MNI US OPEN - French, German Flash PMIs Weaker Than Expected

NEWS

US (BBG): Trump Outraises Biden in May as Billionaires Start Giving Big

Donald Trump raised more money than Joe Biden for the second straight month in this election cycle, but the president’s campaign is still flush with cash as the two prepare to face off next Thursday in the first debate of the general election. Biden and the Democratic Party raised $85 million in May, compared to the $141 million that Trump and the Republican National Committee amassed, according to federal filings and statements from the campaigns. The president entered May with $212 million cash on hand, a record amount for a Democratic candidate at this point in the election.

FRANCE (BBG): Le Pen’s Rise Sets Up French Debt Market for Years of Pain

Bond investors are set to impose a higher interest rate on French government borrowing for years, in a regime change that could have far reaching consequences for Europe’s second largest economy. Even if Marine Le Pen’s National Rally falls short of an outright majority in the upcoming vote, Zurich Insurance Company and Neuberger Berman say the market will continue to demand a higher yield to buy French debt. Others, including Societe Generale SA anticipate the political uncertainty that has weighed on bonds will persist until the 2027 presidential election.

EUROPEAN PARLIAMENT (MNI): Czech ANO Leaves RE, ECR Cemented as Third-Largest Group

The Czech populist ANO (Action of Dissatisfied Citizens) party of former PM Andrej Babis has formally withdrawn from the liberal Renew Europe (RE) political grouping within the European Parliament, and its associated ALDE European party. ANO won seven seats in the EP in the recent elections, making it the single largest representation from Czechia in Brussels. Babis has said that ANO would not be able to fulfil its policy programme within RE, and that over the next two weeks it will decide on which political group to join. Notably, Babis has said that joining the conservative European Conservatives and Reformists (ECR) group is not a solution.

CHINA (BBG): PBOC Manages Yuan’s Decline With Strong Support Via Fixing

China’s support for the yuan Friday signaled its desire to manage its decline, as broad strength in the dollar kept the currency close to a policy no-go area. The People’s Bank of China set its daily reference rate for the managed currency at 7.1196 per dollar. While the level was slightly weaker than Thursday’s, the difference between the so-called fixing and forecasts was the widest since April.

CHINA (MNI): China Hopes EU to Ease Frictions Via Negotiations

MNI (Beijing) China hopes the European Union can handle differences through negotiations in accordance with WTO rules, preventing trade frictions from escalating out of control, a spokesperson of the Ministry of Commerce said in a statement on its website Friday. The EU continues to escalate trade frictions and may trigger a “trade war”, which it would be fully responsible for, as it failed to implement the consensus reached by leaders of both sides, follow WTO rules and protect the legitimate rights and interests of Chinese enterprises, MOFCOM said, urging the EU to return to the correct way of getting along with China.

BOJ (MNI): BOJ to Adjust Policy, But Uncertainty High - Ueda

The BOJ will adjust the degree of easy policy if economic activity and prices move in line with the bank’s forecast, according to a speech by Bank of Japan Governor Kazuo Ueda on Friday. However, there are both upside and downside high uncertainties over the economy and prices, and the BOJ must pay careful attention to developments of financial and forex moves, and their impact, Ueda told reporters at the general meeting of the National Association of Shinkin Banks.

RUSSIA/N. KOREA (NYT): Putin Threatens to Arm North Korea, Escalating Tension With West Over Ukraine

President Vladimir V. Putin of Russia directly warned the United States and its allies that he is willing to arm North Korea if they continue to supply Kyiv with sophisticated weapons that have struck Russian territory, raising the stakes for the Western powers backing Ukraine. He had made a similar, though significantly less overt, threat a day earlier in Pyongyang, where he revived a Cold War-era mutual defense pact with North Korea’s leader, Kim Jong-un. The pact requires each nation to provide military assistance to the other “with all means at its disposal” in the event of an attack.

BRICS (BBG): Xi, Putin Score Wins as More Asia Leaders Aim to Join BRICS

As Russian President Vladimir Putin and Chinese Premier Li Qiang wrapped up separate meetings in Southeast Asia this week, the two partners in the BRICS economic bloc encountered a region keen to join a group seen as a hedge against Western-led institutions. During an interview with Chinese media ahead of Li’s visit to Malaysia, Prime Minister Anwar Ibrahim declared his intention to apply to the bloc after it doubled in size this year by luring Global South nations — partly by offering access to financing but also by providing a political venue independent of Washington’s influence.

CORPORATE (BBG): Nvidia Stake Trimmed by Veteran Tech Investor on Business Risks

Paul Wick of Seligman Investments has been trimming his holdings of Nvidia Corp. in recent weeks after questioning earnings growth prospects at the stock market darling. “Our enthusiasm has moderated somewhat over the last one to two weeks,” Wick said by video call at a UBS Group AG event in Singapore on Friday, without elaborating on how much of the stake has been cut.

DATA

EUROZONE DATA (MNI): Germany Inflation Stickiness Appears to Be an Outlier

• EUROZONE JUN FLASH MANUFACTURING PMI 45.6 (FCST 47.9); MAY 47.3
• EUROZONE JUN FLASH SERVICES PMI 52.6 (FCST 53.4); MAY 53.2

The Eurozone June flash PMIs were weaker than expected, an unsurprising result after the French and German prints released earlier this morning. Like Germany, services (52.6 vs 53.4 cons, 53.2 prior) remains in expansionary territory while manufacturing (45.6 vs 47.9 cons, 47.3 prior) is stuck in contraction. The report notes that the Eurozone ex-Germany and France continued to grow solidly. Arguably if there was an ex-Germany/France EZ number it would have been broadly in line with consensus. Additionally, the inflation stickiness seen in the German report appears to be an outlier, with the rest of the Eurozone joining France in seeing moderations in output charge inflation.

FRANCE DATA (MNI): Election Uncertainty Weighs on Output; Inflation Eases

• FRANCE JUN FLASH MANUFACTURING PMI 45.3 (FCST 46.8); MAY 46.4
• FRANCE JUN FLASH SERVICES PMI 48.8 (FCST 49.9); MAY 49.3

The French flash June PMI was weaker than expected for both the services and manufacturing components, helping Bunds and OATs extend early gains. The services PMI was 48.8 (vs 49.9 cons, 49.3 prior) while manufacturing weakened to 45.3 (vs 46.8 cons, 46.4 prior). Looking at the details, we observe the potential early impacts of French political uncertainty on domestic output volumes, while output charge inflation (particularly in services) softened markedly in June.

FRANCE DATA (MNI): Manufacturing Sentiment Unchanged and In-Line With Consensus

• FRANCE JUN MANUF SENTIMENT AT 99

France Manufacturing Sentiment came in line with consensus at 99 and unchanged from last month. It remains in line with the long term average and below the pre-covid (2014-19) average of 103.7. To note, 'Personal Price' Expectations' remained relatively stable, edging up 1.1 points to 0.4 , although remains lower than April levels. Responses for this survey were collected between May 27 and June 18.

GERMANY DATA (MNI): Flash PMI Weaker Than Expected; Services Stickiness Noted

• GERMANY JUN FLASH MANUFACTURING PMI 43.4 (FCST 46.4); MAY 45.4
• GERMANY JUN FLASH SERVICES PMI 53.5 (FCST 54.4); MAY 54.2

In a similar fashion to France, the German June flash PMI was weaker than expected on all counts. The services PMI remains in expansionary territory though, at 53.5 (vs 54.4 cons, 54.2 prior). Manufacturing has now been in contractionary territory for 2-years, at 43.4 (vs 46.4 cons, 45.4 prior) in June. Whereas the French print may have been partially driven by political uncertainty, the same case cannot be made in Germany. Somewhat concerningly, services output charge inflation quickened versus in May despite a moderation in the rate of input cost inflation.

UK DATA (MNI): Services PMI Disappoints But Little Market Reaction Overall

• UK JUN FLASH MANUFACTURING PMI 51.4 (FCST 51.1); MAY 51.2
• UK JUN FLASH SERVICES PMI 51.2 (FCST 53.0); MAY 52.9

We noted the market was probably pricing in a softer print than the consensus following this morning's disappointing French, German and EZ prints and the UK services print has seen a similar downside surprise (printing 51.2 versus 53.4 consensus, 53.2 prior). Manufacturing in contrast was marginally higher-than-expected at 51.4 (51.1 exp, 51.2 prior). Probably the key point here is that: "UK firms also faced a quickening of input cost inflation in June, as severe global shipping constraints led to higher transport costs. The rise fed through to quicker increases in output charges among both manufacturing and services companies, with producers notably raising their prices at the sharpest rate since May 2023."

UK DATA (MNI): Retail Sales Surprises Positively - But Little MonPol Impact

• UK MAY RETAIL SALES +2.9% M/M, +1.3% Y/Y
• UK MAY RETAIL SALES EX-FUEL +2.9% M/M, +1.2% Y/Y

Higher than expected retail sales print with broad-based increases, particularly in clothing, furniture, sports equipment and toy stores. The ONS also points to the soft prices of furniture and household goods in the May CPI print. We don't think the retail sales data will have any real impact on monetary policy. More generally the ONS notes that "sales volumes rose by 1.0% in the three months to May 2024 when compared with the previous three months. However, they fell by 0.2% when compared with the three months to May 2023."

UK DATA (MNI): UK Debt/GDP at Highest Level Since 1961

• UK MAY PSNB GBP+15.02 BN
• UK MAY CGNCR GBP24.6 BN
• UK MAY PSNCR GBP18.14 BN
• UK MAY PSNB-X GBP+14.1 BN

The UK government's outstanding debt as a share of GDP rose to 99.8% in May, the highest level since fiscal year 1960/61, the Office for National Statistics said Friday. Excluding the Bank of England from the measure, the share of net debt to GDP dropped to 91.3%, 8.5% lower than the fully inclusive reading. On either reading, the figure underlines the parlous state of the public finances facing whichever party wins the July 4 election.

JAPAN DATA (MNI): Japan May Core CPI Rises 2.5% vs. April +2.2%

• JAPAN MAY CORE CPI +2.5% Y/Y; APRIL +2.2%
• JAPAN MAY CORE-CORE CPI +2.1% Y/Y; APRIL +2.4%
• JAPAN MAY SERVICES PRICES +1.6% Y/Y; APRIL +1.7%

The year-on-year rise of Japan's annual core consumer inflation rate accelerated to 2.5% in May from April’s 2.2% due to the increase in energy, data released by the Ministry of Internal Affairs and Communications showed on Friday. May’s index stayed above the Bank of Japan’s 2% target for the 26th consecutive month. The underlying inflation rate measured by the core-core CPI (excluding fresh food and energy) rose 2.1% y/y in May, slowing from April’s 2.4% and for the first acceleration in nine months.

FOREX: EUR Slips as German, French PMIs Miss Expectations

• Prelim PMI data from across the Eurozone and UK took market focus this morning, with weakness seen from across both the manufacturing and services sectors across France and Germany. The poor data (particularly France) has weighed on the single currency, putting EUR lower against all others in G10. Close to 4,000 contracts traded across EUR futures on the German release, tipping cumulative activity well ahead of average for this time of day. Further weakness in spot exposes the Jun 14 low at 1.0668, ahead of the key  support at the Apr 16 low of 1.0601. 
• While UK data came in weaker than forecast, markets were less responsive, potentially supporting the narrative that followed yesterday's BoE decision, in which the MPC are becoming less sensitive to data surprises as part of their policymaking process. GBP/USD briefly printed down at 1.2634 before recovering ahead of NY hours. 
• JPY trade furtively firmer, however no sign of a reversal off highs is present in USD/JPY just yet. The trend signal remains positive, with the overnight high at 159.13 overnight still not sufficient to test the mettle of the Japanese authorities on further currency intervention. 
• Focus for the duration of the Friday session turns to the prelim June PMI data from the US, with both the manufacturing and services reads expected to fade from May - although stay above the 50.0 level. Following the inflationary impulses evident in yesterday's Philly Fed, particular market focus may be on the prices paid subcomponents. Canadian retail sales and US existing home sales are also due. 

EGBS: Weak Flash PMIs Support EGB Futures

The weaker-than-expected run of Eurozone flash PMIs supported core/semi-core EGBs, before a pullback from highs.

• Signs of Inflation stickiness in the German PMIs may have limited the rally.
• Bund futures +59 at 132.83. Recent gains have strengthened a bullish theme, with next resistance seen at a Fibonacci projection (133.42).
• The German cash curve has bull steepened, taking cues from the data-driven dovish repricing in EUR STIRs.
• ECB-dated OIS now show 45bps of cuts through year-end, vs. 42bps pre-data.
• EGB spreads to Bunds more generally have seen limited moves.
• The DSTA will release its quarterly outlook today, there is a risk that the issuance target for DSLs is nudged up a little to e.g. E45bln from E40bln, but we think the base case of the market is that the target remains unchanged.
• The remainder of today’s regional calendar is light, with US flash PMIs set to garner the most interest this afternoon.

GILTS: Off Highs, Just Under 50bp of ’24 BoE Cuts Priced

Gilts are off session highs.

• Futures +16 at 98.86, after breaching the recent high of 99.05.
• Bulls now target projections drawn off the May 29-June 4-June 10 price swing (99.25/62).
• Cash gilt yields are flat to 2bp lower, light bull flattening seen.
• Prior June yield lows were breached across the curve, turning focus to levels not printed since March.
• European PMIs drove an early rally.
• The reversal from highs then came as the UK flash PMIs showed “a quickening of input cost inflation,” which outweighed the impact of the softer-than-expected headline services PMI reading.
• While the data is having a small intraday impact, we believe that the BoE has become less data dependent, with a cut likely to come at the Bank’s August decision.
• This is reflected in BoE pricing, which sits around pre-UK PMI data levels.
• Just under 50bp of cuts are priced through year end. A 25bp cut come the end of the August MPC is ~60% priced.
• SONIA futures are 0.5-2.5 higher on the day, also off session highs after extending on yesterday’s BoE-driven rally.
• U.S. PMI data is now eyed ahead of the weekend, with nothing of note on the UK schedule.

EQUITIES: Uptrend in E-Mini S&P Intact, Despite Weakness Off Thursday Highs

The trend condition in Eurostoxx 50 futures remains bullish. A corrective cycle has resulted in a pullback from the May high. Recent weakness has seen price breach 4988.00, Jun 11 low, highlighting potential for a deeper retracement and has exposed 4846.00, Apr 19 low and a key support. The recovery from the Jun 14 low is an early bullish signal. Resistance to watch is at 5092.00, Jun 12 high. A break would expose key resistance at 5151.00. The uptrend in S&P E-Minis remains intact, despite weakness off highs on Thursday. Price has recently cleared 5430.75, the May 23 high and bull trigger. This confirmed a resumption of the uptrend. Note that moving average studies are in a bull-mode position too, highlighting positive market sentiment. Sights are on 5594.66 next, a Fibonacci projection. Initial support lies at 5443.73, the 20-day EMA.

• Japan's NIKKEI closed lower by 36.55 pts or -0.09% at 38596.47 and the TOPIX ended 0.85 pts lower or -0.03% at 2724.69.
• Elsewhere, in China the SHANGHAI closed lower by 7.299 pts or -0.24% at 2998.138 and the HANG SENG ended 306.8 pts lower or -1.67% at 18028.52.
• Across Europe, Germany's DAX trades lower by 59.38 pts or -0.33% at 18194.25, FTSE 100 lower by 25.87 pts or -0.31% at 8246.91, CAC 40 down 32.44 pts or -0.42% at 7638.9 and Euro Stoxx 50 down 29.95 pts or -0.61% at 4917.78.
• Dow Jones mini down 48 pts or -0.12% at 39099, S&P 500 mini down 13.25 pts or -0.24% at 5463.5, NASDAQ mini down 51 pts or -0.26% at 19712.25.

Time: 09:50 BST

COMMODITIES: Gold Trades Above Resistance at 50-Day EMA

WTI futures have traded higher this week, extending the current bull phase. The climb has resulted in a break of $80.11, the May 29 high and a key resistance. The clear breach of this hurdle cancels a recent bearish theme and paves the way for $82.24, a Fibonacci retracement point. Initial firm support to watch is $78.08, the 20-day EMA. A break would be seen as an early potential reversal signal. Gold traded higher yesterday but remains below resistance - for now. A sharp sell-off on Jun 7 reinforced a short-term bearish theme. The yellow metal has pierced the 50-day EMA, at 2317.5. A clear break would confirm a resumption of the reversal from May 20 and open $2277.4, the May 3 low. Clearance of this price point would also strengthen a bearish theme. Initial firm resistance is $2387.8, the Jun 7 high.

• WTI Crude down $0.3 or -0.37% at $80.97
• Natural Gas down $0.05 or -1.79% at $2.693
• Gold spot up $6.1 or +0.26% at $2365.49
• Copper down $4.8 or -1.06% at $447.35
• Silver down $0.25 or -0.82% at $30.46
• Platinum up $5.05 or +0.51% at $989.38

Time: 09:50 BST