MNI US OPEN - Lagarde Says ECB Could Hike Again After Pause

NEWS

ECB (BBG): ECB Could Hike Again Even After a Pause, Lagarde Tells Le Figaro

Any pause at an European Central Bank monetary-policy meeting could be followed by another increase in interest rates, according to President Christine Lagarde. At the next meeting in September, “there could be a further hike of the policy rate or perhaps a pause,” she told Le Figaro newspaper. “A pause, whenever it occurs, in September or later, would not necessarily be definitive.” The comments come after the ECB last week hiked rates by another quarter-point, with Lagarde stressing that decisions from here will depend on incoming data. She reaffirmed that stance in Sunday’s Figaro interview.

US EARNINGS: Season So Far Remains Ahead of Expectations

Apple, Amazon, Berkshire Hathaway are the highlights of the coming week, with 28% of the S&P 500 set to report. The average S&P 500 firm has beaten EPS forecast by 12.8% and topped revenue estimates by 0.8%. The real estate and communications services sectors have fared the best vs. expectations, while energy, materials and utilities are the only sectors to have missed on sales.

US (WaPo): Trump Gains Advantage as States Set Delegate Selection Rules

Donald Trump's presidential campaign notched a major victory Saturday when members of the California Republican executive committee voted to parcel out convention delegates based on the statewide vote next year — doing away with the state's longtime system of awarding them by congressional district, which had been perceived as a more level playing field for lower-tiered candidates.

UK (BBG): Sunak to Outline UK Energy Security Plan Amid Green Backlash

UK Prime Minister Rishi Sunak will outline plans to bolster energy security on a visit Monday to Scotland amid growing disagreement over the government’s broader environmental policies. Sunak will announce measures to help the North Sea oil and gas industry adapt to the transition to net zero greenhouse gas emissions and meet industry leaders in Aberdeenshire, the UK’s drilling hub. The Sunday Times reported that Sunak will unveil multi-million-pound funding for a carbon capture project in Scotland that could help support oil and gas production.

CHINA (BBG): China Stops Short of Direct Consumer Support to Spur Economy

China is seeking to boost consumption to spur the economy’s recovery, although the government has stopped short of providing direct fiscal support to consumers and companies to increase spending. The National Development and Reform Commission, China’s top economic planning agency, released a wide-ranging policy document Monday focusing on removing government restrictions on consumption, such as car purchase limits, improving infrastructure and holding promotional events like food festivals.

CHINA (Yicai): Tier-one Cities to Relax Housing Rules Soon

First-tier cities will release detailed measures soon to prop up the property market in response to top policymakers' call to adjust housing policies. Tier-one cities including Beijing, Shenzhen and Guangzhou said during the weekend they will support home purchases to meet essential dwelling demand and needs for better housing. Analysts expect tier-one cities may adopt "one district one policy" rules to relax local housing markets gradually as the principle of "housing is for living, not for speculation" remains.

MNI RBA PREVIEW - AUGUST 2023: Tight Call, Pause After Q2 Close to Forecasts

The RBA meets on August 1 and is expected to discuss leaving rates at 4.1% or increase them by 25bp. We expect at the margin that the RBA will keep rates at 4.1% with the tightening bias retained but it is another very close call. We think that the new information in the last month is unlikely to change the central bank’s forecasts or view materially, and as such the July pause should be extended.

BOJ (BBG): BOJ Wades Into Bond Market After YCC Tweak Triggers Yield Spike

The Bank of Japan sprung another surprise on Monday, announcing an unscheduled bond-purchase operation to tamp down rates after adjusting policy on Friday to allow benchmark yields to climb as high as 1%.It was the first time since February that the BOJ has waded into the market this way, suggesting that it will continue to smooth any sharp upward moves. With yields spiking to a fresh nine-year high in morning trading, the BOJ announced that it would buy the equivalent of more than $2 billion bonds at market rates.

BOJ (MNI): BOJ Sees Downside Risk; No Urgent Policy Shift

The Bank of Japan warned of various downside risks to overseas economies and indicated it will not phase out its easy policy, according to the full text of the BOJ Outlook Report publishd Monday. "Although the pace of recovery in overseas economies is projected to remain slow for the time being, they are likely to pick up gradually thereafter," the report noted. "However, there are extremely high uncertainties surrounding them, and downside risks have remained a particular concern.”

MNI BOJ REVIEW - JULY 2023: YCC Tweak is a Precautionary Measure to Allow Greater Flexibility

On Friday, the BoJ announced its decision to maintain the short-term policy interest rate at 0.1% and allow the 10-year JGB target to fluctuate within around plus and minus 50bp from the target level of zero per cent. However, the market was taken by surprise as the BoJ made a notable change to its Yield Curve Control (YCC) framework, providing greater flexibility. Now, the 10-yearyield will not be rigidly confined to the 50bp band and can exceed up to 1%.

DATA

EUROZONE JUL FLASH HICP +5.3% Y/Y (MNI)
EUROZONE Q2 PRELIM FLASH GDP +0.6% Y/Y (MNI)

UK JUN M4 MONEY SUPPLY -0.1% M/M, +0.1% Y/Y (MNI)

ITALY Q2 FLASH GDP -0.3% Q/Q, +0.6% Y/Y (MNI)

CHINA DATA (MNI): China's July Manufacturing Contracts at 49.3

MNI (Beijing) China's Purchasing Managers' Index contracted for the fourth straight month, registering 49.3 in July, rebounding slightly from 49 in June though still below the breakeven 50 mark, data from the National Bureau of Statistics showed Monday. The production sub-index marked 50.2 in July, edging down 0.1 points from June.

JAPAN DATA (MNI): Japan Industrial Output Rises 2% M/M In June

• JAPAN JUNE INDUSTRIAL OUTPUT +2.0% M/M; MAY -2.2%

Japan industrial output rose 2.0% m/m in June, the first rise in two months, following a 2.2% decline in May due to higher production for motor vehicles, electronic parts and devices, and general-purpose and business oriented machinery, data released by the Ministry of Trade and Industry showed on Monday. June's data was in line with the Bank of Japan's prediction that industrial production has been more or less flat. Production for motor vehicles rose 6.1% m/m in June, the first rise in two months, following an 8.9% fall in May as the shortage of semiconductors eased.

JAPAN DATA (MNI): July Consumer Confidence Rises, Backs BOJ View

Japan's consumer confidence index posted its fifth straight rise in July, rising to 37.1 from June's 36.2, as all components improved from the previous month, prompting the Cabinet Office to upgrade its assessment and supporting the Bank of Japan's bright view on spending, data released by the Cabinet Office on Monday showed.

JAPAN JUNE RETAIL SALES +5.9% Y/Y; MAY +5.8% (MNI)
JAPAN JUNE RETAIL SALES -0.4% M/M; MAY +1.4% (MNI)

FOREX: JPY Slips as BoJ Step in to Contain Yields

• JPY is softer against all others in G10, falling on the back of an unexpected BoJ operation to curb a rise in local bond yields. The Bank's operation was the first of its kind since February, intervening by buying as much as $2bln in JGBs at market rates. USD/JPY spiked to 142.49 in response, the highest since early July to narrow the gap with the key bull trigger at 145.07.
• Eurozone flash inflation numbers came in well within the range of expectations, leaving little wake across currency markets. EUR/USD continues to very gradually retrace the sharp Thursday pullback, making 1.1047 and 1.1150 the next upside levels.
• Antipodean currencies are trading well, with both AUD and NZD higher ahead of this week's RBA rate decision, at which the bank are seen raising rates by 25bps to 4.35%. The moves also follow the more mixed China PMI releases, with manufacturing PMI beating expectations, but non-manufacturing coming in just below forecast.
• This leaves the greenback mixed-to-lower, but the uptrend posted off the July low remains intact for now. As a result, key resistance at the 100- and 50-dmas of 102.40 and 102.52 remain the levels to watch.
• The MNI Chicago PMI takes focus going forward, with Dallas Fed Manufacturing Activity also on the docket. The Senior Loan Officer Opinion Survey from the US could also draw some focus, after being referenced in the press conference with Fed chair Powell last week.

GILTS: Wings Lead Weakness

Gilt futures have been happy to consolidate the early gap lower and last operate a touch above worst levels of the day, -40 or so, while cash trade sees the major benchmarks running 3.5-4.5bp cheaper, with the wings leading the weakness.

• SONIA futures are flat to -3.5 on the day.
• The space has looked through the latest round of tier 1 Eurozone data prints, with no meaningful cross-market impact observed.
• Local headline flow remains light, outside of slightly firmer than expected credit and mortgage lending data.
• This leaves local focus on Thursday’s BoE monetary policy decision.
• BoE-dated OIS continues to show ~35bp of tightening for this week’s meeting, while terminal policy rate pricing continues to hover around 5.90%. Both these measures are comfortably shy of the recent hawkish extremes on the back of broader market fluctuations and the recent run of tier 1 domestic data. Markets and the sell-side remain relatively non-committal re: the size of the Bank’s next policy step, we will provide much more colour on that in our full BoE preview later this week.

US TSYS: Off Lows, Aided By TY Block Buy

A block buy in TY futures (~$402K DV01) has helped stabilise Tsys, leaving the major cash benchmarks 1-3bp cheaper, with intermediates leading the cheapening. TYU3 is -0-03, around the middle of its 0-13 range.

• JGB direction, as well as a bid in Chinese & HK equities, facilitated the Asia-Pac cheapening, with a move away from lows in e-minis also weighing through the London handover.
• Weekend Fedspeak from Kashkari (’23 voter) did little to move the needle, with FOMC-dated OIS indicating a terminal rate of 5.42% in November, before ~54bp of cuts are priced through June ’24. Chicago Fed President Goolsbee (’23 voter) will speak later.
• The MNI Chicago PMI and SLOOS headline the NY data docket. Fed Chair Powell provided a preview of the SLOOS last week, noting “I would just say it's broadly consistent with what you would expect. You've got lending conditions tight and getting a little tighter. You've got weak demand. And you know, it gives a picture of pretty tight credit conditions in the economy. I think it's really hard to tease out whether, how much of that is from this source or that source, but I think what matters is the overall picture is of tight and tightening lending conditions.”

EQUITIES: E-Mini S&P Holds Onto Friday's Gains

Eurostoxx 50 futures rallied late last week. This resulted in a break of key resistance at 4447.00, the Jul 3 high and a bull trigger. The rally has confirmed a resumption of the uptrend and marked the end of a broad sideways move that started May 19. Attention is on 4501.60 next, a Fibonacci projection. Key short-term support has been defined at 4331.00, the Jul 26 low. A break of this level would be a bearish development. The E-mini S&P contract traded to a high of 4634.50 Thursday before reversing. This highlights a possible short-term bearish signal. Price has found resistance at the top of a bull channel drawn from the Mar 13 low - the channel top is at 4643.65 today. A continuation lower would expose the 20-day EMA - at 4534.05 and a break of this level would strengthen bearish conditions. Clearance of the channel top is required to resume the uptrend.

• Japan's NIKKEI closed higher by 412.99 pts or +1.26% at 33172.22 and the TOPIX ended 31.95 pts higher or +1.39% at 2322.56.
• Elsewhere, in China the SHANGHAI closed higher by 15.114 pts or +0.46% at 3291.04 and the HANG SENG ended 162.38 pts higher or +0.82% at 20078.94.
• Across Europe, Germany's DAX trades higher by 14.84 pts or +0.09% at 16483.04, FTSE 100 lower by 9.07 pts or -0.12% at 7683.84, CAC 40 up 16.31 pts or +0.22% at 7492.54 and Euro Stoxx 50 up 7.42 pts or +0.17% at 4473.76.
• Dow Jones mini down 1 pts or 0% at 35587, S&P 500 mini up 1.5 pts or +0.03% at 4607.5, NASDAQ mini down 5 pts or -0.03% at 15841.25.

COMMODITIES: Uptrend in WTI Futures Remains Intact

The uptrend in WTI futures remains intact - last week’s gains confirmed a resumption of the bull cycle. The break above $77.15, the Jul 13 high signals scope for an extension towards the next key resistance at $81.44, the high on Apr 12 / 13. Moving average studies are in a bull-mode position, reinforcing current positive conditions. Key short-term support has been defined at $73.78, the Jul 17 low. Gold traded sharply lower last Thursday. The move down resulted in a break of support at the 50-day EMA - at $1951.4. A continuation lower would threaten the recent bullish theme and instead expose support at $1924.5, the Jul 11 low. Clearance of this level would expose key support at $1893.1, the Jun 29 low. Key short-term resistance has been defined at $1987.5, the Jul 20 high. A break of this hurdle is required to reinstate a bullish theme.

• WTI Crude down $0.02 or -0.02% at $80.53
• Natural Gas up $0.02 or +0.87% at $2.66
• Gold spot down $6.17 or -0.31% at $1953.7
• Copper down $0.1 or -0.03% at $392.4
• Silver down $0.12 or -0.5% at $24.2224
• Platinum down $8.41 or -0.9% at $930.34