industrial production has been more or less flat, as it expects June production to rise.

FOREX: Single Currency Softer, With CPI Below Forecast

• The single currency sits lower against all others in G10, with EUR/USD back below 1.0850 and through the Jun23 lows at 1.0844. Perhaps more importantly, the 50-day EMA support has now broken, widening the scope for a more protracted pullback in the pair toward 1.0804, the Jun 15 low and 1.0733, the Jun 12 low. Moves come alongside the Eurozone CPI estimate for June, which slipped just below forecast at 5.5% vs. Exp. 5.6%.
• NOK sits at the other end of the G10 table, firmer and tipping EUR/NOK through the 50-dma as the Norges Bank confirm that the pace of their FX purchase program is to slow to NOK 1bln per day, the slowest pace in over a year. Cross next targets support at 11.5306, a break below which would target the 100-dma.
• Outside of currency markets, risk appetite is generally firmer. Equity futures are in the green, indicating a higher open on Wall Street later today. A number of European index futures are within range of the mid-June highs, however Italian equities have pushed higher still - putting the FTSE-MIB at the best levels since 2008 during Friday trade.
• MNI Chicago PMI due later Friday is the calendar highlight. Markets expect PMI to bounce to 43.8 from 40.4 previously. US personal income/spending crosses for May as well as the monthly April Canadian GDP print. There are no central bank speakers of note.

BONDS: Thursday’s Cheapening Impetus Prevails

Core global FI markets extended yesterday’s U.S. data-driven cheapening move this morning, with no fresh fundamental catalysts observed. Yesterday’s lows in TY, Bund and Gilt futures have all given way.

• There hasn’t been much in the way of tangible reaction to Eurozone CPI data, which was a touch softer than expected (at least vs. the BBG survey), with the previously released national data readings holding the explanatory power.
• Bonds have generally found a bit of a base in recent trade,
• The Bund curve has seen some light bull steepening, with the major benchmarks 1-2bp cheaper, similar moves have been seen across the bulk of the core/semi-core EGB markets.
• The major 10-Year EGB peripheral spreads are little changed across the curve, with the presence of the now delivered Italian supply providing a domestic headwind for BTPs pre-auction.
• Weakness in Gilts has been more pronounced than that seen in Bunds, running 2.5-5.0bp cheaper as the curve bear flattens alongside BoE terminal rate pricing moving back to ~6.30%.
• Tsys bear flatten, as the major benchmarks cheapen by 2-5bp, with yields showing through their respective Thursday highs.
• U.S. PCE & MNI Chicago PMI data headline ahead of the weekend.

Latest levels:

• Sep Bund futures (RX) down 32 ticks at 133.32 (L: 133.09 / H: 133.75)
• Sep Gilt futures (G) down 73 ticks at 94.91 (L: 94.71 / H: 95.45)

EQUITIES: Italian Equities Hit Best Level Since 2008

The Eurostoxx 50 futures uptrend remains intact and the pair has recovered from Monday’s low. A continuation higher would open 4448.00, the Jun 16 high and the bull trigger. A break of this hurdle would confirm a resumption of the uptrend and expose 4472.40, a Fibonacci projection. On the downside, key support lies at 4241.00, the May 31 low. A breach of this level is required to signal a reversal. A bull theme in S&P E-minis remains intact and the recent pullback still appears to be a correction. The move lower has allowed an overbought trend condition to unwind. Key near-term support at the 20-day EMA, which intersects at 4376.94, remains intact. 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.

• Japan's NIKKEI closed lower by 45.1 pts or -0.14% at 33189.04 and the TOPIX ended 7.65 pts lower or -0.33% at 2288.6.
• Elsewhere, in China the SHANGHAI closed higher by 19.681 pts or +0.62% at 3202.062 and the HANG SENG ended 17.93 pts lower or -0.09% at 18916.43.
• Across Europe, Germany's DAX trades higher by 124.87 pts or +0.78% at 16070.79, FTSE 100 higher by 38.75 pts or +0.52% at 7509.45, CAC 40 up 54.27 pts or +0.74% at 7366.86 and Euro Stoxx 50 up 20.02 pts or +0.46% at 4374.64.
• Dow Jones mini up 35 pts or +0.1% at 34386, S&P 500 mini up 10.5 pts or +0.24% at 4446, NASDAQ mini up 65.75 pts or +0.44% at 15165.5.

COMMODITIES: Gold Lower for Tenth Session in Eleven

WTI futures remain in a bear mode condition and recent gains are considered corrective. Support at $67.21, the May 31 low, was again pierced on Wednesday, 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. Clearance of this level would signal a reversal. Initial resistance is $72.72, the Jun 21 high. Trend conditions in Gold remain bearish and the yellow metal traded lower again yesterday, before finding some support. Fresh trend lows reinforce current bearish conditions, confirming a resumption of the downtrend and extending the price sequence of lower lows and lower highs. The focus is on $1885.8, the Mar 15 low. Key resistance is $1985.3, the May 24 high. Initial resistance is $1936.8, the 20-day EMA.

• WTI Crude up $0.58 or +0.83% at $70.44
• Natural Gas down $0 or -0.04% at $2.7
• Gold spot down $5.2 or -0.27% at $1903.15
• Copper up $2.5 or +0.68% at $372.4
• Silver down $0.17 or -0.77% at $22.3945
• Platinum down $3.58 or -0.4% at $895.28