MNI US OPEN - Markets Hawkishly Positioned Ahead of BoE

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MNI BOE PREVIEW - JUNE 2023: Things Have Changed

Following the May MPC meeting the wide held view was that Bank Rate would see a final 25bp hike in June 2023 to a terminal 4.75%.However, since then we have seen both labour market and inflation data surprise notably to the upside, markets have added over 100bp to terminal pricing and all analysts (as well as the MNI Markets team) look for 25bp hikes in June and August, at the least. We expect little change to forward guidance and lean towards a 2-7-0 vote (unch-25-50).

NORGES BANK (MNI): Norges Bank Hikes 50bps, Sees Next Hike In Aug

The Norges Bank hiked its key Policy Rate 50 basis points at its June meeting to 3.75% and it raised its rate projections to show a rate peak at 4.25% in the Autumn compared to a previous peak of 3.6% in the fourth quarter. The committee said that it was most likely to hike again at its August meeting, with the fast tightening lifting the policy rate swiftly to its new projected peak.

SNB (MNI): SNB Hikes Policy Rate, Says More May Be Needed

The Swiss National Bank hiked its key policy rate by 25 bps to 1.75% Thursday and warned further hikes could be needed to counter rising medium-term inflationary pressures. To ensure appropriate monetary conditions, the SNB said it "remains willing to be active in the foreign exchange market as necessary", and that in the current environment it would focus on selling foreign currency.

US/INDIA (BBG): Biden and Modi Deals Span Drones, Jet Engines, Space and Chips

President Joe Biden and Indian Prime Minister Narendra Modi will announce a series of defense and commercial deals designed to improve military and economic ties between their nations during Thursday’s state visit at the White House, senior US officials said. The accords unfold as India has sought to increase its engagement on the global stage both diplomatically and economically, the officials, who detailed the plans before their official announcement on the condition of anonymity, said in a call with reporters.

US/CHINA (BBG): US Welcomes EU’s Security Strategy on China, Envoy Says

The US envoy to the European Union backed the bloc’s new security strategy that seeks to reduce dependence on China, stressing the need to focus on supply chains and export curbs.The strategy recognizes “that secure supply chains and export controls and protecting national security is as important as trade,” US Ambassador Mark Gitenstein told Bloomberg TV in an interview Thursday. “You have to build structures on both sides of the Atlantic that are capable of protecting both.”

US/CHINA (NYT): China’s Cloud Computing Firms Raise Concern for US

The Biden administration is exploring whether it can mount a campaign against Chinese tech giants like Alibaba and Huawei, potentially fueling tensions with Beijing. In the digital cold war between the United States and China, American officials are increasingly turning their attention to a new target: Chinese cloud computing giants.

ECB (MNI): PEPP, TLTROs Supported NBFIs During Covid - Study

Money market funds with larger shares of assets later eligible for inclusion in the ECB’s pandemic emergency purchase programme (PEPP) in their portfolios experienced significantly lower outflows and performed better during the Covid pandemic than otherwise comparable non-bank financial intermediaries, a research bulletin published Thursday concludes.

GERMANY (MNI): Germany Will Hit NATO 2% of GDP on Defence Spending in 2024 - Scholz

Prepared remarks to the Bundestag from Chancellor Olaf Scholz regarding a number of foreign policy issues hitting wires. Scholz claims that Germany will meet NATO's 2% of GDP on defence spending floor in 2024. Data suggests that Germany spent the equivalent of 1.49% of its GDP on defence in 2022. During the visit of Chinese Premier Li Qiang, Scholz states that "We warned against any change to territorial status quo by force, particularly in Taiwan."

JAPAN (MNI): Govt Keeps Overall Japan Economy View, Ups Employment

Japan's government has maintained its main economic assessment from May, but upgraded its view on employment and tweaked its appraisal of the corporate goods price, the Cabinet Office said Thursday. The Government left its assessment of major economic components – such as exports, industrial production and private consumption – and its view on the global economy unchanged for the second straight month. “The Japanese economy is recovering at a moderate pace,” the Government repeated.

JAPAN (MNI): BOJ Tankan to Show Better Sentiment, Price View

The Bank of Japan's June Tankan survey will show improved business sentiment and capital investment plans, boosted by waning supply-side restrictions and a recovery of services and inbound tourists, economists said. The major manufacturers’ sentiment diffusion index should rise to 4 in June from 1 in March,. Forecasts range from 1-7. The median DI forecast for major non-manufacturers is 22, up from 20. A positive DI indicates most firms note better business conditions.

JAPAN (MNI): Watch Trade Off on Policy Changes - BOJ Noguchi

Asahi Noguchi, Bank of Japan board member, said Thursday the BOJ should consider the trade-off between easy-policy effects and restoring market function when changing the range of the long-term policy interest rate. Noguchi, a dovish board member, maintained a cautious price view, saying the possibility is high that the y/y rise in core CPI will fall below 2% after temporary cost-push factors wane. “The BOJ must carefully ascertain whether the norm [prices and wages do not rise and inflation remains low] will change or not for the time being,” Noguchi told business leaders in Naha City.

RBA (MNI): Treasurer to Name Next RBA Governor in July

Australian Treasurer Jim Chalmers will name the future Reserve Bank of Australia Governor in July. Speaking to local media, Chalmers said he was consulting with cabinet colleagues and wanted to finalise a decision in the coming weeks. The treasurer would not confirm whether he would reappoint Governor Philip Lowe, whose term ends September.

MNI CBRT PREVIEW - JUNE 2023: Policy Pivot Eyed

The CBRT are expected to deliver significant rate hike following the appointment of a new Treasury and Finance Minister and central bank Governor. Both appointments signal a return to more orthodox monetary policy though there remains high uncertainty regarding the magnitude of the hike in June as well as the pace of a return to conventional policy more broadly. Among sell-side analysts, there is wide range of views surrounding the magnitude of the potential rate hike with Bloomberg estimates ranging from 14% to 40%.

INDONESIA/PHILIPPINES (BBG): Indonesia, Philippine Stand Pat Amid Easing Price Pressures

Central banks in Indonesia and the Philippines kept borrowing costs unchanged as expected, with both signaling rates will be steady in the near term to support their economies as price pressures ebb. Decelerating inflation in the Southeast Asian nations supported the pro-growth bias of policymakers as they delivered their decisions within minutes of each other on Thursday. Bank Indonesia held its benchmark interest rate at 5.75% for a fifth straight month, while Bangko Sentral ng Pilipinas held its key rate at a 16-year-high of 6.25%.

DATA

FRANCE DATA (MNI): Manufacturing Sentiment Up, Demand Expectations Stabilising

• FRANCE JUN MANUF CONFIDENCE 101 (FCST 98); MAY 99

French manufacturing sentiment rebounded by two points to 101 in June, against expectations of a further one-point decline and breaking a streak of three months of deterioration. At 101, the indicator stands one point above the long-run average. Stronger production expectations and order books attributed to the boost in June sentiment. Firms are looking for a moderate uptick in demand, albeit largely limited to domestic orders. Sentiment in the automotive sector improved, whilst worsening in agriculture/food sector.

NEW ZEALAND (MNI): Small Trade Surplus, Exports to China Recovering

The May trade surplus narrowed to $46mn from a downwardly-revised $236mn. This left the YTD deficit slightly wider at $17.12bn from $17.02bn. Good exports rose 2.8% y/y and imports +4.4% y/y. The rise in May exports was driven by dairy products (+21% y/y) and fruit (+8.8% y/y). There were sharp drops in crude and petroleum products. Exports to China rose 18% y/y, to the US +10% but fell 14% y/y to Australia and -11% to the EU.

FOREX: NOK on Top as Norges Re-Accelerate Tightening

• NOK is comfortably outperforming across G10, tipping EUR/NOK back toward the 100-dma support undercutting at 11.4405. The level was last crossed in November last year and a break below would mark a key medium-term momentum shift in the cross.
• Moves across the Norwegian currency follow an acceleration in the tightening pace for the Norges Bank, who raised the policy rate by 50bps to 3.75% and flagged further tightening to come across the Summer months. The Bank's new rate path boosted the peak to near 4.25%, and sees the bank holding policy at a tighter level for longer across the forecast horizon.
• Meanwhile, the SNB raised policy rates by 25bps - disappointing a notable minority that looked for 50bps of tightening today. The Bank warned that further policy tightening cannot be ruled out, although they downgraded their inflation view for 2023 in the process. CHF trades weaker in response, putting USD/CHF higher by ~0.1% on the day.
• The Bank of England rate decision takes focus going forward. At the beginning of the week, consensus firmly looked for 25bps of tightening, but there remain outside risks of a larger move today in response to the accelerating core inflation release posted earlier this week. GBP/USD holds just below 1.2800 at typing, with options markets pricing an approximate 85pip swing in the pair today.
• Weekly jobless claims and the Chicago Fed National Activity Index are the data highlights Thursday, with US existing home sales to follow. Fed's Powell is set to appear for a second session, this time in front of the Senate Banking Panel. Fed's Bowman, Barkin and Mester also make appearances.

BONDS: BoE in View, Markets Remain More Hawkishly Positioned than Sell-Side

Gilts have cheapened a little after an initial show higher, although futures haven’t got anywhere near challenging the boundaries established in yesterday’s session as participants look ahead to the latest BoE decision. Futures last sit just off lows, while cash yields are 0.5-2.5bp higher, with some light bear flattening in play.

• All 40 surveyed by BBG look for a 25bp hike from the BoE at midday. The market remains more aggressive in the wake of the recent labour market and CPI data, showing ~34bp of tightening for the event, shy of yesterday’s hawkish extremes which briefly indicated an even chance of a 50bp hike. Terminal rate pricing sits a little above 6.00% in BoE policy rate terms, a touch firmer on the day.
• Bund futures grind lower, with some modest, intermittent influence from the SNB decision, which saw the Bank go with a 25bp hike, resulting in a brief and limited bid, and the more recent 50bp hike and hawkish guidance from the Norges Bank. The German cash curve twist flattens and Bund futures sit just off lows. Greek 10s tighten by ~4bp vs. Bunds, with weekend elections in Greece eyed. ECB speak and Eurozone consumer confidence pads out the remainder of the regional docket today, although greater market influence could be drawn from Gilts in the wake of the impending BoE decision.

• Bund futures are -0.26 today at 133.16 with 10y Bund yields up 1.5bp at 2.448% and Schatz yields up 1.4bp at 3.143%.
• Gilt futures are -0.25 today at 946.68 with 10y yields up 2.0bp at 4.421% and 2y yields up 2.2bp at 5.056%.

EQUITIES: E-Mini S&Ps Extend Recent Losses

The Eurostoxx 50 futures uptrend remains intact, however, a bearish corrective cycle this week has resulted in a move lower and the contract is approaching support at 4301.00, the Jun 8 low. This is a key short-term support and a break would signal scope for a deeper retracement, exposing 4241.00, the May 31 low and a key support. 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 this week’s pullback appears to be a correction. This is allowing a recent overbought condition to unwind. Initial key support lies at the 20-day EMA which intersects at 4348.95. 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 4500.21, the top of a bull channel.

• Japan's NIKKEI closed lower by 310.26 pts or -0.92% at 33264.88 and the TOPIX ended 1.49 pts higher or +0.06% at 2296.5.
• Across Europe, Germany's DAX trades lower by 106 pts or -0.66% at 15917.48, FTSE 100 lower by 66.89 pts or -0.88% at 7492.31, CAC 40 down 85.66 pts or -1.18% at 7175.31 and Euro Stoxx 50 down 43.92 pts or -1.02% at 4278.83.
• Dow Jones mini down 47 pts or -0.14% at 34188, S&P 500 mini down 9 pts or -0.2% at 4400.5, NASDAQ mini down 44 pts or -0.29% at 15000.75.

COMMODITIES: WTI Futures Trade Close to This Week's Highs

WTI futures continue to appreciate and the contract is trading at this week’s highs. Despite recent gains, the outlook remains bearish and the contract is trading below resistance at $75.70, the Jun 5 high. Support at $67.21, 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. A break of $75.70 would signal a reversal. The bear cycle in Gold remains intact and the yellow metal is trading closer to recent lows. Trendline support was breached last week - the line is drawn from the Nov 3 2022 low and intersects at $1975.7. The break reinforces a bearish condition and marks a resumption of the downtrend. The focus is on $1903.5, 61.8% of the Feb 28 - May 4 bull cycle. Initial firm resistance is $1985.3, the May 24 high and a reversal trigger.

• WTI Crude down $0.53 or -0.73% at $71.97
• Natural Gas up $0.02 or +0.85% at $2.62
• Gold spot down $5.19 or -0.27% at $1926.68
• Copper up $3.95 or +1.01% at $395.05
• Silver down $0.06 or -0.25% at $22.5632
• Platinum down $0.67 or -0.07% at $945.27