MNI US OPEN - Fed's Waller Says Two More Rate Hikes Needed

NEWS

US (MNI): Fed’s Waller Wants Two More Interest Rate Hikes This Year

The Federal Reserve should raise interest rates twice more this year to bring U.S. inflation back down to the central bank’s 2% goal, Fed Governor Chris Waller said Thursday. “I see two more 25-basis-point hikes in the target range over the four remaining meetings this year as necessary to keep inflation moving toward our target,” Waller said in prepared remarks to the Money Marketeers of New York University. “Furthermore, I believe we will need to keep policy restrictive for some time in order to have inflation settle down around our 2% target.

US (BBG): Biden, Trump, DeSantis to Reveal Big Donors in 2024 Race

President Joe Biden will finally reveal how much money he’s raised for his reelection bid, ending the suspense of supporters concerned that his campaign has raised less than expected. The Federal Election Commission reports due Saturday for the second quarter of 2023 will also show which Republicans are mounting a serious challenge to former President Donald Trump for the GOP nomination. Unlike Biden, GOP frontrunners Trump and Florida Governor Ron DeSantis trumpeted their totals before the deadline. Trump’s campaign said he had raised $35 million, while DeSantis brought in more than $20 million, but they didn’t break down the details or donors.

US/CHINA (WaPo): Blinken, China’s Top Diplomat Discuss Rivalry in Effort to Bolster Ties

The top diplomats of the United States and China held talks Thursday in the latest in a series of efforts to manage a burgeoning rivalry that has reached dramatic new heights in recent years. The meeting between Secretary of State Antony Blinken and China's top diplomat, Wang Yi, amid reports of a Chinese cyberespionage effort targeting U.S. government email accounts has raised questions about a fragile thaw in relations between the two countries. The meeting "was part of ongoing efforts to maintain open channels of communication to clarify U.S. interests across a wide range of issues and to responsibly manage competition by reducing the risk of misperception and miscalculation," the State Department said in a statement.

EUROPE (BBG): Extreme Heat Rips Through Europe, Bringing Risks for Millions

Extreme heat is ripping through southern Europe and parts of Germany, with the next blast from the Sahara lifting temperatures toward record highs in parts of Italy this weekend. In Athens, the nighttime temperature won’t drop below 25C (77F) for 15 days, while many of the city’s inhabitants are seeking relief on nearby beaches from as early as 6 a.m. Between midday and 5 p.m., the Greek authorities have halted delivery services, while the famed Acropolis will be shut for that period. Some tourists visiting the ancient site have needed first aid.

GERMANY (BBG): Germany Warns Firms to Manage China Risks in Tougher Stance

Chancellor Olaf Scholz’s administration is pushing Germany’s biggest companies to make sure their risks in China are manageable as part of broader efforts to reset relations with the Asian superpower. The government is putting companies such as BASF SE, Volkswagen AG and Siemens AG on alert that they need to make sure they don’t get in too deep in case tensions escalate. The move — aimed at avoiding state bailouts — is part of a new strategy signed off by Scholz’s cabinet on Thursday designed to handle the world’s second-biggest economy more carefully.

CHINA (MNI): PBOC to Move Against Yuan's One-Way Swing If Needed

MNI (Beijing) The People’s Bank of China will move against any one-way bet on the yuan while remaining accommodative to shore up the economy, while consumer price will likely edge up by the end of the year, Vice Governor Liu Guoqiang told reporters Friday. The Bank will respond to “correct pro-cyclical moves” in the FX market when necessary and “prevent big volatility”, Liu said when was questioned on CNY's recent depreciation. He noted the PBOC had plenty of policy tools at its disposal.

CHINA (MNI): Weak Credit Demand Limits PBOC Easing, Fiscal Move Needed

MNI (Beijing) China's soft economic outlook and heavy debt burden has lowered the willingness of both private and local government sectors to add leverage and will limit the effectiveness of any future monetary easing the People’s Bank of China’s may want to undertake, policy advisors and economists told MNI. Several advisors and economists concerned over the economic recovery have called for a greater loosening of monetary policy. A recent Institute of Finance and Banking at the Chinese Academy of Social Sciences (CASS) note suggested the PBOC should make larger and faster rate cuts to support the economy.

CHINA (MNI): PBOC to Optimise Rules on Property Market

MNI (Beijing) The People’s Bank of China will work with other regulators to optimise previous rules and support house-buying demand, and stabilise lenders’ funding cost in a bid to strengthen their capacity to boost the economy, said Zou Lan, head of the monetary policy department at the PBOC. “Considering the supply and demand in the property market has been changing, some previous regulations curbing hot market demand need to be optimised at a marginal pace, ” said Zou, noting the financial sector has coordinated other regulators to meet the need of first- and second-home buyers and support health and stable growth of the property market.

CHINA (MNI): China Q2 GDP Tipped at 7%

MNI (Beijing) China’s Q2 GDP read - estimated near 7% - could represent 2023’s peak thanks to the lower comparison base over the same period last year, but authorities will likely implement greater fiscal support and smooth credit transmission over rate cuts to meet the government's 5% annual growth target this year, advisors and analysts told MNI. China will publish Q2 GDP next Monday, which could print below expectations, according to market watchers.

CHINA (RTRS): China Invites Global Investors for Rare Meeting as Economy Sputters

China's financial regulators have invited some of the world's biggest investors to a rare symposium next week, three sources said, seeking to encourage foreigners to keep investing in the world's second-largest economy despite its recent weakness and rising geopolitical tensions. The meeting in Beijing next Friday will focus on the current conditions of U.S. dollar-denominated investment firms in China and the main challenges facing them, according to the sources who have direct knowledge of the matter and invitation documents reviewed by Reuters.

BOJ (MNI): BOJ Outlines Monetary Policy Review

The Bank of Japan published the guideline for its monetary policy review Friday, noting the bank will "assess the effects of various unconventional monetary policy measures that have been implemented over the past 25 years in the context of interactions with developments in economic activity and prices at each point in time". Additionally, the BOJ will analyze the impact of policy measures on financial markets and the financial system, including side effects.

BOJ (MNI): BOJ to Tweak Yield Control This Month, Ex-Official Hayakawa Says

The Bank of Japan will probably adjust its yield curve control program at its policy meeting this month given that inflation is stronger than expected, according to a former executive director at the bank. “I expect they will make some kind of adjustment to YCC this month,” former director Hideo Hayakawa said in an interview Thursday. “If they don’t, it doesn’t make sense.”

RBA (MNI): Bullock to Replace Lowe as Next RBA Governor

Michele Bullock, deputy governor at the Reserve Bank of Australia, will become Australia’s next governor, replacing Philip Lowe when his term ends September. Federal Treasurer Jim Chalmers and Prime Minister Anthony Albanese revealed the decision Friday morning in Canberra. Bullock beat out two other top contenders to take the job – Department of Finance Secretary Jenny Wilkinson and Treasury Secretary Steven Kennedy.

RBA (MNI): Bullock Unlikely to Push Major Cultural RBA Shift

Incoming Reserve Bank of Australia Governor Michele Bullock represents a "safe pair of hands" and should placate a market seeking continuity, however, she will likely not usher in any seismic shift to policy or culture, ex-staffers told MNI. Federal Treasurer Jim Chalmers and Prime Minister Anthony Albanese revealed the decision Friday morning in Canberra, which follows the publication of a wide-ranging review into the RBA earlier in the year, which the new governor will steward. Current Governor Philip Lowe’s term ends in September.

MNI RBNZ REVIEW: JULY 2023 - A High Bar for Further Hikes

As widely expected, the RBNZ left interest rates unchanged at 5.50%. This was the sell-side consensus and our own firm bias. The accompanying statement indicated rates will need to stay in restrictive territory for the foreseeable future in order to ensure that inflation returns to the 1-3% target, while supporting sustainable employment. The current level of policy rates is constraining inflation and spending as anticipated, the central bank noted. The global growth backdrop is weaker, which is weighing on NZ related commodity prices.

COMMODITIES (BBG): Iron Ore Climbs for Fourth Day With Demand Outlook Brightening

Iron ore rose for a fourth day as optimism builds that Chinese authorities will step up aid for the property sector, while falling steel inventories indicate demand is increasing.The steelmaking staple is headed for its biggest weekly jump in five, and received another boost on Friday when People’s Bank of China Deputy Governor Liu Guoqiang said monetary policy in the year’s second half would be “targeted and forceful.”

DATA

EURO AREA MAY UNADJUSTED TRADE DEFICIT EUR0.3B (BBG)
EURO AREA MAY ADJUSTED TRADE DEFICIT NARROWS TO EUR0.9B (BBG)

SWEDEN JUN CPIF +6.4% Y/Y (MNI)

RATINGS: Friday’s Rating Slate

Rating reviews of note scheduled for after hours on Friday include:

• Fitch on the European Financial Stability Facility (current rating: AA-), the European Stability Mechanism (current rating: AAA; Outlook Stable), Ireland (current rating: AA-; Outlook Stable) & Slovakia (current rating: A; Outlook Negative)
• Moody’s on Spain (current rating: Baa1; Outlook Stable)
• DBRS Morningstar on Austria (current rating: AAA, Stable Trend)

FOREX: Dollar Sell-Off Abates, But No Signs of Reversal Yet

• The week's greenback sell-off has abated modestly early Friday, but not before a number of major pairs managed to touch fresh highs during Asia-Pac hours. EUR/USD touched 1.1243, GBP/USD touched 1.3142, while USD/JPY slipped to 137.25.
• Despite the pause in the USD pullback, there are few signs of any form of reversal from these levels, with markets clearly content to maintain the weak USD backdrop a few weeks out from the July Fed rate decision.
• CHF remains one of the key beneficiaries of the weaker USD backdrop, with USD/CHF lower again Friday for a seventh consecutive session, pressing prices to 0.8566. Bearish USD/CHF momentum extended on the break below key support earlier this week at 0.8758 to once again print the lowest levels since early 2015 and the removal of the EUR/CHF peg.
• CHF continues to gain as sight deposits data suggests the SNB continue to favour FX sales/CHF purchases to tighten financial conditions despite the stronger FX backdrop. The 3.0% 10-dma envelope below undercuts at 0.8560, marking first support.
• The Friday docket is considerably quieter, with the prelim University of Michigan confidence release the last key data release of the week. Markets expecting the 1-yr inflation expectations metric to moderate lower, slowing to 3.1% from 3.3% prior. Fed's Goolsbee is the sole CB speaker Friday, appearing on Fox News at 1410BST/0910ET.

BONDS: Moving Off the Highs of the Week

• After the big moves of the week so far, core fixed income sits below yesterday's highs but moves have been relatively limited in the context of the wider week. USTs, Bunds and gilts all sit comfortably above yesterday's opening price. Part of the move looks like a retracement ahead of the weekend, while part is continued reaction to Fed's Waller comments yesterday.
• The shorter-end has seen the biggest moves this morning with curves bear flattening.
• Looking ahead, the highlights of the rest of the day are likely to be the inflation expectations component of the Michigan survey, an appearance by Fed's Goolsbee on CNBC and US import / export price data.
• TY1 futures are down -0-10 today at 112-23+ with 10y UST yields up 3.0bp at 3.796% and 2y yields up 4.1bp at 4.676%.
• Bund futures are up 0.10 today at 132.93 with 10y Bund yields up 1.3bp at 2.460% and Schatz yields up 4.2bp at 3.183%.
• Gilt futures are up 0.20 today at 949.91 with 10y yields up 0.8bp at 4.425% and 2y yields up 1.9bp at 5.138%.

EQUITIES: E-Mini S&P Remain Close to Thursday Cycle High

Eurostoxx 50 futures trading higher again this week. The rally has resulted in a move above the 50-day EMA at 4335.00 and price is through 4371.00, the Jul 6 high. Clearance of this latter level highlights a potentially stronger bull cycle and attention is on key resistance and the bull trigger at 4447.00, the Jul 3 high. Key support and the bear trigger has been defined at 4220.00, the Jul 7 low. Initial support is at the 50-day EMA. A bull theme in S&P E-minis remains intact. This week’s rally has resulted in a break of resistance at 4498.00, the Jun 30 high. The break confirms a resumption of the uptrend and maintains a bullish price sequence of higher highs and higher lows. The contract has also traded through 4500.00 and this opens 4556.71, a Fibonacci projection. First support lies at 4439.81, the 20-day EMA. Clearance of this level would highlight a S/T bearish threat.

• Japan's NIKKEI closed lower by 28.07 pts or -0.09% at 32391.26 and the TOPIX ended 3.89 pts lower or -0.17% at 2239.1.
• Elsewhere, in China the SHANGHAI closed higher by 1.221 pts or +0.04% at 3237.701 and the HANG SENG ended 63.16 pts higher or +0.33% at 19413.78.
• Across Europe, Germany's DAX trades lower by 27.21 pts or -0.17% at 16113.95, FTSE 100 higher by 11.01 pts or +0.15% at 7451.24, CAC 40 up 23.6 pts or +0.32% at 7393.4 and Euro Stoxx 50 up 10.31 pts or +0.23% at 4402.07.
• Dow Jones mini down 28 pts or -0.08% at 34560, S&P 500 mini down 1 pts or -0.02% at 4542.5, NASDAQ mini up 11.25 pts or +0.07% at 15722.75.

COMMODITIES: Current Bull Theme in WTI Futures Intact Despite Trading Slightly Lower Friday

The current bull cycle in WTI futures remains intact. The contract has recently breached $72.72, the Jun 21 high and Wednesday’s move higher resulted in a break of key resistance at $75.70, the Jun 5 high. This strengthens current bullish conditions and paves the way for a climb towards $78.03, a Fibonacci retracement point. Key short-term support has been defined at $66.96, the Jun 12 low. Initial support is at $72.31, the 20-day EMA. Gold is holding on to its latest gains. The yellow metal has breached resistance at the 50-day EMA. The average intersects at $1945.0 and the break signals scope for a continuation of the current corrective cycle. This opens $1968.00, the Jun 16 high. Key resistance has been defined at $1985.3, the May 24 high where a break would highlight a stronger reversal. Key support and the bear is at $1893.1, the Jun 29 low.

• WTI Crude down $0.06 or -0.08% at $76.8
• Natural Gas up $0.02 or +0.59% at $2.555
• Gold spot down $3.74 or -0.19% at $1956.79
• Copper down $2.1 or -0.53% at $391.75
• Silver down $0.12 or -0.5% at $24.7527
• Platinum down $8.4 or -0.86% at $968.03