MNI US OPEN - Italy’s Windfall Profits Tax On Banks Spooks Markets

NEWS

EUROZONE (MNI): Consumer Price Expectations Dip Again In June

Inflation expectations for consumers across the eurozone decreased in June both for the next 12 months and for three years ahead, the European Central Bank's latest survey showed. The median rate of expected inflation over the next 12 months fell to 3.4%, from 3.9% in May, and three-year expectations eased to 2.3% from 2.5%. Having fallen in the previous two months, uncertainty about inflation expectations over the next 12 months was unchanged.

ITALY (BBG): Italy Surprises Markets With Tax on ‘Extra’ Profits of Banks

Italian Prime Minister Giorgia Meloni’s cabinet approved a surprise tax on the “extra profits” of banks this year. The levy was slipped into a huge package of measures that ranged from taxi licenses to foreign investment. The tax could bring over €2 billion ($2.2 billion) into state coffers, according to Ansa newswire. Italy agreed on a “40% withdrawal from banks’ multi-billion euro extra profits” for 2023 which is set to finance tax cuts and support for mortgages for first-time owners, deputy Prime Minister Matteo Salvini said at a press conference in Rome where he appeared without Meloni.

ITALY (MNI): Bank Tax Highlights Social Not Fiscal Conservative Nature Of Gov't

The decision by Italy's right-wing coalition to implement a 40% windfall tax on excess bank profits in 2023 has come as a shock to markets, with Italian bank stocks hit hard in early trading. The rightward lean of the Italian government, led by PM Giorgia Meloni's Brothers of Italy (FdI) had led many to assume that it would be a more pro-business, free-market gov't than the5-Star/Democratic Party administration that proceeded it.

US (BBG): Moody’s Cuts US Banks on Mounting Funding Costs, Office Exposure

Moody’s Investors Service lowered credit ratings for 10 small and midsize US banks and said it may downgrade major lenders including U.S. Bancorp, Bank of New York Mellon Corp., State Street Corp., and Truist Financial Corp. as part of a sweeping look at mounting pressures on the industry. Higher funding costs, potential regulatory capital weaknesses and rising risks tied to commercial real estate loans amid weakening demand for office space are among strains prompting the review, Moody’s said in a spree of notes late Monday.

CHINA PRESS (MNI): Yuan Needs Time to Appreciate - Chief Economist

The Yuan will take time to strengthen as markets wait for new stimulus policies to take effect and external factors remain uncertain, according to Huang Wentao, chief economist at China Securities Construction. In an interview with 21st Century Herald, Huang said although the government will not implement strong stimulus in H2, the yuan will strengthen later in the year as the domestic economy stabilises with inventories, incomes and exports recovering naturally. In the short term, CNY will fluctuate around CNY7.1-7.2 against the U.S. dollar, he added.

CHINA/JAPAN (BBG): Japan Declines to Confirm Report on Major Chinese Cyberattack

Japan has not confirmed that secret information was leaked through a cyberattack, following a report from the Washington Post that China hacked the country’s sensitive defense networks. Japan does not comment on individual cyberattacks and how they are dealt with, Defense Minister Yasukazu Hamada told reporters in Tokyo on Tuesday, when asked about the report. “I won’t comment on the details due to the nature of the matter,” Hamada said.

DATA

UK BRC JUL BY VALUE SHOP SALES LFL +1.8% YY, TOTAL +1.5% YY (MNI)

CHINA DATA (MNI): China Jul Exports Down, Imports Dive

• CHINA JUL TRADE SURPLUS +$80.6 BLN; MEDIAN +$70.00 BLN
• CHINA JUL EXPORTS -14.5% Y/Y VS MEDIAN -12.9% Y/Y
• CHINA JUL IMPORTS -12.4% Y/Y VS MEDIAN -5.7% Y/Y

MNI (Beijing) China's exports decreased by 14.5% y/y in July, dipping further from June's 12.4% y/y drop, and weaker than the consensus of 12.9% y/y fall, led by shrinking external demand together with the high base effect, data from the Customs on Tuesday showed. Exports in the first seven months of 2023 totaled USD1.95 trillion. ASEAN countries - accounting for 15.3% of total exports - declined by 2.0% over the Jan-Jul period while those to the EU decreased 8.9% and 18.6% y/y to the U.S.

JAPAN DATA (MNI): Japan June Real Wage Hits 15th Straight Y/Y Drop

The year-on-year drop of inflation-adjusted real wages, a barometer of households' purchasing power, widened to 1.6% in June from a 0.9% fall in May as the consumer price index rise accelerated, data released by the Ministry of Internal Affairs and Communications on Tuesday showed. Real wages stayed in negative territory for the 15th straight month in June, illustrating how household income has not kept pace with price rises and has impeded low-income household and elder spending.

JAPAN DATA (MNI): Japan July Sentiment & Outlook Indexes Rise

Japan's sentiment index posted its first rise in two months, gaining 0.8 points to 54.4 in July from 53.6 in June, while the outlook index for two to three months ahead posted its first rise in three months, up 1.3 points to 54.1 from June's 52.8, according to the Cabinet Office's Economy Watchers report released Tuesday.

FOREX: USD Boosted as Global Bank Shares Hit Retreat

• The USD trades on the front foot in early Tuesday trade, with markets taking note of a series of negative sector news for global banks. Firstly, Moody's cutting their rating on the US Banking sector, with the ratings agency flagging the weaker outlook for banks stemming from both higher funding costs as well as office and commercial real estate exposure.
• Compounding the pullback in banking stocks, a fresh windfall tax on banking sector profits has hurt the EuroStoxx50 Bank Index and sent the likes of UniCredit lower by over 5% - making for a risk-off feel ahead of the NY crossover.
• Equities are lower, alongside global yields, hindering progress among AUD and NZD, which again are circling key support and recent lows. AUD/USD trades heavy and is through to new weekly lows this morning, and now sits within range of 0.6514, the early August low and bear trigger.
• Weakness through here puts the pair at the lowest level since June 1st and within range of a series of key levels: firstly the YTD low and assumed sizeable support at 0.6458 - the May 31st low - as well as one of the largest option strikes for today's NY cut: A$1.4bln set to roll off at $0.6450.
• Focus turns to the US trade balance release for June, followed by wholesale trade sales and inventories stats. Speeches are set from Fed's Harker and Barkin.

BONDS: Bull Flattening as Sentiment Sours

• Core fixed income is higher across the board this morning. Drivers include Moody's cutting ratings on the US banking sector and some soft Chinese data overnight which have both led to a generally risk-off tone across markets. Although it didn't see any real market reaction the ECB Consumer Expectations Survey also showed a continued decline, helping add to the dovish sentiment in the market this morning.
• Curves have bull flattened across the board in core FI.
• EGBs have seen the biggest rally with 10-year Bund yields almost 10bp lower on the day at the time of writing, back to 2.5%, but decent moves for both gilts and Treasuries too (with TY1 hitting its highest level of the month so far).
• Today we will hear from Fed's Harker and Barkin but markets already have one eye on tomorrow's US CPI print.
• TY1 futures are up 0-10 today at 111-14 with 10y UST yields down -7.5bp at 4.018% and 2y yields down -2.6bp at 4.740%.
• Bund futures are up 0.95 today at 132.75 with 10y Bund yields down -9.9bp at 2.499% and Schatz yields down -4.7bp at 2.921%.
• Gilt futures are up 0.80 today at 950.08 with 10y yields down -8.4bp at 4.374% and 2y yields down -4.2bp at 4.891%.

EQUITIES: Bearish Threat in Eurostoxx 50 Futures Remains Present

A bearish threat in Eurostoxx 50 futures remains present following last week’s sharp sell-off from 4513.00, the Jul 31 high. Price has cleared both the 20- and 50-day EMAs, highlighting a stronger bearish theme. Note too, that key support at 4331.00, the Jul 26 low, has been cleared. This strengthens current conditions and opens 4220.00, the Jul 7 low and a reversal trigger. Initial firm resistance is at 4424.00, the Aug 2 high. Bearish conditions in the E-mini S&P contract remain intact. Last week’s sell-off reinforced a bearish threat and resulted in a break of support at the 20-day EMA. The recent failure at the top of the bull channel also highlights a bearish development and the risk of an extension lower near-term. Further downside would open 4457.21, the 50-day EMA. First key resistance is at 4634.50, the Jul 27 high.

• Japan's NIKKEI closed higher by 122.73 pts or +0.38% at 32377.29 and the TOPIX ended 7.8 pts higher or +0.34% at 2291.73.
• Elsewhere, in China the SHANGHAI closed lower by 8.211 pts or -0.25% at 3260.62 and the HANG SENG ended 353.75 pts lower or -1.81% at 19184.17.
• Across Europe, Germany's DAX trades lower by 62.71 pts or -0.39% at 15888.33, FTSE 100 lower by 20.25 pts or -0.27% at 7534.2, CAC 40 down 25.37 pts or -0.35% at 7294.39 and Euro Stoxx 50 down 26.09 pts or -0.6% at 4311.41.
• Dow Jones mini down 89 pts or -0.25% at 35465, S&P 500 mini down 14.5 pts or -0.32% at 4523, NASDAQ mini down 60 pts or -0.39% at 15425.5.

COMMODITIES: WTI Futures Uptrend Intact Despite Recent Move Lower

The uptrend in WTI futures remains intact and last Friday’s gains confirmed a resumption of the bull cycle. The move higher maintains the bullish price sequence of higher highs and higher lows. Note that moving average studies are in a bull mode position and this reinforces current positive conditions. The focus is on $83.59, the Nov 7 2022 high. On the downside, initial firm support has been defined at $78.69, the Aug 3 low. Gold remains bearish. The yellow metal traded lower last week, confirming an extension of the bear cycle that started Jul 20. This signals scope for a move towards $1924.5, the Jul 11 low. Clearance of this level would suggest potential for an extension towards the key support at $1893.1, the Jun 29 low. Key resistance is at $1987.5, the Jul 20 high. A break would reinstate a bullish theme.

• WTI Crude down $0.99 or -1.21% at $81.01
• Natural Gas down $0 or -0.04% at $2.723
• Gold spot down $2.22 or -0.11% at $1934.26
• Copper down $7.05 or -1.84% at $376.65
• Silver down $0.03 or -0.13% at $23.101
• Platinum down $7.51 or -0.81% at $916.55