MNI US OPEN - JPY Bounces Off Lows as Officials Step Up Vocal Support

NEWS

RUSSIA (MNI): Wagner Mutiny Leaves Putin in Weakened Position

While the lasting impact of the mutiny by the Wagner military group on 24 June remains to be seen, one clear-cut outcome has been a puncturing of the image of invulnerability that had surrounded President Vladimir Putin. With the returning of the Wagner troops to their barracks and their leader Yevgeny Prigozhin's 'exile' to Belarus as part of a deal brokered by President Alexander Lukashenko, the immediate-term risk to the stability of the Russian state appears to have receded. However, the short-to-medium term outlook becomes much more uncertain.

CHINA (BBG): China May Step Up Fiscal Support to Aid Growth, Report Says

China will likely roll out more fiscal policies to support the economic recovery after cuts to key lending rates by the central bank, China Securities Journal said in a front-page report on Monday. The nation may accelerate the issuance of special local government bonds and largely use year’s quota by end-3Q, said Gao Ruidong, chief economist at Everbright Securities.

GLOBAL (MNI): BIS Sees Wage-Price Spiral Risk, High For Long Rates

Central banks must keep tight policy longer than many investors expect amid the risk stubborn inflation turns into a wage-price spiral, the BIS said Sunday in its annual report, one of the starkest official warnings yet about the end of low-for-long rates. “The key policy challenge today remains fully taming inflation, and the last mile is typically the hardest,” said BIS General Manager Agustin Carstens said in a statement introducing the report.

JAPAN (BBG): Won’t Rule Out Any Options for Handling Forex - Japan's Kanda

Recent moves in currency market are seen as rapid and one-sided, Japan’s top currency official Masato Kanda says. Watching market with strong sense of urgency and won’t rule out any options when it comes to handling currency matters appropriately, Kanda tells reporters in Tokyo.

JAPAN (MNI): Board Member Notes YCC Review At Early Stage

A Bank of Japan board member noted the need to review yield curve control due to its high costs, although the member saw that the cost of waiting to achieve the 2% price target was not high at the June 15-16 meeting, the summary of opinions released Monday showed.“ Although there is a growing possibility of achieving 2% inflation in a sustainable and stable manner, the Bank should maintain the overall framework of monetary easing for the time being, since the cost of waiting for such achievement is not high,” the member commented.

JAPAN (MNI): Board Members Note Stronger Prices - BOJ Opinions

Some Bank of Japan board members expect stronger prices, while one member saw greater chance that the y/y rise in the core consumer price index will not fall below 2% at the June 15-16 meeting, the summary of opinions released Monday showed. One member said, while overseas factors largely drove price rises, the contribution of domestic factors – such as consumer prices of services, or the y/y change in the GDP deflator, had increased.

AUSTRALIA (MNI): Rising House Prices to Add to Affordability Woes

House prices began to rise again in March after 10 consecutive monthly declines and are now 3% above the February trough but the rise is going to put additional pressure on already stretched housing affordability. It appears that buying a home is going to get more difficult over the months ahead, thus increasing demand for rentals at a time when dwelling approvals are their lowest level since 2012. The RBA has also noted that rising house prices could support consumer demand.

COMMODITIES (BBG): Copper and Aluminum Edge Higher on Hopes of More China Stimulus

Copper and aluminum edged higher, while zinc dropped, as the market waited for more stimulus measures from Beijing to revive growth in the world’s biggest metals importer. China will likely roll out more fiscal policies to support its recovery after cuts to key lending rates by the central bank, the China Securities Journal said in a front-page report on Monday.

COMMODITES (BBG): Iron Ore Rises as China Support Optimism Bolsters Steel Outlook

Iron ore rose — after the steepest weekly drop since late May — as hopes for fresh stimulus from China spur renewed confidence in the steel outlook. The steelmaking staple pared losses of as much as 1.7% earlier Monday to trade higher, with investors searching for signs Beijing will unveil further measures to shore up its economic recovery.

DATA

GERMAN DATA (MNI): IFO Slumps as Expectations Deteriorate

• GERMANY JUN IFO BUSINESS CLIMATE 88.5 (FCST 90.7); MAY 91.7
• GERMANY JUN IFO CURRENT COND 93.7 (FCST 93.5); MAY 94.8
• GERMANY JUN IFO EXPECTATIONS 83.6 (FCST 88.1); MAY 88.3

The German IFO survey weakened across the board in June, led by a decline in outlooks. The Business Climate index fell 3.2 points to 88.5, against expectations of a more mild one-point decline. Current Conditions moderated by 1.1 points, whilst Expectations slid by 4.7 points. The latter was a decent miss on the 0.2-point decline expected by consensus. Manufacturing, trade and construction sentiment slumped to November/December 2022 levels. Services also lost momentum, assessing future outlooks as significantly more pessimistic.

JAPAN DATA (MNI): Japan May Services PPI Rises 1.6% Vs. Apr's 1.6%

• JAPAN MAY SERVICES PPI +1.6% Y/Y; APR +1.6%
• JAPAN MAY SERVICES PPI -0.1% M/M: APR REV +0.1%

Japan's services producer price index rose 1.6% y/y in May, marking the 27th straight rise following April's 1.6%, with the severe labor shortage and wage increases driving the elevated level, preliminary data released by the Bank of Japan on Monday showed. The BOJ will focus on whether services prices will continue rising as Japan’s inflation rate remains unstable and unsustainable and whether high prices impede private consumption.

FOREX: JPY Takes Heed of More Vocal Japanese Authorities

• JPY trades firmer against all others in G10, receiving an early boost this week on the back of comments from the Japanese Chief Cabinet Secretary Matsuno, who added to recent rhetoric and stressed that "it's important for FX to move stably" and that "Japanese authorities are closely watching FX moves with a high sense of urgency".
• USD/JPY briefly showed at fresh daily lows on the back of the Matsuno headline, adding to the impetus after Kanda refused to rule out any options on the currency at the weekend. USD/JPY remains close to multi-month highs - last intervention phase was November 10th - as USDJPY traded in the 146.50s.
• GBP trades slightly better, with markets keeping note of the Friday CFTC update. Data accurate as of the Tues 20th close showed the GBP net position rise sharply. Speculators added close to 40k contracts on net, tipping outright positioning to the most net long since H1 2018.
• Lastly, the USD trades slightly weaker, with the USD Index seeing some very modest support from the 50-dma at 102.701.
• Data releases are few and far between Monday, keeping focus on the central bank speaker slate. ECB's Lagarde speaks, formally beginning the Sintra proceeds as the ECB policy forum starts up this week.

BONDS: German/Greek 10y Yield Spread Tightens to Levels Last Seen in '21

• Gilts remain somewhat capped by a brief stabilisation in equities, before fresh pressure in the equity space (FTSE futures moved to fresh session lows) and a post-IFO bid in Bunds provided support.
• That allowed Gilt futures to move to fresh session highs, although well within the recently observed range in the contract.
• Cash Gilts are 2-5bp richer, with the early bull steepening impulse still in play. BoE-dated OIS continues to price a terminal rate that is ~125bp above prevailing levels.
• Meanwhile, 10-Year Greek paper outperforms to start the week as the market reacts to the ND's attainment of a parliamentary majority (which was in line with expectations) in the second round of the Greek national election.
• The 10-Year GGB/Bund spread settles around 120bp, registering the tightest level seen since '21 in the process, while the 10-Year GGB/BTP spread tightens, but doesn't threaten cycle/all-time tights.
• The round-number bias surrounding the 120bp level, coupled with the recent run of meaningful tightening and the fact that the election outcome matched wider expectations, is limiting the nature of the move in GGBs.
• Focus now turns to any ad hoc commentary/action from the sovereign rating agencies, given the expected fiscal trajectory of Greece and heighted expectations surrounding the eventual attainment of IG status (DBRS Morningstar have the next scheduled update, which isn't slated until 9 September).

EQUITIES: E-Mini S&Ps Narrow Gap to Key Support at 20-Day EMA

The Eurostoxx 50 futures uptrend remains intact, however, a bearish corrective cycle last week resulted in a correction. The contract has breached support at 4301.00, the Jun 8 low. This level represented a key short-term support and the clear break signals scope for a deeper retracement, exposing 4241.00, the May 31 low and an important medium-term support point. Key resistance and the bull trigger has been defined at 4438.00, the Jun 16 high. A bull theme in S&P E-minis remains intact and last week’s pullback appears to be a correction. The move lower is allowing a recent overbought condition to unwind. Initial key support lies at the 20-day EMA, at 4359.21. A break of this average would strengthen a short-term bearish theme and signal scope for a deeper pullback. On the upside, the bull trigger is 4493.75, the Jun 16 high. A break would open 4506.23 the top of a bull channel.

• Japan's NIKKEI closed lower by 82.73 pts or -0.25% at 32698.81 and the TOPIX ended 4.56 pts lower or -0.2% at 2260.17.
• Elsewhere, in China the SHANGHAI closed lower by 47.282 pts or -1.48% at 3150.619 and the HANG SENG ended 95.84 pts lower or -0.51% at 18794.13.
• Across Europe, Germany's DAX trades lower by 115.74 pts or -0.73% at 15719.42, FTSE 100 lower by 59.13 pts or -0.79% at 7403.66, CAC 40 down 56.74 pts or -0.79% at 7107.32 and Euro Stoxx 50 down 32.91 pts or -0.77% at 4239.22.
• Dow Jones mini down 66 pts or -0.19% at 33911, S&P 500 mini down 10.75 pts or -0.24% at 4378, NASDAQ mini down 48.5 pts or -0.32% at 15008.5.

COMMODITIES: WTI Futures Remain Bearish After Last Week's Sell-Off

WTI futures remain bearish and the sharp sell-off late last week reinforces this condition. Support at $67.21, May 31 low, has recently been pierced, a clear break would open $64.41, the May 4 low. Moving average studies are in a bear mode position highlighting a downtrend. The contract is trading below resistance at $75.70, the Jun 5 high. A break of this level would signal a reversal. The bear cycle in Gold remains intact and the yellow metal traded lower last week. Trendline support has been breached - the line is drawn from the Nov 3 2022 low and the break reinforces a bearish condition. Furthermore, the move lower confirms a resumption of the downtrend. The focus is on $1903.5, 61.8% of the Feb 28 - May 4 bull cycle. Key resistance is $1985.3, the May 24 high. Initial resistance is at $1948.8, the 20-day EMA.

• WTI Crude down $0.29 or -0.42% at $68.8
• Natural Gas up $0.04 or +1.28% at $2.762
• Gold spot up $10.47 or +0.55% at $1931.99
• Copper up $0.55 or +0.14% at $382.2
• Silver up $0.36 or +1.59% at $22.781
• Platinum up $12.86 or +1.4% at $934.41