MNI US OPEN - Markets Primed for a Hawkish Hold

NEWS

MNI FED PREVIEW - JUNE 2023: How to Communicate a Hawkish Hold

The FOMC’s tightening cycle is likely to “skip” June’s meeting, with the Committee holding rates at 5.00-5.25% while signalling that it currently expects to hike at the following meeting in July. While data and events since early May have on balance probably justified another 25bp hike, some data have left room for doubt, and the FOMC has set a fairly high bar to further tightening. In an effort to maintain a hiking bias, the Statement’s forward rate guidance is likely to remain unchanged, with the updated economic projections showing that an additional rate hike is expected by year-end.

MNI ECB PREVIEW: JUNE 2023 - Tightening Towards the Stop

The ECB will hike rates by 25bp and confirm the previous decision to end APP reinvestments in July. Absent a sharp drop in core inflation, we would expect the ECB to hike again in July. Even if the ECB were to raise rates further in September, this would likely be the last turn of the screw.

US/CHINA (MNI): Qin Urges US to Stop Hurting China Interest on Phone Call With Blinken

US Secretary of State Blinken and China's foreign minister Qin spoke earlier today, according to the China Foreign Ministry. During today's discussion Qin said that the US should stop interfering in China's internal affairs, which is not unusual. But he also said that the US should respect issues which are important to China, such as Taiwan, and should stop hurting China by using competition as an excuse.

US/CHINA (MNI): MOFCOM Hits Out at US for Adding Chinese Firms to Export Control List

Comments from the Chinese Ministry of Commerce hitting wires regarding the US inclusion of some Chinese firms on the latest export control list over military and human rights concerns. MOFCOM states that it firmly opposes the US' actions, saying that the "US should immediately correct wrongdoings and stop groundless suppression of Chinese firms." Adds that "China will take necessary measures and resolutely safeguard legitimate rights and interests of Chinese firms."

US (BBG): US’s Sullivan to Travel to Japan After India Trip: White House

US National Security Adviser Jake Sullivan will travel to Tokyo to hold meetings with his counterparts from Japan, the Philippines and South Korea, according to a statement from the National Security Council. Will include “the first-ever trilateral meeting of the Japanese, Philippine, and US national security advisers.” They will discuss ways to deepen collaboration on key regional and global issues.

US (BBG): Trump Urges Prosecutors to Drop Case, Offers Defense Preview

Donald Trump urged prosecutors to drop the charges against him and insisted on his innocence in his first public remarks following his arraignment in federal court over mishandling classified materials. “This day will go down in infamy,” the former president told a friendly audience at his Bedminster golf resort in New Jersey on Tuesday night, dismissing the charges as “election interference” — offering a preview of how he will fight the case.

EUROZONE (MNI): Model Signalling Shallow Downturn Rather Than Recession

Euro area Q1 GDP was revised down to -0.1% q/q after -0.1% in Q4. According to the simple rule of thumb that a recession is two consecutive quarters of negative growth, then the euro area went into recession in Q4 2022. However, like the US, they have a business cycle dating committee but it will be sometime before they make the call. Given that unemployment has continued to fall into Q2, it is unlikely that the euro area is in recession. Our 6-month ahead recession probability estimate (from 1985) rose above 50% for the first time in July 2022, signalling the risk of recession in January 2023.

FRANCE (BBG): France’s Macron to Host Saudi Crown Prince for Mideast Talks

French President Emmanuel Macron will host Saudi Arabia’s Crown Prince Mohammed bin Salman in Paris on Friday, on his second visit to the country in about a year. The two leaders will meet at the Elysee palace and discuss bilateral relations as well as Middle Eastern and international topics, according to the French presidency.

ASIA (MNI): Japan-South Korea-China Summit Depends On Beijing Says Seoul

The prospect of a tripartite summit involving the leaders of China, Japan, and South Korea is dependent on Beijing according to the South Korean president's office reports Yonhap. The previous summit took place in Dec 2019, and with South Korea as the host in 2023 Seoul has offered to host a meeting later this year. However, recent comments from the Chinese ambassador to Seoul could scupper the prospects of such an event taking place.

JAPAN (BBG): Japan PM Mulls Election If No-Confidence Motion Filed, FNN Says

Japanese Prime Minister Fumio Kishida is considering calling an early election if the opposition submits a no-confidence motion to parliament Friday, broadcaster FNN said, citing sources close to the government and ruling parties. It remains unclear whether the motion will be submitted and Kishida told reporters Tuesday he would carefully assess the situation in deciding when to call the election. There has been speculation in local media that the vote could come as soon as next month, or in the autumn.

CHINA (MNI): Market Reforms Needed - Yicai

Authorities in Beijing should take measures to deepen reform and open up in addition to cutting interest rates this month to secure the recovery, according to an editorial from Yicai. The paper said policymakers' moves to cut interest rates this week risk causing higher debts if deeper market reforms are not taken. China should unleash a second round of sustainable economic growth by increasing market access to the private sector, breaking up monopolies, improving the rule of law and constructing a national unified market, Yicai said.

RUSSIA (BBG): Putin Admits Shortcomings as Ukraine Presses Counteroffensive

President Vladimir Putin acknowledged that Russian forces fighting in Ukraine lack sufficient advanced weapons despite a tripling of arms output, as Kyiv’s forces pressed a counteroffensive backed by a new infusion of allied support. Putin made the rare admission of shortcomings in production in a televised meeting with local reporters and war bloggers. He also said Russia had lost 54 tanks since Ukraine’s drive began last week - the first time the Kremlin has admitted losses on such a scale.

COMMODITIES (BBG): Iron Ore Treads Water as Investors Weigh China Support Impact

Iron ore steadied as investors weighed the potential scale and impact of China’s measures to spur growth. The steel-making staple held around a two-month high in Singapore after jumping 2.6% in the previous session as China’s central bank made a surprise cut in its short-term policy interest rate. Daily steel output at major Chinese mills also jumped 6.5% in early June from late May, the China Iron & Steel Association said Tuesday.

DATA

EUROZONE DATA (MNI): Irish Growth Masks Stagnant April EZ Industrial Production

• EUROZONE APR INDUSTRIAL PROD +1.0% M/M (FCST +0.9%); MAR -3.8% M/M
• EUROZONE APR INDUSTRIAL PROD +0.2% Y/Y (FCST +0.7%); MAR -1.4% Y/Y

Eurozone industrial production expanded by +1.0% m/m in April, marginally stronger than expected and rebounding from the -3.8% m/m March fall. Compared to last year, April production rose a modest +0.2%. April data saw contractions across Italy (-1.9% m/m) and the Netherlands (-3.5% m/m), whilst German production was revised down to flat (vs +0.3% m/m provisional). Of the major EZ economies, only France recorded an uptick (+0.8% m/m), boosted by less industrial action.

UK DATA (MNI): April GDP Uptick Underpinned By Services Rebound

• UK APR GDP +0.2% M/M, +0.1% 3MM, +0.5% 3M Y/Y
• UK APR SERVICES INDEX +0.3% M/M, -0.1% 3MM
• UK APR TRADE BALANCE GBP -1.52BN
• UK APR IND PROD -0.3% M/M, -1.8% Y/Y
• UK APR CONSTRUCTION OUTPUT -0.6% MM, +1.6% 3M3M, +3.6% YY

The UK economy advanced by +0.2% m/m in April, in line with expectations, rebounding from a -0.3% m/m March decline (previous data unrevised). The +0.3% m/m growth in services partly was partially offset by a -0.6% m/m fall in construction and -0.3% m/m slump in manufacturing. Consumer facing services strengthened by +1.0% m/m, recovering from the -0.8% m/m March slide, which saw demand depressed by wet weather conditions.

SWEDEN DATA (MNI): Sticky Services Inflation Data Ahead of June Riksbank Meet

• SWEDEN MAY CPIF +0.1% M/M; +6.7% Y/Y ; APR +7.6% Y/Y

Swedish inflation cooled by 0.9pp to +6.7% y/y in the Riksbank's closely watched CPIF measure (CPI with fixed interest rate), in line with expectations. CPIF rose a marginal +0.1% m/m, edging down from +0.2% m/m in April. Mikael Nordin, statistician at Statistics Sweden confirmed the "continued decrease in electricity and food prices contributed to the lower inflation rate in May". Food fell -0.4% m/m, and energy and fuel by -11.1% m/m and -4.7% m/m respectively.

FOREX: Antipodeans on Top Ahead of Expected Fed Skip

• The Fed decision takes focus going forward, with consensus and markets looking for the FOMC to keep rates unchanged - pausing their tightening campaign for the first time in this cycle.
• Headed into the decision itself, the USD is mid-range and toward June's lower levels, but the USD index has found some support at the 100-dma of 103.043. Any post-Fed weakness would open the 50-dma below for direction at 102.613 ahead of levels last seen in early May.
• Elsewhere, AUD/USD trades in the midst of the longest streak of higher lows in six years. The pair's rally off the May31 low has seen higher lows for 10 consecutive sessions, the longest such streak since end-2017, which extended to 16 consecutive trading days and spanned a ~5% rally. Price has recently cleared 0.6733, 76.4% of the downleg in May, reinforcing current conditions and this signals scope for a test of 0.6818, the May 10 high and a key resistance.
• AUD outperformance continues to stem from more solid industrial commodities prices (China iron ore prices are up 20% off the late May low), compounding the impact of the more hawkish RBA decision.
• Outside of the Fed decision, the May PPI report will also be keenly watched, after yesterday's inflation release cleared the decks for a Fed pause later today. Markets watch for PPI to to slow moderately on a final demand basis, falling 0.1% on the month from April's +0.2%.

BONDS: Bunds Bear Flatten, Bounce Capped By Impending Supply

German paper initially took its cues from U.S. Tsys, resulting in some cheapening, before a rebound from session cheaps became apparent. The bid has since run out of steam meaning that 10-Year cash Bunds closed the opening gap higher on the move, before re-cheapening a touch, with the presence of impending supply probably a limiting factor.

• The 10-Year EGB spreads that we monitor (vs. Bunds) are little changed on the day, with OATs looking through the latest comments from the French Finance Minister re: spending cuts.

GILTS: Front End Firms, Although Nowhere Near Reversing Yesterday's Aggressive Cheapening

• Gilts remain happy to operate in the range established in the first hour or so of Wednesday trade, outside of 2s, which have continued to richen. That leaves the major cash benchmarks flat to 5.5bp richer, as yesterday's aggressive bear flattening is partially unwound via bull steepening. Local headline flow has been light since the market open, leaving participants to mull over local data and recent hawkish BoE re-pricing, which, although it has edged back from extremes, sees just over 130bp of further hikes priced into the BoE-dated OIS strip.

EQUITIES: E-Mini S&Ps Extend Bull Cycle Ahead of FOMC

Eurostoxx 50 futures traded higher Tuesday. Attention turns to resistance at 4362.00, the May 29 high. Clearance of this level would be a bullish development and signal scope for an extension higher towards key resistance at 4409.50, the Nov 18 2021 high on the continuation chart. The recent break of a number of support levels still highlights a potential bearish threat. A reversal lower would expose 4216.00, May 31 low and bear trigger. S&P E-minis traded higher again Tuesday and the contract is holding on to its latest gains. The break higher confirms a resumption of the uptrend and maintains the bullish price sequence of higher highs and higher lows, marking an extension of the bull cycle that started in October 2022. The focus is on a climb towards 4427.79, a Fibonacci projection. Initial firm support is at 4292.26, the 20-day EMA.

• Japan's NIKKEI closed higher by 483.77 pts or +1.47% at 33502.42 and the TOPIX ended 29.74 pts higher or +1.31% at 2294.53.
• Elsewhere, in China the SHANGHAI closed lower by 4.684 pts or -0.14% at 3228.989 and the HANG SENG ended 113 pts lower or -0.58% at 19399.
• Across Europe, Germany's DAX trades higher by 57.43 pts or +0.35% at 16267.45, FTSE 100 higher by 6.91 pts or +0.09% at 7605.88, CAC 40 up 40.39 pts or +0.55% at 7317.06 and Euro Stoxx 50 up 22.34 pts or +0.51% at 4360.05.
• Dow Jones mini down 17 pts or -0.05% at 34195, S&P 500 mini up 10.25 pts or +0.23% at 4379.25, NASDAQ mini up 44.25 pts or +0.3% at 14947.25.

COMMODITIES: WTI Futures Hold Onto Tuesday Gains

WTI futures continue to trade below resistance at $75.06, Jun 5 high. The pullback from this level reinforces a bearish theme and Monday’s sell-off marked an extension of the latest move lower. Support at $67.03, May 31 low, has been pierced, a clear break would open $63.90, May 4 low. MA studies are in a bear mode position highlighting a downtrend. A break of $75.06 is required to signal a reversal. S/T gains are considered corrective. The bear cycle in Gold remains intact. The yellow metal continues to challenge trendline support drawn from the Nov 3 2022 low. The trendline intersects at $1962.6. A clear breach of this line would reinforce bearish conditions and resume the downtrend. This would open $1903.5, 61.8% of the Feb 28 - May 4 bull cycle. Initial firm resistance is $1985.3, the May 24 high. Clearance of this resistance would signal a short-term reversal instead.

• WTI Crude up $0.77 or +1.11% at $69.94
• Natural Gas down $0.01 or -0.26% at $2.336
• Gold spot up $6.26 or +0.32% at $1951.09
• Copper down $1.35 or -0.35% at $381.35
• Silver up $0.25 or +1.04% at $23.9006
• Platinum down $0.88 or -0.09% at $983.99