MNI US OPEN - Higher UK Wages and Unemployment Send Mixed Signals

NEWS

NATO (MNI): Turkey Drops Veto On Sweden's NATO Bids, Wins Significant Concessions

Turkish President Recep Erdogan yesterday agreed to drop his year-long veto on Sweden's NATO membership bid, less than 24 hours out from the NATO summit in Vilnius, Lithuania. Turkey and Sweden released a statement yesterday agreeing to meet annually to work towards "full implementation of all elements of the Trilateral Memorandum," signed last year to address Turkish security concerns. Sweden has "amended its constitution, changed its laws, significantly expanded its counter- terrorism cooperation against the PKK, and resumed arms exports" to Turkey and reiterated that it will not provide support to YPG/PYD, and FET.

NATO (MNI): Vilnius Summit to Provide Clarity on Ukraine's NATO Membership Prospects

NATO Secretary General Jens Stoltenberg has told reporters that he expect allies to send, "a clear and positive message on the path forward to membership for Ukraine." NATO members are considering are two pathways to assure Ukraine's future security. Fast-tracked formal NATO membership, or the so-called Israel-style security framework, where the US and allies enhance Ukraine's defence capacity to deter future Russian aggression alone. Both of these options have clear downsides. The Israel option would be fiscally burdensome NATO members and does not come with guarantees of long-term US Congressional support. Ukraine's full NATO membership risks increased militarisation of Russia after the exposure of military shortcomings.

US (BBG): Fed’s Williams Says ‘Don’t Have Recession in My Forecast’: FT

New York Federal Reserve President John Williams says he doesn’t have a recession in his forecast, the Financial Times reports, citing an interview. “I don’t have a recession in my forecast. I have pretty slow growth.” “I still think that is the right base case, but again, that will really depend on all the factors influencing especially what is happening in inflation.”

US/RUSSIA (MNI): US Not Interested in Diplomatic Solution - Russian Diplomat

Russian news outlet RIA carrying comments from a Russian diplomat stating that US plans to increase arms supply to Ukraine makes clear it is not, "interested in diplomatic solution." The comments come as the NATO leaders' summit gets underway in Vilnius, Lithuania. As was the case during last year's summit in Madrid, Russia is expected to intensify rhetoric framing NATO's actions as aggressive. A short time ago, RIA news cited Konstantin Gavrilov, a senior Russia diplomat in Vienna, stating that Europe will be the first to face "catastrophic consequences" if the Ukraine war escalates.

MNI BOC PREVIEW: JULY 2023 - A Second Hike Before Assessing

The BoC is widely, but not unanimously, expected to hike 25bp for the second meeting after coming off the sidelines five weeks ago. 17 of 23 analysts expect such a move, OIS suggests 19bps is priced. A hike should see a hawkish initial reaction but a pivot to possibly more neutral language after recent data were more nuanced and open-ended guidance could see the edge taken off this move. Along with consensus, we also expect the 25bp hike to 5% to then assess data over an almost two-month period, but as always with the BoC see non-trivial risk of a surprise, this time from a hawkish hold.

FRANCE/INDIA (BBG): France, India Near €3 Billion Fighter Deal in Modi Arms Push

India is set to sign a naval fighter deal worth nearly €3 billion ($3.3 billion) with France when Prime Minister Narendra Modi visits this week, the latest defense deal for the South Asian nation as it presents itself as a bulwark against China in the Asia Pacific. Nearly three dozen Rafale-Marine fighters will be sold to the Indian Navy for use on its locally manufactured aircraft carrier, the INS Vikrant, according to senior officials familiar with the developments.

CHINA (BBG): China Signals More Economic Aid After Property Debt Relief

China signaled more economic support measures are imminent after authorities took a small step toward supporting the ailing property market by extending loan relief for developers. Top state-run financial newspapers ran reports Tuesday flagging the likely adoption of more property supportive policies, along with measures to boost business confidence. Earlier, financial regulators stepped up pressure on banks to ease terms for property companies by encouraging negotiations to extend outstanding loans.

CHINA (MNI): China's Housing Market Set For Restriction Relaxations

MNI (Beijing) China will likely further relax property-market restrictions to prop up the weakening sector in the second half, though the depth of support will depend on growth pressures and any major stimulus should wait until after July’s politburo meeting, policy advisors and market analysts told MNI. The housing market continued its downward spiral in Q2 after a brief rebound in Q1, with new home sales in 100 key cities falling 26% and 8% m/m per square metre in April and May, China Index Academy data showed.

CHINA (MNI): China Firms Must Prepare For HKEX Disclosure

MNI (Beijing) Many mainland firms listed on the Hong Kong Exchange remain unprepared for incoming sustainability disclosure requirements and must act now to avoid running afoul of the new rules, a prominent policy advisor told MNI. HKEX will finalise its International Sustainability Standard Board-aligned disclosure requirements at the end of the year and implement them on 1 January 2024. The bourse conducted a three-month consultation in April, which detailed plans to require listed companies to report climate-related disclosures in their environmental, social and corporate governance (ESG) reports.

AUSTRALIA/EU (BBG): Australia-EU Trade Deal at Risk Amid Impasse Over Market Access

Australia and the European Union’s negotiations to conclude a free-trade agreement are at an impasse over Canberra’s concerns that the bloc is offering insufficient access to the nation’s agricultural exports.Trade Minister Don Farrell, who arrived in Brussels this week for talks with EU counterpart Valdis Dombrovskis, is unhappy with the market entry offered by the EU for Australian beef, sheep and sugar. Farrell said he is prepared to walk away from the negotiations if the EU fails to improve its position.

MNI RBNZ PREVIEW: JULY 2023 - Ready to Watch & Wait

In May the RBNZ hiked rates 25bp to be in line with its updated but unchanged Q2 2023 OCR forecast of 5.5%. This last hike gave the Committee confidence that it had done enough to contain inflation and with that it shifted to a neutral stance. With the data since then generally showing slowing activity, even if confidence is off its lows, survey measures of inflation continuing to gradually ease, and rates in line with the RBNZ forecast, it is likely to be on hold on July 12 for the first time since August 2021. Markets have very little priced in for July.

ISRAEL (BBG): Israelis Start Day of Protests as Judicial Overhaul Moves Closer

Israelis have taken to the streets en masse to protest the government’s plans to weaken the power of judges. Police had arrested more than 40 people by late morning local time after they blocked major roads. The protests started on Monday night when lawmakers moved forward with a key element of the judicial overhaul. Opponents of the plans, which have divided the country and unnerved foreign investors, are scheduled to convene at Ben Gurion international airport in the afternoon, possibly disrupting car traffic in and out of the hub. Police have said they’ll try to ensure flights continue as normal.

THAILAND (BBG): Thai Premier Pick Seen as Turning Point for Troubled Markets

For Thai markets, July may well be a make or break month as the nation’s parliament picks a prime minister, which would signal a successful transition of power after almost a decade of military-backed rule. Since the May election — in which pro-democracy parties racked up the most seats but weren’t able to immediately form a government — global investors have sold more than a net $2.4 billion of stocks and bonds. The uncertainty from the prolonged process hurt the baht, which fell some 2.5%.

DATA

UK DATA (MNI): Unemployment Higher but Wage Growth Soars

• UK MAY ILO UNEMPLOYMENT RATE +4%
• UK JUN CLAIMANT RATE +4%
• UK MAY AVE WEEKLY EARNINGS EX-BONUS +7.3% YY
• UK MAY AVE WEEKLY EARNINGS +6.9% YY

UK wage growth continued to accelerate in the three months to May, again beating analysts forecasts and putting further pressure on the Bank of England's rate setters ahead of the August meeting. Despite a pick-up in the unemployment rate to 4.0% (May alone was 4.3%), the pressure on pay saw total pay rise a nominal 6.9% in the period, while earnings excluding bonuses rose 7.3% y/y. It was the highest rate of growth since March 2021 -- a period distorted by base effects a year on from the first Covid lock-down. Outside the pandemic period, the growth in ex-bonus earnings is a joint record high.

GERMAN DATA (MNI): Year-End ZEW Survey Expectations Worsen

• GERMANY ZEW JUL EXPECTATIONS -14.7 (FCST -10.6); JUN -8.5
• GERMANY ZEW JUL CURRENT SITUATION -59.5 (FCST -62.0); JUN -56.5

The July ZEW survey of financial market experts highlighted mounting concerns regarding the direction of the German economy over the next six months. The current conditions index declined by 3.0 points to -59.5, a less severe decrease than anticipated albeit firmly pessimistic. Meanwhile, outlooks worsened by 6.2 points to -14.7, implying the weakest forward-looking index since December 2022 and more-than undoing the small moderation in outlooks recorded in June.

GERMANY JUN FINAL HICP +0.4% M/M; +6.8% Y/Y (= FLASH) (MNI)
GERMANY JUN FINAL CPI +0.3% M/M; +6.4% Y/Y (= FLASH) (MNI)

ITALY DATA (MNI): Industrial Production Adds to Upside Beats

• ITALY MAY SA IND OUTPUT+1.6% M/M (APR RVSD DN -2.0% M/M); WDA -3.7%Y/Y

Italian industrial production posted a sturdy +1.6% m/m uptick in May, outpacing expectations of +0.6% m/m growth and rebounding from the -2.0% m/m contraction recorded in April. The m/m increase was broad-based across consumer, capital, intermediate and energy goods production. This broke a four-month streak of contractionary m/m prints in Italian production, yet the sector remains in troubled waters with the three-month rolling average firmly contractive at -1.8% 3m/3m, implying a drag on Q2 GDP. Recent PMI data has been especially downbeat, signalling the strongest decline since April 2021 in June and flagging acute weakness in demand conditions.

CHINA JUNE NEW YUAN LOANS 3,050.0B YUAN; EST. 2,318.5B (BBG)
CHINA JUNE M2 MONEY SUPPLY RISES 11.3% Y/Y; EST. 11.2% (BBG)
CHINA JUNE AGGREGATE FINANCING 4,220.0B YUAN; EST. 3,100.0B (BBG)

AUSTRALIA DATA (MNI): Consumer Sentiment Rises but Remains Close to Recent Lows

The Westpac July consumer sentiment index rose 2.7% to 81.3. This moves us away from recent lows but sentiment has been stuck at fairly depressed levels since the middle part of 2022. Westpac attributes the July rise to lower inflation reads, rather the early July pause by the RBA. Westpac Chief Economist Bill Evans noted: "The key message is that sentiment is probably not going to stage a sustained lift from current deeply pessimistic levels until inflation is much lower and interest rates are firmly on hold."

FOREX: AUD/JPY Extends Losing Streak to Five Sessions

• The softer USD backdrop is persisting into a fourth session, with the USD Index edging to the lowest levels since mid-may. The pullback after nonfarm payrolls has extended, compounded by the softer Manheim user car report released on Monday. The USD Index touched 101.676 at the low, narrowing the gap with the next major support of 101.027.
• USD/JPY typifies the soft USD theme, with the pair lower for a fourth consecutive session and narrowing in on 50-dma support of 139.92 - last crossed in early May. The level could come in particular focus tomorrow if the US CPI report misses forecast and prompts a broader pullback in Fed pricing.
• AUD, NZD are among the poorest performers in G10, with AUD/JPY a stand out cross at these levels: AUD/JPY is now on a five session losing streak, with the 50-dma the next level to watch at 93.439.
• Perhaps surprisingly, GBP is mid-table despite another stronger-than-expected wage growth release. The data did little to stir a further GBP rally, as markets pointed to other elements of the report that signaled a looser labour market.
• Scheduled datapoints and risk events due later today are few and far between, with no tier one releases set for Tuesday. The central bank speaker slate is similarly light.

BONDS: Close to the Intraday Highs

• Core fixed income has moved higher this morning and at the time of writing USTs and Bunds are both close to their highs of the day (with gilts also higher but 10-year yields around 1.5bp off their intraday lows).
• UK labour market data has been the biggest release of the morning. Markets initially reacted to the higher-than-expected wage numbers, but by the time gilts opened the focus had switched to the softening of the employment level and the rise in the unemployment rate. Gilts hit their highs of the day on the open.
• The moves in USTs seem to be following on from richness seen through the Asian session (and were also helped by the moves higher in gilts in early European trading). Bunds have generally followed USTs today, with Italian IP stronger than expected but the ZEW survey mixed.
• There is not much on the docket today with markets already having one eye on tomorrow's US CPI data.
• TY1 futures are up 0-10 today at 111-14+ with 10y UST yields down -4.0bp at 3.957% and 2y yields down -2.7bp at 4.834%.
• Bund futures are up 0.39 today at 131.46 with 10y Bund yields down -3.8bp at 2.598% and Schatz yields down -0.2bp at 3.279%.
• Gilt futures are up 0.29 today at 930.05 with 10y yields down -2.8bp at 4.607% and 2y yields down -2.2bp at 5.328%.

EQUITIES: Eurostoxx 50 Futures Remain Vulnerable Despite Recent Bounce

Eurostoxx 50 futures remain vulnerable despite the latest bounce. The contract traded sharply lower last week, clearing a number of key support levels in the process. 4241.00, the May 31 low, has been breached highlighting a potential reversal. This has opened 4208.50, a Fibonacci retracement point. Key short-term resistance is seen at 4330.20, the 50-day EMA. A break of this average would ease bearish pressure. A bull theme in S&P E-minis remains intact and the pullback last week appears to be a correction - for now. Attention is on the first support 4415.05, the 20-day EMA. Clearance of this level would strengthen a bearish threat and expose 4368.50, the Jun 26 low and a key support. The bull trigger is at 4498.00, the Jun 16 high. A clear breach of this level would confirm a resumption of the uptrend and open 4532.08, a Fibonacci projection.

• Japan's NIKKEI closed higher by 13.84 pts or +0.04% at 32203.57 and the TOPIX ended 6.93 pts lower or -0.31% at 2236.4.
• Elsewhere, in China the SHANGHAI closed higher by 17.671 pts or +0.55% at 3221.367 and the HANG SENG ended 180.11 pts higher or +0.97% at 18659.83.
• Across Europe, Germany's DAX trades higher by 3.32 pts or +0.02% at 15675.18, FTSE 100 lower by 16.87 pts or -0.23% at 7256.59, CAC 40 up 34.11 pts or +0.48% at 7177.74 and Euro Stoxx 50 up 6.02 pts or +0.14% at 4262.4.
• Dow Jones mini down 36 pts or -0.11% at 34111, S&P 500 mini down 2.5 pts or -0.06% at 4441.75, NASDAQ mini down 1 pts or -0.01% at 15186.25.

COMMODITIES: WTI Futures Short-Term Conditions Bullish

WTI futures remain in a medium-term bear mode condition, however, a corrective cycle remains in play and the contract has breached resistance at $72.72, the Jun 21 high, This strengthens a short-term bullish condition and a continuation would expose key resistance at $75.70, the Jun 5 high. A break of this level would highlight an important bullish break. On the downside, key short-term support is at $66.96, the Jun 12 low. Gold is consolidating. The trend condition is unchanged and remains bearish. Recent fresh lows reinforce bearish conditions, confirming a resumption of the downtrend and extending the price sequence of lower lows and lower highs. Moving average studies are in a bear mode position highlighting current sentiment. The focus is on $1885.8, the Mar 15 low. Key resistance is $1985.3, the May 24 high. Initial resistance is $1944.3, the 50-day EMA.

• WTI Crude up $0.66 or +0.9% at $73.65
• Natural Gas down $0 or -0.11% at $2.666
• Gold spot up $10.95 or +0.57% at $1936.36
• Copper up $0.95 or +0.25% at $379.45
• Silver up $0.07 or +0.3% at $23.2075
• Platinum up $2.61 or +0.28% at $934.93