MNI US OPEN - Kashkari Says Fed Likely to Hold Rates for an "Extended" Time

NEWS

FED (FT): Fed Likely to Hold Rates for ‘Extended Time,’ Kashkari Says

A top Federal Reserve official has called for interest rates to stay on hold for an “extended” time, saying lowering borrowing costs before inflation was under control would put the foundations of US prosperity at risk. Neel Kashkari, Minneapolis Fed president, also told the FT podcast The Economics Show that Americans’ “visceral” hatred of inflation meant that some people would prefer a recession to a jump in prices. “The economy is, in the US, quite strong, the labour market is strong, inflation is coming down and many, many people are deeply unhappy about the status of the economy,” he said. “I think it’s because of the high inflation that they’ve experienced.”

ISRAEL (BBG): Israel Pushes Back Against Gaza Cease-Fire Outlined by Biden

Two days after US President Joe Biden laid out what he called an Israeli proposal to end its war on Hamas, it’s clear that key aspects of the deal have not, in fact, been embraced by Prime Minister Benjamin Netanyahu. As the war in Gaza approaches its eighth month, the impasse between Israel and Hamas over exchanging hostages for prisoners remains unchanged: Israel will pause fighting but not end it as long as Hamas’s governing and military structures remain intact, while Hamas will free hostages only if it’s guaranteed a permanent cease-fire.

OIL (BBG): OPEC+ Extends Cuts But Lays Out Plan to Bring Barrels Back

OPEC+ extended its production cuts as it seeks to bolster a fragile market, but also set a date to begin bringing some oil back online later this year. The agreement reached in Riyadh on Sunday exceeds market expectations in some ways, extending so-called “voluntary” cuts from key members including Saudi Arabia and Russia well into next year. However, it also begins rolling back those supply reductions in October, earlier than some OPEC-watchers had assumed. Oil prices reflected these tensions on Monday, with crude swinging between gains and losses just above $80 a barrel in London.

CHINA (BBG): China’s Biggest Cities See Housing Market Pick Up After Easing

Two of China’s biggest cities saw improvements in homebuyer sentiment last weekend after relaxing property restrictions, the first positive signs in months for the embattled real estate sector. In Shanghai, about 90% of the more than 300 units offered at a new project over the weekend were sold, beating the sales-through rate for the same development in March. In Shenzhen, some developers saw buyer interest surge so much they rescinded discount offers. Existing-home sales recovered in both cities.

CHINA (BBG): China’s LNG Import Surge Shows Signs of Cooling as Prices Climb

A rapid rebound in Chinese liquefied natural gas demand is losing steam as high prices curb purchases by the world’s biggest importer. LNG deliveries to China rose 5% in May from the same month last year, according to ship-tracking data compiled by Bloomberg. That compares with gains of 26% for April and 16% in March. North Asian spot LNG prices rallied to about $12.4 per million British thermal units on Friday, according to traders, the highest level since December. Hotter-than-usual weather across South and Southeast Asia has spurred demand, while supply disruptions have cut available shipments.

S.KOREA/N.KOREA (BBG): South Korea to Halt Border Deal with North After Trash Balloons

South Korea will suspend a 2018 agreement with North Korea aimed at reducing military tensions after Pyongyang sent nearly 1,000 trash-filled balloons across the border in what it called a campaign against “human scum.” South Korea’s National Security Council decided at a meeting Monday to seek the 2018 deal’s suspension until trust between the two sides is restored, the council said in a statement. The suspension will allow South Korean troops to resume drills near the military demarcation line and take “more sufficient and immediate responses” to the North’s actions, it said.

RBA (BBG): RBA’s Hauser Says Inflation ‘Predominant Challenge,’ AFR Reports

Australian central bank Deputy Governor Andrew Hauser said the “first and predominant challenge” for policymakers is to bring down inflation, according to an interview with the Australian Financial Review. Hauser, who joined the Reserve Bank earlier this year from the Bank of England, also cited the RBA’s full-employment mandate to justify Australia running a lower benchmark interest rate than global counterparts, in the interview published Monday. He said part of the RBA’s strategy is to “test” the level of full employment.

MEXICO (MNI): Galvez Concedes as Sheinbaum Looks Forward to Supermajority

Main opposition candidate Xóchitl Gálvez has conceded the presidential race to left-wing nationalist MORENA candidate Claudia Sheinbaum. The win for incumbent President Andres Manuel Lopez Obrador's chosen successor was largely priced in by markets. However, the scale of support for MORENA and its allies in the legislature, where MORENA looks set to have won a supermajority in the Chamber of Deputies and is also in with a strong chance the same in the Senate, has led to some market turbulence.

INDIA (BBG): Modi Set for Landslide Election Win in India, Exit Polls Show

Prime Minister Narendra Modi’s party is set to win a decisive majority in India’s election for the third time in a row, several exit polls showed, extending his decade in power atop the world’s fastest-growing major economy. The polls showed his Bharatiya Janata Party-led National Democratic Alliance will win substantially more seats than the 272 needed for a majority in India’s 543-seat lower house of parliament. Official election results will be released June 4.

SOUTH AFRICA (BBG): South Africa Finance Chief Says ANC to Avoid Reckless Coalition

South African Finance Minister Enoch Godongwana said the African National Congress won’t be “reckless” in choosing a coalition partner after losing its parliamentary majority. The ANC will also be able to ensure policy continuity as it remains the largest party in the National Assembly, Godongwana said in an interview Sunday. He is a member of the ANC’s National Executive Committee. Horse trading between political parties has begun with lawmakers facing a 14-day deadline from Monday to form a government after an election on May 29 failed to produce an outright winner. The ANC obtained 40% of the seats in parliament, leaving it without a majority for the first time since it came to power three decades ago.

TURKEY (BBG): Turkish Inflation Tops 75% But Worst of Crisis Likely Over

Turkey’s inflation accelerated more than forecast last month, in what officials hope marks the worst of a years long cost-of-living crisis. Data on Monday showed inflation reached an annual 75.5% in May, from just under 70% a month earlier. The trajectory of prices with a peak in May follows the path mapped out by the central bank as it embraced more conventional economics since President Recep Tayyip Erdogan’s reelection a year ago. The question now is whether inflation will also hew closely to forecasts on the way down and prepare the ground for interest rates to fall after an aggressive cycle of monetary tightening.

CORPORATE (BBG): GameStop Shares Double as Gill Post Shows $116 Million Bet

GameStop Corp. shares more than doubled after the Reddit account that drove the meme-stock mania of 2021 posted what appeared to be a $116 million position in the game retailer. The June 2 screenshot by Keith Gill, who goes by DeepF— Value on Reddit, shows five million shares bought at $21.27 apiece. It was the account’s first post in three years. The screenshot, which also included 120,000 call options worth $65.7 million due to expire on June 21, couldn’t be verified. The options would allow him to buy the stock at $20 a share. GameStop shares rose as much as 105% in premarket trading on Monday, before paring some of that advance.

DATA

EUROZONE DATA (MNI): Manufacturing PMIs Remain Contractionary, But Improvement Seen vs April

• EUROZONE MAY MANUFACTURING PMI 47.3 (FLASH: 47.4); APR 45.7
• GERMANY MAY MANUFACTURING PMI 45.4 (FLASH: 45.4); APR 42.5
• FRANCE MAY MANUFACTURING PMI 46.4 (FLASH: 46.7); APR 45.3

The German, French and Eurozone-wide manufacturing PMIs remained in contractionary territory in May, with the latter two releases seeing small downward revisions. However, most Eurozone countries nonetheless saw an improvement in their manufacturing PMIs in May. From the Eurozone-wide release: "While factory output fell, the contraction was the softest in just over a year and only marginal overall". While this may be suggestive of a nascent recovery in the Eurozone manufacturing sector, the employment outlook remains weak: "Employment across the euro area manufacturing sector was decreased further amid evidence of surplus capacity, extending the current period of factory job losses to a year".

SPAIN DATA (MNI): Manufacturing PMI Outperforms; Output Charges Increase

• SPAIN MAY MANUFACTURING PMI 54.0 (FCST: 52.6); APR 52.2

Spanish May manufacturing PMI was stronger-than-expected at 54.0 (vs 52.6 cons, 52.2 prior), the highest level since March 2022. The Eurozone flash May PMI had already signalled outperformance amongst Eurozone countries ex-Germany and France, meaning Bunds saw limited reaction on release. Details show that output charges rose in May following a rise in raw material prices, providing evidence that core goods disinflation may stall in the months ahead.

ITALY DATA (MNI): Manufacturing PMI Weaker Than Expected With Demand Conditions Subdued

• ITALY MAY MANUFACTURING PMI 45.6 (FCST: 48.0); APR 47.3

In contrast to Spain, the Italian May manufacturing PMI was weaker-than-expected at 45.6 (vs 48.0 cons, 47.3 prior), the lowest reading this calendar year. The report highlights that demand remains weak in the manufacturing sector, prompting a pullback in employment and weaker pricing power amongst firms. Key notes from the release: "All components of the headline PMI exerted negative directional influences in May, excluding stocks of purchases (where the pace of contraction was largely unchanged on the month)".

UK MAY MANUFACTURING PMI 51.2 (FLASH: 51.3); APR 49.1 (MNI)

CHINA DATA (MNI): Caixin May Manufacturing PMI Hits Over Two-year High

MNI (Beijing) China's Caixin manufacturing PMI registered 51.7 in May, up 0.3 points from April, staying in the expansionary zone above the breakeven 50 mark for a seventh month and hitting the highest level since July 2022, the financial publisher said on Monday. The production sub-index rose to a new high since July 2022, with output of consumer goods growing strongly. The new orders sub-index fell slightly within the expansion range. However, the new export orders sub-index slowed down significantly, though still above 50.

JAPAN DATA (MNI): Japan Q1 Capex Down Q/Q; GDP Seen Revised Lower

Combined capital investment by non-financial Japanese companies excluding software fell 0.5% q/q in Q1, decelerating from 8.2% in Q4 2023, a quarterly survey released by the Ministry of Finance showed on Monday. The MOF survey, based on the demand side, is the key to calculating Q1 GDP revisions due June 10 and indicated capex will be revised down from preliminary estimate of -0.8%, based solely on supply side data. Based on the MOF data on capex and inventories, the government is likely to revise down from its estimate of Q1 real GDP from the preliminary -0.5% q/q, or an annualised -2.0%.

FOREX: EUR/GBP Extends Bounce Off Lows Despite Mixed PMIs

• PMI data from across Europe came in mixed, with stronger Spanish numbers countering weakness in Italy. The data provided largely inconsequential for currencies, with EUR/GBP extending the modest uptick off late May lows.
• The USD Index is more stable after two sessions of declines into the Friday close, as month-end sales abated and markets found support again at the 100-dma of 104.420.
• JPY is among the firmest performers in G10, helping the spot trade-weighted JPY off fresh post-intervention lows posted overnight.
• Equity futures are generally firmer across both Europe and the US, indicating a firmer cash open later on Monday.
• Focus for the duration of the Monday session turns to ISM manufacturing numbers for May. Markets expect the headline to improve slightly to 49.6 from 49.2 - however the broad downside miss in the MNI Chicago PMI release from Friday could keep markets on the defensive. Central bank speak is thin as banks enter their pre-meeting media blackout periods.

EGBS: Off Highs as Equities Stabilise

A brief rally in core/semi-core EGB futures was relatively short-lived, leaving contracts off intraday highs and slightly firmer on the day.

• Data and weakness in European equities seemed to allow the overnight rally to extend after core global FI markets regained some poise early this week.
• Most Eurozone countries registered improving manufacturing PMIs in May, with Italy the notable exception. However, Germany, France and the Eurozone’s readings remain in contractionary territory, with the latter two seeing small downward revisions vs flash readings.
• European equity futures have stabilised after a brief sell-off, helping Bunds away from intraday highs.
• Bund futures are +8 at 129.42, with a bear cycle still in play following last week’s sell-off.
• On Friday, S&P downgraded France’s credit rating to AA-, though spreads to Bunds are little changed at typing. German and French cash yields are 1.5 to 3bps lower on the day.
• 10-year peripheral spreads to Bunds are a touch tighter, supported by the late-Friday rally in equity futures and positive outlook tweak for Spain from Morningstar DBRS.
• IRISH spreads are little changed despite Friday’s positive Irish ratings action from Fitch.
• Attention now turns to this afternoon’s US survey data, while Thursday’s ECB meeting provides the Eurozone focal point of the week.

GILTS: Most of Early Rally Holds, Pullback From Recent Yield Highs Extends

Gilts are firmer, alongside core global peers.

• Gilt futures traded as high as 99.61 before pulling back to 99.50.
• Friday’s late downtick in gilts has been reversed, with little meaningful news flow seen at the time of the pre-weekend pullback.
• Friday’s high in the contract has been breached, with any fresh upside momentum set to expose the May 23 high (97.44). A break there would pose a deeper threat to the bearish technical backdrop.
• Cash gilt yields are flat to 3bp lower as the curve bull flattens.
• The pullback from last week’s multi-month/early ’24 highs in benchmark yields extends.
• 2s10s have pulled back from last week’s test of multi-month steeps.
• Slightly softer than flash UK PMIs, a move away from best levels for European & U.S. benchmark equity futures and little sign of movement from Israel when it comes to a peace accord with Hamas have all been touted as supportive factors.
• Building EUR & GBP IG issuance slates have done little to derail the rally.
• Political headlines continue to dominate domestically, with polling headwinds for PM Sunak once again evident.
• SONIA futures are -0.5 to +2.0, sticking to tight ranges.
• This afternoon will see the BoE sell GBP750mn of medium-term maturity gilts from its APF.
• Expect broader headline flow, cross-market spill over and U.S. data to dictate price action from here.

EQUITIES: Recovery in E-Mini S&P From Friday's Low a Positive Development

Eurostoxx 50 futures traded lower last week but prices have recovered from Thursday's low of 4950.00. The recent move down appears to have been a correction, but note that support at the 50-day EMA - at 4965.20 - has been pierced. A clear break of the average would undermine the short-term bullish theme and signal scope for a deeper retracement, towards 4894.90, a Fibonacci retracement. Initial resistance is seen at 5082.00, the May 28 high. The uptrend in S&P E-Minis remains intact, however, a corrective cycle has resulted in a pullback from the recent high of 5368.25 (May 23). The latest move down resulted in a print below support at the 50-day EMA, at 5213.24 A clear break of this EMA would signal scope for a deeper retracement. The recovery from Friday’s low is a positive development, a continuation would open 5368.25 and a breach of this level resumes the trend.

• Japan's NIKKEI closed higher by 435.13 pts or +1.13% at 38923.03 and the TOPIX ended 25.58 pts higher or +0.92% at 2798.07.
• Elsewhere, in China the SHANGHAI closed lower by 8.324 pts or -0.27% at 3078.489 and the HANG SENG ended 323.43 pts higher or +1.79% at 18403.04.
• Across Europe, Germany's DAX trades higher by 178.18 pts or +0.96% at 18675.59, FTSE 100 higher by 29.44 pts or +0.36% at 8304.84, CAC 40 up 50.4 pts or +0.63% at 8043.27 and Euro Stoxx 50 up 47.11 pts or +0.95% at 5030.78.
• Dow Jones mini up 3 pts or +0.01% at 38796, S&P 500 mini up 9.25 pts or +0.17% at 5305, NASDAQ mini up 72.75 pts or +0.39% at 18663.

COMMODITIES: Bear Cycle in Gold Remains in Play

WTI futures have pulled back from last Wednesday’s high of 80.62. The trend direction is unchanged and remains down. The latest recovery appears to have been a correction. A continuation lower would signal scope for a move towards $75.64, the Mar 11 low. On the upside, key resistance and the bull trigger is at $86.16, the Apr 12 high. Initial firm resistance to watch is at $80.62, the May 29 high. A bear cycle in Gold remains in play for now, and the yellow metal has started this week on a bearish note. The medium-term trend structure is bullish and the recent move down appears to be a correction that is allowing an overbought condition to unwind. MA studies are in a bull-mode position, highlighting an uptrend. A resumption of gains would open $2452.5 next, a Fibonacci projection. The 50-day EMA, at $2307.8, represents a key support.

• WTI Crude up $0.23 or +0.3% at $77.24
• Natural Gas up $0.12 or +4.72% at $2.704
• Gold spot down $1.54 or -0.07% at $2326.32
• Copper up $1.5 or +0.33% at $462
• Silver down $0.15 or -0.51% at $30.2735
• Platinum down $6.53 or -0.63% at $1031.9