MNI US OPEN - Lagarde Kicks Off Sintra With Hawkish Tones

NEWS

ECB (MNI): Confident ECB Peak Rate Call Soon Unlikely - Lagarde

The European Central Bank won’t be able to “state with full confidence” in the near future that the peak in interest rates have been reached, increasing more uncertainty over the central bank’s path after the Governing Council meeting in July, president Christine Lagarde said during her speech in Sintra. The nature of Eurozone inflation is changing from profits that “contributed around two-thirds to domestic inflation in 2022” to wage demands by workers trying to 'catch up' the loss in purchasing power, Lagarde said.

ECB (MNI): Wunsch Sees ECB Sept Hike Without Slide in Core

The European Central Bank needs to see a fall in core inflation over the next three readings to have a reason to pause its hikes in September, National Bank of Belgium Governor Pierre Wunsch told MNI, adding that while it was not the base case it might be necessary to sacrifice growth to contain prices.“Maybe we are going to have three readings of core at 5% [either 0.4% on a monthly basis or 5% on an annual basis] on average with the momentum not moving, and then we'll have to do more,” Wunsch said in an interview.

ECB (BBG): ECB’s Simkus ‘Wouldn’t Be Surprised’ by Rate Hike in September

European Central Bank Governing Council member Gediminas Simkus said he can’t rule out the chance of more interest-rate increases after the summer. While the uncertain environment means it’s too early to decide what will happen following the expected rate hike in July, the Lithuanian official said inflation remains too strong, driven in part by a resilient labor market. “We should not exclude the possibility that we might hike in September too,” Simkus told Bloomberg TV on Tuesday. “I wouldn’t be surprised if we continue hiking also in September.”

ECB (BBG): ECB’s Kazaks Can’t Rule Out Interest-Rate Hikes Beyond July

The European Central Bank may need to lift interest rates after the planned increase in July that many analysts expect to be the last in this cycle, according to Governing Council member Martins Kazaks. While the 20-nation euro zone’s economy is “on the soft side,” it’s not weak enough to bring down inflation by itself, the Latvian official said. Borrowing costs will “by no means” be lowered in the first half of 2024 — as some investors have been betting — he said.

RIKSBANK (MNI): Under Pressure to Do More than Hike 25BP

Most analysts expect the Riksbank do no more than hike its policy rate by 25 basis points at its June meeting this week, but krona weakness and sticky core inflation have prompted markets to partially price in 50bp. In April, Sweden’s central bank hiked 50bp to 3.5% and said it would likely increase the policy rate by 25bp in June or September. But the target CPIF inflation rate was 6.7% in May and CPIF ex-energy only dipped to 8.2% from 8.4% in April, while the krona has instead depreciated 3.2% since publication of the April Monetary Policy Report.

RUSSIA (BBG): Putin Blasts Wagner ‘Traitors’ as Prigozhin Defends Revolt

President Vladimir Putin condemned leaders of the Wagner mercenary group as traitors to Russia in a late-night speech to the nation, his first public comments since the weekend mutiny that posed the most serious threat to his nearly quarter-century rule. “The organizers of the rebellion betrayed their country and their people, and betrayed those who were dragged into the crime,” Putin said, without mentioning Wagner chief Yevgeny Prigozhin by name. “Their actions were criminal in nature, aimed at polarizing people and weakening the country.”

CHINA (MNI): Near 5% Growth on Track - Li Qiang

China remains on track to achieve 5% economic growth this year, according to Premier Li Qiang. Speaking at the World Economic Forum in Tianjin, Li said he expects Q2 GDP growth to exceed Q1 and China to continue policy support to expand domestic demand, boost green transition, and encourage high quality opening.

CHINA (BBG): China Premier Warns Economic Barriers Will Lead to Confrontation

China’s Premier Li Qiang warned governments that attempt to politicize their economies will only fragment the world as the US and Europe “de-risk” supply chains from the Asian nation. “The invisible barriers put up by some people in recent years are becoming widespread and pushing the world into fragmentation and even confrontation,” China’s No. 2 official said Tuesday at the World Economic Forum’s Annual Meeting of the New Champions in Tianjin, a coastal city close to Beijing in northern China.

CHINA (BBG): China Tightens Grip on Markets After Selloff in Currency, Stocks

China is pushing back against mounting investor pessimism toward the world’s second-largest economy. The central bank stepped up support for China’s slumping currency on Tuesday by setting the daily reference rate far stronger than estimates. The move came a day after a prominent finance writer and two of his peers were suspended from a social media platform for spreading “negative and harmful information” about the nation’s faltering stock market.

RBA (MNI): RBA at Risk of Over Hiking - Ex-Board Member

The Reserve Bank of Australia risks overtightening if it hikes the cash rate above its current 4.1% in coming months, as the delayed impact of past increases begins to be felt, ex-board member Bob Gregory told MNI. Interest rate increases take 12 to 18 months to have an effect, said Gregory, emeritus professor at the ANU’s Research School of Social Sciences, who served on the RBA board between 1985-1995. He pointed to the mortgage market as an example, with a large number of fixed-rate mortgages rolling off over the next few months.

RBNZ (MNI): NZ Government Rejigs RBNZ's MPC Remit, Charter

The New Zealand Government has renewed the Reserve Bank of New Zealand’s Monetary Policy Committee remit and charter with the Bank now required to "achieve and maintain," rather than "keep," future annual inflation between 1-3% over the medium term. New Zealand’s finance minister Grant Robertson set out the new objectives Tuesday, emphasising only minimal changes were made, “as I believe it remains fit for purpose.”

TURKEY (BBG): Turkey’s Flagship Tool to Support Lira Gets Tax Break Extension

Turkey will extend a tax exemption on state-backed bank accounts that aim to cut demand for foreign currency to the end of 2023, according to people with knowledge of the matter. The Treasury and Finance Ministry sent the regulation on withholding tax — a levy on interest earned on bank deposits — to President Recep Tayyip Erdogan for approval, the people said, asking not to be identified because the decision hasn’t been made public yet.

THAILAND (BBG): Thailand to Ease Forex Rules as BOT Warns More Baht Volatility

Thailand plans to ease foreign exchange rules for domestic companies and individuals to help them shore up their risk management as the central bank said the baht will continue to remain volatile due to a host of external factors. The Bank of Thailand plans to promote the use of local currency among local businesses and cut their reliance on dollars by transacting more in currencies such as yuan, yen, ringgit and rupiah, Alisara Mahasandana, assistant governor for financial markets operations group, told reporters in Bangkok on Tuesday.

MALAYSIA (MNI): Malaysia's BNM to Intervene in Currency Market

The BNM have stated they are to intervene in currency markets to stabilise the MYR after "excessive" recent losses. The central bank added that the extent of MYR depreciation was not reflective of economic fundamentals, and the recent volatility was also disproportionately higher than historic levels.

COMMODITIES (BBG): Iron Ore to Copper Jump as China Stimulus Optimism ‘Runs Rife’

Iron ore rallied along with copper after Chinese Premier Li Qiang said that growth has picked up this quarter and more stimulus was in store, boosting the outlook for consumption in the biggest metals importer. China will roll out more practical, effective measures to expand domestic demand and stoke market vitality, Premier Li told the World Economic Forum in Tianjin. Iron ore, used to make steel, surged by almost 4%.

DATA

ITALY DATA (MNI): Consumer Confidence Returns to Pre-War Level

• ITALY JUN CONSUMER CONF 108.6 (FCST 105.5); MAY 105.1
• ITALY JUN ECON CONF 108.3; MAY 108.6

In June, Italian consumer sentiment rebounded to the strongest level since February 2022 (pre-Russia-Ukraine war effects), whilst economic and manufacturing sentiment indicators moderated slightly. The 3.5-point upswing in consumer confidence to 108.6 beat expectations of a 0.4-point uptick. Consumer sentiment improvements were led by a strong increase in assessment of the economic climate and future outlooks. Slowing inflation and falling energy prices will have largely underpinned this development.

UK JUN BRC SHOP PRICES +0.2% M/M, +8.4% Y/Y (MNI)

SWEDEN DATA (MNI): PPI Lowest Since Dec 2020 as Energy Prices Fall

• SWEDEN MAY PPI -1.7% M/M; -2.1% Y/Y; APR +1.3% Y/Y

Swedish factory-gate inflation dipped into contraction at -2.1% y/y in May, decelerating 3.4pp from the April rate to the lowest reading since December 2020. Prices declined by -1.7% m/m, falling for a fifth consecutive month. Energy-related goods accounted for the bulk of downside pressure, alongside fuel, metals, heating and paper products. Despite the substantial deceleration in PPI, Swedish CPI remains elevated. Sticky service prices have underpinned continued strength in CPIF ex. energy, which surprised to the upside in the May data, easing by only 0.2pp to +8.2% y/y.

JAPAN DATA (MNI): Trimmed Mean Rises to 3.1% Vs. Apr 3.0% - BOJ

Japan's trimmed mean measure of underlying inflation accelerated to 3.1% y/y in May from April's 3.0%, indicating continued pass-through of cost increases, despite falling y/y import prices, Bank of Japan data released Tuesday showed. The accelerated trimmed mean to 3.1% came after data released on Friday showed Japan's annual core consumer inflation rate rose 3.2% y/y in May, slowing from April's 3.4%, for the 14th straight month above the 2% target

JAPAN DATA (MNI): Japan Household Financial Assets Hit Record High

The balance of financial assets held by Japanese households stood at a record high of JPY2,043 trillion at the end of March, up 1.1% y/y and the 12th straight quarterly rise, preliminary fund circulation data released by the Bank of Japan on Tuesday showed. The balance of cash and deposits held by Japanese households, 54.2% of the total financial assets, at the end of March stood at a record high on a year-end basis of JPY1,107 trillion, up 1.7% from a year earlier, illustrating a continued reluctance from buying financial assets.

FOREX: GBP/JPY Tops Y183, an Eight Year High

• Broad JPY weakness Tuesday is most clearly noted against GBP, pushing the GBP/JPY cross briefly above Y183.00 - the highest level for prices since 2015.
• Rate dynamics remain the key driver, with markets continuing to price a strong likelihood of a peak BoE rate at 6.25% against the acutely low likelihood of a BoJ hike across the forecast horizon. Resistance in the cross is seen light into Y185.00, ahead of Y188.81 and 195.89, the 2015 high and highest since 2008.
• ECB's Lagarde formally kicked off proceedings in Sintra, Portugal, with a somewhat hawkish speech, at which she stated that it's unlikely the ECB will be able to conclude that they have reached peak rates anytime soon.
• Markets continue to price a July hike, but pricing drifts thereafter, signalling traders see slower tightening pace in H2 this year. EUR has held resilient across much of the morning, with the single currency ahead of all others in G10 - although generally respecting recent ranges.
• Canadian CPI is the data highlight ahead of US durable goods orders for May and the latest new home sales report. US Consumer Confidence crosses for June, with markets expecting confidence to tick higher to 103.9
• Sintra speakers later today include BoC's Kozicki and Norges Bank governor Ida Wolden Bache.

BONDS: Softer Tone on Sintra Soundbites Ahead of US Data

Core FI is a little weaker in European morning trade Tuesday, with most instruments trading within fairly narrow ranges by recent standards.

• Market focus is on the ECB's Sintra conference which has provided some high-profile soundbites but little that has impacted markets so far.
• Gilts are underperforming with UK yields up 2.5-3.5bp through the 10Y tenor, with some modest bear flattening in Germany (short-end up 1-1.5bp to 10-30 up 0.5-1bp). US yields are fairly flat (up 1-2bp across the curve).
• ECB Pres Lagarde repeated recent themes in her Sintra speech this morning, noting her "intention is not to signal any future decisions".
• MNI interviewed Belgium's Wunsch in Sintra: he sees a September hike absent a fall in core inflation. Terminal ECB hike pricing is +2bp on the day, still just shy of 4%.
• BoE’s Dhingra offered familiar dovish tones; terminal hike pricing remains a little higher on the day (+0.7bp).
• Plenty of US data ahead including durable goods, house prices, new home sales, consumer confidence, and Richmond Fed manufacturing. The supply highlight is $43B 5Y note. No Fed speakers are scheduled.

Latest levels:

• Sep US 10Y futures (TY) down 4/32 at 113-03.5 (L: 113-01 / H: 113-09)
• Sep Bund futures (RX) down 13 ticks at 134.63 (L: 134.39 / H: 134.89)
• Sep Gilt futures (G) down 43 ticks at 95.88 (L: 95.84 / H: 96.26)
• Italy / German 10-Yr spread 0.2bps tighter at 163.9bps

EQUITIES: Recent Pullback in E-Mini S&Ps Appears Technically Corrective

The Eurostoxx 50 futures uptrend remains intact, however, a bearish cycle since Jun 16 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 the recent 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 4360.26. 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 160.48 pts or -0.49% at 32538.33 and the TOPIX ended 6.36 pts lower or -0.28% at 2253.81.
• Elsewhere, in China the SHANGHAI closed higher by 38.824 pts or +1.23% at 3189.443 and the HANG SENG ended 354 pts higher or +1.88% at 19148.13.
• Across Europe, Germany's DAX trades lower by 9.51 pts or -0.06% at 15803.75, FTSE 100 higher by 8.75 pts or +0.12% at 7462.34, CAC 40 up 3.69 pts or +0.05% at 7188.04 and Euro Stoxx 50 up 8.36 pts or +0.2% at 4288.93.
• Dow Jones mini up 21 pts or +0.06% at 33988, S&P 500 mini up 7.75 pts or +0.18% at 4377.5, NASDAQ mini up 48.5 pts or +0.33% at 14902.75.

COMMODITIES: WTI Futures Remain in Bear Mode

WTI futures remain in a bear mode condition and the sharp sell-off late last week reinforces this condition. Support at $67.21, the 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 $1946.4, the 20-day EMA.

• WTI Crude up $0.45 or +0.65% at $69.85
• Natural Gas down $0.02 or -0.72% at $2.771
• Gold spot up $2.31 or +0.12% at $1925.75
• Copper up $0.8 or +0.21% at $381.2
• Silver up $0.12 or +0.52% at $22.9112
• Platinum up $1.25 or +0.13% at $929.01