MNI US OPEN - JPY Slides on YCC Seen Intact Next Week

NEWS:

UK (MNI): Key UK Consumers See Sharp Confidence Dip
UK consumer sentiment fell in July, with some key demographic groups reporting a noticeable decline in outlook, the head of a leading market survey told MNI. "UK consumer confidence improved in early 2023 despite the headwinds, but suddenly, this resilience has collapsed, resulting in a six-point fall this month in the headline score," Joe Staton, Client Strategy Director at GfK, said in an interview.

UK (MNI): By-Elections: Conservatives Hold Onto Uxbridge But Lose Selby And Somerton
UK Prime Minister Rishi Sunak's Conservative Party has avoided becoming the first party to lose three by-elections in one day - narrowly holding onto Boris Johnson's former seat in Uxbridge - but recorded two heavy by-election defeats yesterday with Selby flipping to Labour and Somerton to the Liberal Democrats. The Selby seat, in particular, which saw the second-biggest ever swing to Labour in a by-election, may foreshadow deepening political headwinds for Conservatives ahead of the next UK general election set to take place by January 2025.

MNI FED PREVIEW (MNI): September Signals In Focus

• The Fed will hike by 25 basis points and maintain its tightening bias at the July meeting. Chair Powell is likely to suggest that a follow-up hike is possible at the next meeting in September, but will emphasize that no decision has yet been made, and will depend on the substantial inflation and jobs data in the interim.
• That messaging would retain the optionality to hike at consecutive meetings if the next two inflation prints between now and then warrant a (likely final) hike. The market impact of this messaging is likely to be modestly hawkish.

US (BBG): Trump’s Second-Term Plans Target Migrants, Bureaucrats, China
If Donald Trump returns to the White House in 2025, he’ll bar babies born in the US from automatically claiming citizenship, ban transgender people from the military, hold elections for school principals and swiftly end the war in Ukraine. That’s according to Trump himself, who has made no secret of his intentions as he campaigns to challenge President Joe Biden. His plans, shaped by a group of firebrand allies from his first term, also include ousting scores of civil servants in the national-security and law-enforcement establishment and ordering the Justice Department to criminally investigate his predecessor.

BOJ (BBG): BOJ Is Said to See Little Need to Act on Yield Control for Now
Bank of Japan officials see little urgent need to address the side effects of its yield curve control program at this point, though they expect to discuss the issue, according to people familiar with the matter. The central bank looks at the costs and benefits of YCC at every meeting and will reach a final decision at its policy meeting next week after scrutinizing economic data and financial markets up to the last minute, according to the people. The BOJ will deliver its policy decision next Friday.

BOJ (Reuters): BOJ leaning towards keeping yield control steady next week - sources
The Bank of Japan is leaning towards keeping its yield control policy unchanged at next week's meeting, five sources familiar with its thinking said, as policymakers prefer to scrutinise more data to ensure wages and inflation keep rising. But there is no consensus within the central bank on how soon it should start phasing out stimulus, which could make next week's decision a close call.

JAPAN (BBG): Japan Insurers With $2.7 Trillion Still Keen to Invest Overseas
Japanese life insurers plan to send more of their $2.7 trillion in investment money abroad, even after surging interest rates prompted them to dump billions of dollars of foreign bonds last year. That’s according to Hiroshi Shimizu, chairman of the Life Insurance Association of Japan and chief of the nation’s largest insurer by assets. “If we set our eyes globally, there are many good investment opportunities,” he said in an interview.

NEW ZEALAND (MNI): Sticky Core Inflation Seen Muddying RBNZ's Peak OCR Call
The Reserve Bank of New Zealand could lift its Official Cash Rate one-to-two more times this year from its 5.5% base thanks to sticky core and non-tradeable inflation and despite the central bank’s signal that the rate has peaked, ex-staffers and board members told MNI. Geof Mortlock, financial consultant and former financial stability advisor at the RBNZ, said non-tradable inflation had printed uncomfortably high, which will give the Reserve reason to question its stance. “I can't predict what the [RBNZ] may do with the OCR, but my hunch would be that yesterday's results will slightly firm the view that it may be inclined to move one more time to raise the OCR by 25bp,” he told MNI.

CHINA (MNI): Lower Rates Seen For Existing Mortgage Holders
The People’s Bank of China is likely to guide lenders to lower mortgage rates for existing customers to boost the housing market and consumption, while the five-year loan prime rate could be reduced to shore up the property market, economists told MNI. The LPR, based on the People’s Bank of China’s medium-term lending facility (MLF) rate and quotes submitted by 18 banks, remained at 3.55% for the one-year maturity and 4.2% for the over-five-year maturity on Thursday, according to the PBOC’s website, in line with expectations after the central bank cut policy rates in June.

CHINA (BBG): China’s Backing Will Ease Pressure for Yuan to Drop, Report Says
China’s support for the yuan will ease pressure for it to depreciate, Shanghai Securities News reports, citing Wang Qing, chief macro analyst at Golden Credit Rating. The policy tools can guide market expectations and avoid yuan volatility outside a reasonable range, Wang said. Raising the macro-prudential parameter to allow firms to borrow more from overseas will help drive inflows and stabilize the currency, the report cites Wen Bin, chief economist at China Minsheng Bank, as saying

DATA:

**MNI: UK JUN RETAIL SALES +0.7% M/M, -1% Y/Y

UK DATA: Retail sales surprise to the upside again

• Better print than expected for retail sales across the board. That's now 5/6 prints this year surprising to the upside. Non-food stores up 1.0%M/M, boosted by furniture and department stores (summer sales and increased footfall both helping). More than reversing -0.5%M/M fall in May.
• Food store volumes +0.7%M/M with supermarkets noting good weather and promotions helping turn around -0.5%M/M May print. Non-store volumes rose +0.2%M/M after +2.4%M/M growth in May. The only major category to fall was automotive fuels, down -0.3%M/M.
• As we noted before, we don't think this data really changes anything materially for the MPC so don't expect a large sustained market move on the back of it. However, the move does show how sensitive the pound is even to data that's not at the forefront of the MPC's minds.

SOUTH KOREA (MNI): Korean Exports Down 15.2% First 20 Days July
South Korean exports fell 15.2% y/y during the first 20 days of July, further deteriorating from June's 6% fall, according to data released by the Korean Customs Service on Friday. South Korean exports will likely fall further in H2, while semiconductor sales to China in particular will contract sharply as its economy slows, MNI reported this week.

BOND SUMMARY: Gilts the biggest movers again

• Gilts have been the biggest movers again this morning, with 10-year yields up 2.3bp at writing as gilt futures continue their grind lower after hitting a high of 97.84 post-UK CPI on Wednesday. Futures are now more than 150 ticks lower but remain above Tuesday's closing levels. Moves have been more limited for 2-year gilts, leading to a bear steepening of the gilt curve.
• Moves in USTs and Bunds have been very limited this morning - with moves generally around 1bp or less across curves.
• Today's calendar sees no further data releases outside of Canadian data releases and with the FOMC/ECB meetings next week and the BOE the week after there are no scheduled speakers.
• TY1 futures are down -0-1 today at 112-03+ with 10y UST yields up 0.1bp at 3.854% and 2y yields up 1.1bp at 4.852%.
• Bund futures are down -0.04 today at 132.97 with 10y Bund yields unch at 2.484% and Schatz yields up 0.3bp at 3.175%.
• Gilt futures are down -0.34 today at 962.26 with 10y yields up 2.7bp at 4.297% and 2y yields up 0.7bp at 4.968%.

FOREX: EURJPY Surges Toward Bull Trigger as YCC Seen Intact Next Week

• JPY is offered solidly across G10 headed into the NY crossover, with concurrent BoJ sources reports raising expectations that the BoJ's yield curve control programme will be unchanged at next Friday's decision. Both Bloomberg and Reuters cited sources in reporting that the board were leaning toward no change in approach, countering recent building speculation that a policy switch would be imminent.
• USD/JPY rallied solidly on the report, rising well through the recent highs to trade at the best levels since July 10th. JPY implied vols are well bid, with the one-week contract now capturing the BoJ decision and crossing 16 points to trade at the best levels since March.
• EUR/JPY was similarly dragged higher, bringing prices back into range of the bull trigger at the Jun 28 high of 158.00, a break above which could signal the beginning of an upside reversal in the cross.
• NOK is the firmest performer across G10, gaining alongside the slightly firmer oil price. EUR/NOK remains just above yesterday's lows of 11.1273, but a break below would open the 200-dma at 11.0739 - last broken in September last year.
• The Canadian retail sales release is the sole data due Friday, with markets expecting sales to have risen 0.5% on the month, and 0.2% ex-autos. There are no central bank speakers of note, with the Fed remaining inside their pre-decision media blackout period.

EQUITIES: E-mini Short-Term Consolidates, But Underlying Uptrend Intact

• E-mini S&P finished lower Thursday, consolidating a solid rally this week and helping to alleviate the overbought conditions present in the most recent bout of strength. Prices have topped the bull channel drawn off the March 13th low at 4608.50, marking another positive shift for S/T momentum. Eurostoxx 50 futures traded higher last week. The rally resulted in a move above the 50-day EMA at 4335.00 and price is through 4371.00, the Jul 6 high. Clearance of this latter level highlights a potentially stronger bull cycle.
• Japan's NIKKEI closed lower by 186.27 pts or -0.57% at 32304.25 and the TOPIX ended 1.3 pts higher or +0.06% at 2262.2.
• Elsewhere, in China the SHANGHAI closed lower by 1.777 pts or -0.06% at 3167.745 and the HANG SENG ended 147.24 pts higher or +0.78% at 19075.26.
• Across Europe, Germany's DAX trades lower by 65.82 pts or -0.41% at 16140.42, FTSE 100 higher by 8.62 pts or +0.11% at 7654.84, CAC 40 up 13.12 pts or +0.18% at 7398.84 and Euro Stoxx 50 down 2.66 pts or -0.06% at 4370.92.
• Dow Jones mini up 30 pts or +0.08% at 35434, S&P 500 mini up 9.75 pts or +0.21% at 4575.25, NASDAQ mini up 62 pts or +0.4% at 15655.5.

COMMODITIES: Gold Circling Below Cycle Highs

Gold shows at a new cycle high early Thursday, adding to recent gains and topping key resistance at 1985.3, the May 24 high. A close above here could presage a stronger reversal higher. WTI futures prices bounced well off the Monday lows and are adding to the underlying uptrend early Friday. The current bull cycle remains intact after the recent breach of $72.72, the Jun 21 high. Last Wednesday’s move higher resulted in a break of key resistance at $75.70, the Jun 5 high as well as the 200-dma.

• WTI Crude up $0.47 or +0.62% at $76.15
• Natural Gas up $0.01 or +0.25% at $2.765
• Gold spot down $7.81 or -0.4% at $1961.81
• Copper up $0.3 or +0.08% at $383.6
• Silver down $0.06 or -0.23% at $24.712
• Platinum up $1.49 or +0.16% at $961.55