MNI US OPEN - Looking to the ISM later

NEWS

ECB (BBG): Half-Point ECB Hike Needed After Inflation Record, Holzmann Says
The latest all-time high for euro-zone inflation strengthens the case for the European Central Bank to lift interest rates by a half-point in July, according to Governing Council member Robert Holzmann. The Austrian central bank chief, a top ECB hawk who’d already been urging a hike of that size, said a lack of “decisive action” now would risk expectations about the path for consumer prices becoming unanchored, requiring tougher measures later on that could trigger a recession.

GERMANY (MNI): China Supply Chain Delays For German Retailers: Ifo
Supply chain delays are accelerating again for German retailers, with over 80% seeing some empty shelves as ordered goods are stuck in transit in Covid lockdown-hit Chinese ports, an Ifo report published Wednesday says. Two-thirds of retailers said the situation in China in particular had further exacerbated existing supply problems.

EU (MNI): Denmark Referendum On EU Defence Opt-Out Underway
Voting is underway in Denmark in a referendum that will determine whether the country abolishes its opt-out to the EU's the Common Security and Defence Policy or EU military operations. The referendum comes in response to Russia's invasion of Ukraine, with the gov't calling the referendum on 6 March, shortly after the invasion was launched. Polls show consistently that the referendum is set to pass, with pollingleads for the 'yes' to abolition camp running from 11% to 25% in May, and with no minimum turnout threshold it appears likely that Denmark will be able to opt into EU defence policy and military operations in the future.

US (BBG): Citi Strategists Say Profit Downgrades Pose Risk to Equity Rally
After a difficult first five months of 2022, the pain may not be over yet for global equity markets, according to Citigroup Inc. strategists. The prospect of downward revisions to earnings estimates is the latest headwind to face stock investors, already rattled by runaway inflation and the potential impact of central-bank tightening aimed at controlling it, the strategists led by Jamie Fahy wrote in a note.

CHINA (MNI): China Factory Data Offers Light As Covid Curbs Ease
Chinese factory data perked up in May just as fiscal and monetary policies are slated to kick in for the second half of the year though the recovery momentum still needs to be further consolidated, according to analysts.

JAPAN (MNI): BOJ Wakatabe: Widening 10-Yr Range Means Tightening
Bank of Japan Deputy Governor Masazumi Wakatabe said on Wednesday that widening the 10-year long-term interest rate range would be equivalent to policy tightening.

AUSTRALIA (MNI): Australian Growth Still Volatile, Says ABS
Australia's economic growth has still not normalised after the pandemic lockdowns and supply chain issues have combined with war in Ukraine to create ongoing volatility, a senior official from the Australian Bureau of Statistics told MNI on Wednesday.

NEW ZEALAND (MNI): RBNZ Commences Monetary Policy Review Process
The Reserve Bank of New Zealand has started a legislated five-yearly review of its monetary policy Remit and Charter which guides the central bank's decision making in pursuing the goals of stable inflation and maximum sustainable employment. The process is open to public submissions, and the RBNZ will then deliver advice to the Minister of Finance next year for a decision on how the Remit and the Monetary Policy Charter will change from 2023 to 2028.

DATA: PMI Headlines

• SPAIN MAY MANUFACTURING PMI 53.8 (FCST 52.0); APR 53.3
• ITALY MAY MANUFACTURING PMI 51.9 (FCST 53.6); APR 54.5
• FRANCE FINAL MAY MANUFACTURING PMI 54.6r; APR 55.7
  • FRANCE MANUFACTURING PMI 0.1PP ABOVE FLASH 54.5
• GERMANY FINAL MAY MANUFACTURING PMI 54.8r; APR 54.6
  • GERMANY MANUFACTURING PMI 0.1PP ABOVE FLASH 54.7
• EUROZONE FINAL MAY MANUFACTURING PMI 54.6r; APR 55.5
  • EUROZONE MANUFACTURING PMI 0.2PP ABOVE FLASH 54.4
• UK FINAL MAY MANUFACTURING PMI 54.6; APR 55.8
  • UK MANUFACTURING PMI FLASH CONFIRMED

EUROZONE DATA: Small Upticks on Flash Manufacturing PMIs, Spain May Print Strong

SPAIN MAY MANUFACTURING PMI 53.8 (FCST 52.0); APR 53.3

ITALY MAY MANUFACTURING PMI 51.9 (FCST 53.6); APR 54.5

FRANCE FINAL MAY MANUFACTURING PMI 54.6r (FLASH 54.5); APR 55.7

GERMANY FINAL MAY MANUFACTURING PMI 54.8r (FLASH 54.7); APR 54.6

EUROZONE FINAL MAY MANUFACTURING PMI 54.6r (FLASH 54.4); APR 55.5

• Soft upwards revisions (0.1-0.2pp) were seen in this morning's final May Eurozone manufacturing PMIs, confirming a 1.1-point contraction for France, a 0.9-point decline for the Eurozone, and a 0.2-point improvement for Germany compared to April.
• The first and final Spain and Italy manufacturing PMIs diverged, with Spain seeing a surprise 0.5-point increase, whilst Italy slumped by 2.6-points, to 51.9- the lowest May reading of the group.
• The larger fall seen by Italy is underscored by a further dip in output due to weak demand and supply chain disruptions, resulting in the first decline in production in two years. Business confidence did however improve slightly despite remaining in pessimistic territory.
• Improved output growth was the underlying driver of Spain's robust reading in May. The reaper signalled the lowest index for supply-side delays in 14 months, highlighting easing supply chain disruptions in upcoming months, however stagnating demand will likely see production soften.
• Across the region, supply chain disruptions remain acute, inflationary pressures are elevated and demand is weakening, reinforcing uncertainty in the region for upcoming months.
• All readings remained in expansive territory, above the 50-point breakeven mark.

GERMAN DATA: Retail Sales Slump to 14-Month Low

GERMAN APR RETAIL SALES -5.4% M/M, -0.4% Y/Y (REAL, SA)

• April retail turnover contracted by 5.4% m/m in Germany, slumping substantially further than the forecasted -0.5% m/m. Real retail sales saw a further 0.4% contraction compared to April 2021.
• This implied real turnover sinking to the lowest since February 2021, as German consumer demand wavers due to soaring inflation recorded jumping 0.5pp to +7.9% y/y in the flash print for May.
• Stagnating growth outlooks in the region and minimal evidence of wage growth continue to underline the ECB's dovish policy, seen holding off on hikes in the June meeting.

GERMAN DATA: German Supply Chain Issues Could Add to ECB Woes

• Supply chain delays are accelerating again for German retailers, with over 80% seeing some empty shelves as ordered goods are stuck in transit in Covid lockdown-hit Chinese ports, an Ifo report published Wednesday says.
• The latest report sees 80.1% of respondents seeing a delay in orders, up sharply from April's 67% and only just shy of the December peak at 81.6%. The outcome is in line with the latest MNI Chicago Business Barometer, that also pointed to a resurgence of supply chain issues in the U.S.
• Two-thirds of retailers said the situation in China in particular had further exacerbated existing supply problems. Shanghai’s COVID lockdown was (mostly) lifted today, although a recent BBG report highlighted that Chinese authorities are continuing to invest in networks of testing infrastructure, suggesting the likelihood of the country’s COVID Zero strategy remaining in place for the long run.
• Supply chain issues are a source of concern for central banks as they eye rampant inflation levels.

BONDS: Looking ahead to the ISM manufacturing

• Core fixed income had been moving lower as equities ground higher earlier, however as the equity move lost pace, so did the move lower in FI. Bund and gilt futures are marginally higher on the day while Treasury futures are a little lower. This after Bund and gilt futures touched their lowest levels since 9 May and Treasury futures their lowest levels in a week.
• German and gilt curves have flattened while the UST curve has marginally steepened.
• This morning has seen little market reaction to European PMI final manufacturing prints, more important will be the ISM manufacturing print at 15:00BST / 20:00ET with JOLTs data due to be released simultaneously.
• In addition there are a number of speakers today: ECB's Lagarde, Villeroy, Panetta and Lane; Fed's Williams and Bullard as well as the Fed's Beige Book due for release.
• TY1 futures are down -0-6+ today at 119-08 with 10y UST yields up 1.8bp at 2.865% and 2y yields up 1.9bp at 2.578%.
• Bund futures are up 0.08 today at 151.65 with 10y Bund yields down -0.2bp at 1.118% and Schatz yields up 1.8bp at 0.512%.
• Gilt futures are up 0.10 today at 116.07 with 10y yields up 0.3bp at 2.103% and 2y yields up 3.0bp at 1.603%.

FOREX: USD/JPY Nearing Y130.00

• JPY is slipping in early Wednesday trade, with USD/JPY inching closer to the Y129.50 and the Y130.00 handle. The move higher hasn't coincided with strength across global equities, although most futures markets are in minor positive territory.
• The greenback is stronger, with the USD Index bouncing further off the 50-dma support at 101.52, although stronger-than-expected manufacturing PMI releases from Spain, France and the Eurozone have stalled the greenback's rally somewhat.
• The BoC rate decision takes focus going forward, with markets expecting a 50bps rate hike to 1.50%. There will be no press conference, only a statement released alongside the decision. The statement is likely to maintain its hawkish tone to keep inflation expectations from deanchoring but offer little in the way of new guidance.
• Hawkish surprises could come from language around moving further into excess demand or inflation being increasingly persistent and broad-based, but the market is likely more sensitive to dovish commentary concerning the global growth backdrop and/or moderation in Canadian housing activity.
• Data highlights Wednesday include May ISM Manufacturing and April's JOLTs data. Any outlier will be watched carefully ahead of Friday's Nonfarm Payrolls release.
• A number of central bank speakers are due, with ECB's de Cos, Panetta & Lane due as well as Fed's Williams & Bullard.

COMMODITIES LEVELS UPDATE: WTI higher but still some way off yesterday's highs

• WTI Crude up $1.78 or +1.55% at $116.4
• Natural Gas (NYM) up $0.23 or +2.84% at $8.373
• Natural Gas (ICE Dutch TTF) down $5.28 or -5.62% at $88.725
• Gold spot down $8.16 or -0.44% at $1829.09
• Copper down $2.1 or -0.49% at $427.5
• Silver down $0.07 or -0.32% at $21.4778
• Platinum up $2.48 or +0.26% at $971.21

EQUITIES LEVELS UPDATE: Mixed performances today

• Japan's NIKKEI up 178.09 pts or +0.65% at 27457.89 and the TOPIX up 25.97 pts or +1.36% at 1938.64.
• China's SHANGHAI closed down 4.271 pts or -0.13% at 3182.156 and the HANG SENG ended 120.26 pts lower or -0.56% at 21294.94.
• German Dax up 40.1 pts or +0.28% at 14428.87, FTSE 100 down 13.27 pts or -0.17% at 7593.93, CAC 40 up 7.31 pts or +0.11% at 6477.88 and Euro Stoxx 50 up 6.86 pts or +0.18% at 3794.94.
• Dow Jones mini up 128 pts or +0.39% at 33084, S&P 500 mini up 5.75 pts or +0.14% at 4136.75, NASDAQ mini down 10 pts or -0.08% at 12635.75.