MNI US OPEN - German Regions Flag Downside Risk for National Inflation

NEWS

US (WAPO): Debt Limit Deal Clears 1st Hurdle as McCarthy Works to Tamp Down Dissent
With just one more day to corral Republican support on a debt ceiling agreement, House Speaker Kevin McCarthy (R-Calif.) faced growing opposition from far-right members of his party but remained confident as the bipartisan bill passed a key procedural hurdle late Tuesday and headed to the House floor.

EU (MNI): Spanish Elections A Blow To EU Fiscal Reform-Officials
The decision by Spanish Prime Minister Pedro Sanchez to call snap elections for July 23 deals a blow to remaining hopes of a deal on reforming European Union fiscal rules by the end of this year, with officials in Brussels and Madrid telling MNI that Spain’s capacity to concentrate on the bloc’s objectives will inevitably be reduced.

ECB (MNI): FinStab Fragile as Rates, Conditions Tighten - ECB
Europe’s financial stability remains “fragile,” the European Central Bank said Wednesday as it published the May 2023 Financial Stability Review, with households, companies, governments and property markets facing higher interest rates and tightening financial conditions, while disorderly market adjustments also remain a concern.

ECB (BBG): ECB’s Villeroy Says French Inflation Has Probably Passed Peak
The rate of consumer-price rises in France has probably passed its peak, the country’s central bank governor, Francois Villeroy de Galhau, said on Wednesday. “We said inflation will reach its peak during this semester,” he said during the presentation of the French Prudential Supervision and Resolution Authority (ACPR) annual report. “We’re very likely there. It’s even likely that we’ve passed the peak and so inflation will come down in France, as we said, between now and the end of the year, even if it won’t be sufficient.”

ECB (MNI): Returning Inflation To 2% In 2025 Adequate - Visco
The euro area's monetary policy stance should continue aiming at a gradual return of inflation towards the 2% target, in line with the current expected in the second half of 2025, Bank of Italy governor Ignazio Visco said in a speech on Wednesday. Visco underlined “the importance of keeping the bar of monetary policy response”, although being aware there is still “undissipated uncertainty” regarding the inflation dynamics and behaviours that can lead to prolonged durations and effects.

ITALY (BBG): Meloni Confronts Central Bank Succession as Visco Nears Exit
Prime Minister Giorgia Meloni has just five months left to find a new Bank of Italy chief in what may be the one of the most significant appointments she gets to make. Governor Ignazio Visco’s final annual speech on Wednesday — listing the challenges faced by the euro zone’s third-biggest economy — is also a reminder to the premier that the selection of his successor is coming up fast.

UK (The Times) Nearly 800 UK mortgage deals pulled amid interest rate concerns
Nearly 10 per cent of mortgage deals have disappeared over the past week as banks and building societies scrambled to reprice loans after a sharp rise in borrowing costs. Big lenders including HSBC and the Coventry, Skipton and Yorkshire building societies have either increased their mortgage rates by up to 0.72 percentage points or withdrawn deals from sale.

RBA (MNI): Rates Contractionary, Will Remain High - RBA's Lowe
Monetary policy is now contractionary and will likely stay elevated for some time on current forecasts, according to Reserve Bank of Australia Governor Philip Lowe. “The strategy's working, inflation is coming down, and the most recently published forecasts by both the RBA and the Government have inflation coming back to 3.5% by mid-2025 and the unemployment rate rising but staying below where it was before the pandemic, and that's at the current level of interest rates,” Lowe told the Senate Economics Legislation Committee meeting Wednesday.

BOJ (MNI): BOJ's Ueda Sees Shift To New Normal From Low Rates
Bank of Japan Governor Kazuo Ueda on Wednesday indicated a shift to a new normal away from low interest rates for a prolonged period, which may lead to a tweak of yield curve control. “It may be difficult to deny the possibility that we are already in a new normal that is different from the period of ‘low for long,’" Ueda said at the 2023 BOJ-Institute for Monetary and Economics Studies Conference.

CORPORATE (BBG): Dimon Hints at Life After JPMorgan, May Mull Public Office
JPMorgan Chase & Co. Chief Executive Officer Jamie Dimon said running for public office has crossed his mind amid speculation on his long-term future beyond helming the financial services giant. “I love my country, and maybe one day I’ll serve my country in one capacity or another,” he said in a Bloomberg Television interview, when asked if he’s ever considered a public office position. His comments, made at the bank’s annual Global China Summit in Shanghai on Wednesday, come as the US gears up for its 2024 presidential race.

DATA

MNI: FRANCE MAY HICP -0.1% M/M, +6% Y/Y
MNI: FRANCE MAY CPI -0.1% M/M, +5.1% Y/Y
FRANCE APR PPI -5.1% M/M, +7% Y/Y
FRANCE GDP Q1 2ND EST +0.2% Q/Q
FRANCE GDP Q1 2ND EST +0.9% Y/Y
MNI: FRANCE APR CONSUMER MANUF SPENDING -1.6% M/M, -4.1% Y/Y

MNI: BADEN WUERT MAY CPI +0.1% M/M, +6.6% Y/Y
BAVARIA MAY CPI -0.1% M/M, +6.1% Y/Y
NRW MAY CPI -0.2% M/M; +5.7% Y/Y; APR +6.7% Y/Y
SAXONY MAY CPI -0.3% M/M, +6.5% Y/Y

MNI: ITALY FINAL Q1 GDP 0.6 QQ, 1.9 YY

MNI: ITALY MAY FLASH HICP +0.3% M/M, +8.1% Y/Y

MNI: GERMANY MAY UE RATE (SA) 5.6% (= FCST); APR 5.6%
GERMANY MAY UNEMPLOYMENT RATE +5.6%
GERMANY MAY UE NET CHANGE (SA) +9K (FCST +13.5K); APR +23Kr
GERMANY MAY UE TOTAL (SA) 2.573MN; APR 2.564MNr

MNI: SWISS APR RETAIL SALES -2% M/M, -3.7% Y/Y

MNI BRIEF: Japan May Consumer Confidence Rises For Third Month
Japan's consumer confidence index posted its third straight rise in May, increasing to 36.0 from April's 35.4, with three out of four components improving and placing the index at its highest level since January 2022 when it stood at 36.8, data released by the Cabinet Office Wednesday showed. The Office noted consumer sentiment “is recovering.” May’s figures will also ease Bank of Japan concerns high prices weigh on consumer sentiment and spending. The Office derived the data from the latest Consumer Confidence Survey, which was conducted between May 3-22. The sub-index on asset prices, not included in calculating overall consumer confidence, stood at 43.4 in May, up from 41.2 in April.

MNI BRIEF: China's May Manufacturing 48.8, Services PMI 54.5
China's Purchasing Managers' Index contracted for the fourth consecutive month, registering 48.8 in May, driven by a slowdown from production and consumption, data from the National Bureau of Statistics (NBS) showed Wednesday. The production sub-index marked 49.6 in May, slower than April's 50.2 reading while the new orders sub-index – a gauge of demand – printed at 48.3, sliding from last month's 48.8. Both critical indices in the contraction territory reflected insufficient demand in manufacturing together with the restrained production capacity, the NBS said.

MNI BRIEF: Aussie Monthly CPI Tracks Higher at 6.8%
The monthly Consumer Price Index (CPI) indicator rose 6.8% in the year to April 2023, higher than the 6.3% reported in March 2023, but below the high of 8.4% recorded in December 2022, according to the latest data from the Australian Bureau of Statistics.

MNI Projects CPI Cooling to +6.12% in Downside Surprise

We have now received state data that equates to 88.0% weighting of the national German CPI print (due at 1300 BST / 1400 CET).

• MNI calculations estimate that CPI fell by -0.07% m/m, and eased to +6.12% y/y in May. This is based on the published index values for available state data. This implies a substantial 1.1pp deceleration on the annualised figure from +7.2% y/y in April, as German headline inflation distances itself further from the October/November peak of +8.8% y/y.
• For m/m and y/y, our estimate is around 0.3pp and 0.4pp below the current Bloomberg consensus forecast.
• Today's state data also points towards a decent reduction in core CPI for Germany, after holding close to the euro-era high at +5.8% y/y in April. Core CPI data excluding both energy and food is only available for six states which account for 50% of the headline index. These all saw core CPI easing by 0.2pp to 0.7pp on the headline annualised prints, with a weighted average reduction of -0.47pp.
• Note: this is in relation to the national CPI print - not the HICP print (which feeds into the Eurozone HICP print that the ECB targets). The magnitude of surprises to consensus can sometimes be different due to the different methodologies and weights used in national CPI vs HICP - but the direction of the surprise is normally the same.

FOREX: Greenback at May Highs, NOK Slips on Persistent FX Sales

• The greenback trades firmer in early Europe, helping tip the USD Index to new multi-month highs on the final trading day of May. For now, prices remain capped ahead of the 76.4% retracement for the March - April downleg, crossing at 104.68. Progress through here would open the best levels since early March for the currency.
• The clearance of the first hurdle for the debt ceiling deal has been a boon for the US currency, while signs of slipping inflationary pressures in Europe are working against the single currency. Regional German CPI data is generally suggesting downside risks to the national headline later today, while French inflation also came in well below median consensus. Italy provided the only fly in the ointment, with HICP ahead of expectations, helping slow the EUR's decline and help EUR/USD off lows of 1.0659.
• NOK is again the weakest currency in G10, with market focus on this morning's update from the Norges Bank on their planned daily FX purchases for June. The quantity of daily NOK sales are to slow from NOK 1.4bln to NOK 1.3bln - a number clearly falling short of market expectations that are eventually expecting a switch to NOK buying later this year. EUR/NOK spiked upon the release, touching 12.061 before fading back to pre-data levels. This keeps yesterday's cycle highs intact for now at 12.1064.
• Focus for the session ahead turns to prelim German CPI reading for May, the MNI Chicago PMI and Canadian GDP data for March. The central bank speaker slate consists of appearances from Fed's Collins, Harker & Jefferson as well as BoE's Mann.

BONDS: European inflation the driver

• Inflation prints have been the key driver again this morning with German state data pointing to a 0.3-0.4ppt downside print for the national German print due out later and French HICP data 0.4ppt below consensus. Both of these helped push Bunds higher this morning (with USTs and gilts following). There is now less than 50bp of further hikes fully priced in, but the bigger moves in the German curve have been further out, with 2s10s bull flattening.
• Peripheral spreads have widened and the Italian HICP print came in higher than expected by 0.5-0.6ppt but this has not reversed earlier moves, albeit it has stalled the rally.
• We will receive the final German national and HICP prints at 13:00BST / 8:00ET. Today will also see the release of the MNI Chicago PMI and US JOLTs data as well as the Beige Book. In addition there will be comments from BOE's Mann and Fed's Collins, Bowman, Harker and Jefferson.
• TY1 futures are up 0-8+ today at 114-09+ with 10y UST yields down -3.1bp at 3.657% and 2y yields down -1.1bp at 4.440%.
• Bund futures are up 0.96 today at 136.15 with 10y Bund yields down -7.9bp at 2.260% and Schatz yields down -5.2bp at 2.720%.
• Gilt futures are up 0.78 today at 967.75 with 10y yields down -6.8bp at 4.175% and 2y yields down -8.8bp at 4.334%.

EQUITIES: Stock Futures Point to Lower Open Wednesday

S&P E-minis trend conditions remain bullish and the latest pullback is -for now - considered corrective. Last week’s bounce from 4114.00, May 24 low, means that support around the 50-day EMA remains intact. Eurostoxx 50 futures managed to find support last week at 4252.00, the May 25 low. This means that for now, support at the 50-day EMA, at 4272.40, remains intact. The contract is trading lower today.

• Japan's NIKKEI closed lower by 440.28 pts or -1.41% at 30887.88 and the TOPIX ended 28.59 pts lower or -1.32% at 2130.63. In China the SHANGHAI closed lower by 19.649 pts or -0.61% at 3204.564 and the HANG SENG ended 361.51 pts lower or -1.94% at 18234.27.
• Across Europe, Germany's DAX trades lower by 66.76 pts or -0.42% at 15842.4, FTSE 100 lower by 28.37 pts or -0.38% at 7493.92, CAC 40 down 50.49 pts or -0.7% at 7159.13 and EuroStoxx50 down 26.75 pts or -0.62% at 4264.64.
• In US futures space, Dow Jones mini down 64 pts or -0.19% at 33019, S&P 500 mini down 6.75 pts or -0.16% at 4207.75, NASDAQ mini down 27.75 pts or -0.19% at 14369.

COMMODITIES: Oil Bear Cycle Persists, Weaker for Second Session

The bear cycle in Gold remains intact and short-term gains are - for now - considered corrective. The yellow metal has pierced $1940.2, trendline support drawn from Nov 3 2022. WTI futures remain in a bear mode position. The strong sell-off yesterday resulted in print below support at $69.39, the May 15 low. A clear break of this level would strengthen bearish conditions and pave the way for weakness towards $63.90, the May 4 low.

• WTI Crude down $0.63 or -0.91% at $68.9
• Natural Gas down $0.02 or -0.82% at $2.309
• Gold spot down $4.08 or -0.21% at $1955.2
• Copper down $3.1 or -0.85% at $363
• Silver up $0.03 or +0.13% at $23.1972
• Platinum down $7.81 or -0.76% at $1017.32