MNI US OPEN - Norges Bank, SNB Rate Decisions Precede BoE

NEWS

MNI BOE PREVIEW - JUNE 2024: Further Clarity Unlikely

Barring a huge surprise to June CPI on Wednesday, the MNI Markets team (and consensus) expects no change to Bank Rate, guidance or the vote split. We think this is due to a combination of the data and the election. Looking further ahead, we note that there is a roughly two week period after the election before the BOE’s quiet period kicks in again ahead of the August MPC meeting. This will give Governor Bailey and any other MPC members ample opportunity to communicate any changed messaging ahead of the August meeting.

SNB (MNI): Lower Inflationary Pressure Yields 25bp Rate Cut

The Swiss National Bank cut rates by 25bps to 1.25%, against split market expectations between a cut and a hold. The 25bp rate cut appears to be largely driven by lower inflationary pressures in the mid-term. The inflation forecast was revised lower by around 0.1pp starting in Q2 2025, even though it is now conditional on a lower policy rate of 1.25% - the SNB cites "somewhat lower second-round effects". Regarding the downwardly revision of the conditional rate forecast, SNB President Jordan said "This reflects somewhat lower second-round effects. [...] Without today's rate cut, the forecast would have been lower"

NORGES BANK (MNI): Norges Bank Holds, Sees Rates Steady to End Year

Norges Bank left its policy rate unchanged at 4.5% and delivered a surprise by pushing back the likely timing of the first cut, foreseeing no move lower through to the end of 2024 and it did not rule out a hike.Governor Ida Wolden Bache said that if the economy evolved as expected "the policy rate will continue to lie at 4.5% to the end of the year." Previously, Norges Bank had left the door open to a cut in September while some analysts had predicted a later move, possibly in December, but the new rate path and guidance suggests that the first come may not materialize until 2025, with the policy rate eased gradually through next year.

MIDDLE EAST (NYT): Hezbollah’s Leader Says it Will Fight Without ‘Limits’ if Israel Attacks

Hassan Nasrallah, head of the Lebanese militia, also threatened Cyprus if it helped Israel in an all-out war. The Cypriot president responded that his nation was “not involved in any way.” After days of intensified clashes between Hezbollah and Israel, Hassan Nasrallah, the leader of the Lebanese militia, warned on Wednesday that “there will be no place safe from our missiles and our drones” if all-out war breaks out. He also threatened Cyprus if it allows Israel to use its airports and bases in a full-scale conflict.

ECB (BBG): ECB’s Knot Sees Strong Case for Quarterly Policy Assessments

There’s a “strong case” for the European Central Bank to decide on interest rates once a quarter when new economic projections are available, according to Governing Council member Klaas Knot. Officials have “little experience” with easing monetary policy gradually and are faced with still-high uncertainty and structural shifts in the global economy that warrant a “data-dependent approach,” Knot said in a speech in Milan on Thursday. That means the ECB will have to “wait for incoming data, including new projections, and then decide accordingly,” he said. “Given the current environment we still have to avoid any commitments on a specific future rate path.”

FRANCE (BBG): French Parties’ Purchasing-Power Plans Cost Over €10 Billion

The three major political groups contesting the French legislative election have made campaign promises that would each cost more than €10 billion ($10.7 billion) per year for the spending-power portions alone, even as France is already struggling to reduce its budget deficit.The analysis from think tank Institut Montaigne didn’t provide estimates for the entirety of the pledges by the parties. On purchasing power, it put the highest cost on the promises made by the leftist New Popular Front group, with a central estimate of an added cost of €29 billion per year.

FRANCE (MNI): Candidates Speak on Economic Plans in Front of Business Leaders

The Movement of the Enterprises of France, the Confederation of Small and Medium Enterprises, and the Union of Local Businesses are holding a conference quizzing senior officials from the various political parties and alliances ahead of the 30 June legislative elections. Far-right Rassembelement National (National Rally, RN) leader Jordan Bardella has just started his session, setto run to around 1115CET (0515ET, 1015BST). He will be followed by incumbent Economy Minister Bruno Le Maire on behalf the President Emmanuel Macron's centrist Ensemble bloc from 1115-1200CET (0515-0600ET, 1015-1100BST), and then Bruno Retailleau from the conservative Lres Republicains from 1200-1245CET (0600-0645ET, 1100-1145BST).

GERMANY (MNI): IFO Upwardly Revises 2024 Growth Forecast by 0.2pp to +0.4% Y/Y

The IFO institute has revised its 2024 German real GDP forecast by +0.2pp to +0.4% Y/Y. They leave their 2025 forecast at +1.5% Y/Y. IFO sees strengthening purchasing power of households and consumer spending normalizing. Additionally, they expect the external sector to further recover particularly starting in the second half of 2024. This should yield a gradual recovery in investment, they add, "supported by the gradual easing of monetary policy", anticipating two further ECB rate cuts this year.

UK (The Times): Tory Ministers Fear Defeat Beyond Their ‘Wildest Nightmares’

Senior ministers have said that polls showing the Conservative Party on course for its worst election result in a century are beyond “people’s wildest nightmares”. Three major polls published within the space of an hour on Wednesday suggested that the Tories are heading for a landslide defeat. And there is increasing concern that Tory warnings about a Labour “super-majority”, with which the party’s leader Sir Keir Starmer might wield unfettered power, could become a reality.

CHINA (MNI): LPR Reduction Eyed, MLF Downgrade Next

MNI (Beijing) China's Loan Prime Rate will likely fall in coming months as lenders’ funding costs decline due to lower deposit interest rates and as regulators crack down on extra interest payments to depositors, while the central bank looks to downgrade the role of its medium-term lending facility. The Loan Prime Rate, based on the People’s Bank of China’s medium-term lending facility (MLF) rate and quotes submitted by 20 banks, remained at 3.45% for the one-year maturity and 3.95% for over-five-year tenor on Thursday. The LPR last changed in February when the five-year plus maturity fell 25 basis points, while the one-year rate held steady.

CHINA (BBG): Xi’s Mystery PBOC Plans Surface With Biggest Shift in Years

It started with a cryptic quote from President Xi Jinping buried in a 172-page book on the financial sector. Three months later, plans for potentially the biggest shift in years in how China conducts monetary policy are starting to surface. Pan Gongsheng, governor of the People’s Bank of China, on Wednesday gave the clearest acknowledgment that the monetary authority is looking into trading government bonds in the secondary market as a way to regulate liquidity. The PBOC is studying the implementation with the finance ministry and it will be a gradual process, he said in a speech.

EU/RUSSIA (MNI): EU Agrees on 14th Sanctions Package, Hits LNG for First Time

The Belgian presidency of the Council of the EU posts on X: "EU Ambassadorsjust agreed on a powerful and substantial 14th package of sanctions in reactionto the Russian aggression against Ukraine. This package provides new targetedmeasures and maximises the impact of existing sanctions by closing loopholes. "For the first time Russian supplies of liquified natural gas (LNG), but the banis not as comprehensive as that on coal or seaborne oil. Euronews explains: "Instead, EU companies will still be allowedto purchase Russian LNG but be prohibited from re-exporting it to othercountries, a practice known as trans-shipment."

RUSSIA/N. KOREA (BBG): Putin, Kim Agree to Immediately Offer Military Aid If Attacked

Russian President Vladimir Putin and North Korean leader Kim Jong Un agreed to provide immediate military assistance if one of them is attacked, reviving an agreement dating back to the Cold War in a move likely to unsettle the US and its partners. The two leaders signed the deal Wednesday during Putin’s first visit to North Korea in 24 years. Kim called the pact “the most powerful treaty” signed between the two countries and one that elevates their ties to an alliance.

RUSSIA/VIETNAM (BBG): Vietnam Greets Putin in Boost to Ties, Ignoring US Criticism

Vietnam welcomed Russian President Vladimir Putin, underlining its decades-old relationship with Moscow in the face of US criticism over the Kremlin’s invasion of Ukraine. Putin arrived in Hanoi on Thursday from North Korea, where he signed a comprehensive strategic partnership with Kim Jong Un who vowed to “unconditionally” support Russia in the war. “The visit demonstrates that Vietnam actively implements its foreign policy with the spirit of independence, self-reliance, diversification, multilateralism,” according to a statement on Vietnam’s government website.

BCB (MNI): Brazil's Copom Unanimously Holds Rates at 10.50%

The Central Bank of Brazil (BCB) kept interest rates on hold Wednesday for the first time after nearly a year of aggressive easing, in a unanimous decision that maintained its official Selic rate at 10.50% on Wednesday -- and stood in contrast to a deeply split May vote. "The Committee unanimously decided to interrupt the easing cycle, highlighting that the uncertain global scenario and the domestic scenario, marked by resilient economic activity, an increase in its own inflation projections and deanchored expectations, require greater caution," said the statement that offered no forward guidance for the next meetings.

BANK INDONESIA (BBG): Indonesia Extends Hawkish Rate Pause Amid Rupiah Volatility

Indonesia’s central bank left its benchmark interest rate unchanged for a second straight meeting, while vowing to focus on the rupiah’s stability amid mounting pressures. Bank Indonesia’s decision to keep the BI-rate at 6.25% on Thursday was predicted by 30 of 33 economists in a Bloomberg survey. The others expected an increase of 25 basis points. The rupiah remains manageable, Governor Perry Warjiyo told reporters in Jakarta, adding that its movements are in line with policy responses. He attributed the currency’s weakness to corporate demand for dollars and perceptions about fiscal outlook.

DATA

GERMAN DATA (MNI): Intermediate Goods Deflation Continues to Fade in May PPI

• GERMANY MAY PRODUCER PRICES -2.2% Y/Y

German May producer prices came in flat on the month, broadly in line withexpectations of +0.1% (vs +0.2% prior). On a yearly comparison, energy baseeffects continue to fall out and most other categories remained at a broadlysteady pace compared to last month for a total of -2.2% Y/Y (vs -2.0% cons;-3.3% prior). Looking at the individual categories, energy deflation continues to decelerate, at -6.4% Y/Y (vs -8.2% prior; highest rate since July 2023). The investment, non-durable, and consumption goods subcomponents remained broadly steady compared to April, coming in at +2.4% Y/Y, +0.4%, and +0.5%, respectively (vs priors of +2.4%, +0.4% and +0.5%).

NEW ZEALAND DATA (MNI): Q1 Growth Soft But Improving, In Line With RBNZ Forecast

NZ Q1 GDP came in above expectations rising 0.2% q/q to be up 0.3% y/y after falling 0.1% q/q and 0.2% y/y. It remains weak and fell 0.3% q/q and 2.4% y/y per person. It has returned to positive territory though ending the technical recession. It was in line with the RBNZ's forecast and so is unlikely to change the MPC's wait-and-see stance. It expects growth to continue to improve with H2 around 0.4% q/q.

FOREX: Central Bank Contrast Puts NOK/CHF Higher by 1%

• G10 FX has been defined by the procession of central banks this morning - with NOK leading FX gains on the back of a hawkish Norges Bank decision. While the bank kept rates unchanged, the policy statement and accompanying rate path pointed to unchanged policy through to the end of 2024 - leaning against outside expectations for a rate cut as soon as September. EUR/NOK corrected lower in response, hitting the lowest levels since late January to expose next support at 11.2517 in the short-term, and the December/cycle low of 11.1760 further out.
• CHF is comfortably the poorest performer in G10. Market pricing and expectations were split for the SNB rate decision, and the rate cut prompted aggressive selling pressure in the currency. EUR/CHF's correction higher put the cross briefly back to 0.9550, but a broader rally remains to be seen ahead of resistance at 0.9555/68.
• The USD trades firmer ahead of the NY crossover, with a modest firming in the US 10y yield helping to support the currency. Recent ranges remain respected for now, but a strong session for the USD would expose 105.805 as key resistance, strength through which puts the dollar at the best levels since early May.
• The focus shifts to both the BoE decision and the weekly jobless claims data from the US. Building permits and housing starts are also set to cross. The central bank speaker slate is quieter, with just Fed's Kashkari set to speak ahead of the US cash equity open. 

EGBS: French Supply Well Digested, But Core/Semi Core Still Weaker

Supply has dominated EGBs this morning, with futures weighed by Spanish and French auctions.

• Today’s MT OAT supply was the first French auction since President Macron called the snap legislative election on June 9. Overall, the results were digested smoothly by markets, with a modest tightening in the 10-year OAT/Bund spread following the results and little net movement in French swap spreads.
• There was little net reaction in EGBs to the SNB decision, where rates were cut by 25bps against analyst expectations for a hold, although the CHF was sold.
• Bunds are -33 ticks at 132.22, though our technical analyst notes that the latest pause in upside momentum appears to be a flag - a bullish continuation pattern.
• German cash yields are 3-3.5bps higher across the curve, while the OAT curve has bear flattened as a result of today’s supply burdens.
• 10-year peripheral spreads to Bunds are biased tighter, with European equities rallying through this morning and the aforementioned French supply not seeing any unexpectedly weak results.
• The BoE decision at 1200BST provides the next point of interest for markets, with little else of note on today’s regional calendar.

GILTS: A Little Softer on the Day, BoE Rhetoric Eyed After Hot Services CPI

Gilts sit a little above session lows, with focus on today’s BoE decision.

• A tick lower in broader core global FI markets weighed at the open.
• Futures -7 at 98.45, with bears failing to force a test of technical support at 98.21.
• Yields are ~2bp higher across the curve, with recent ranges intact.
• 2s10s continues to sit a little below’24 highs.
• BoE-dated OIS is little changed on the day, showing ~41.5bp of cuts through year end.
• The first 25bp move is not fully discounted until the end of the Nov meeting, with just under 70% odds of a cut through the end of the Sep MPC currently showing.
• SONIA futures are +0.5 to -2.0, edging away from session lows alongside gilts.
• Looking ahead to today’s we believe that yesterday’s CPI data cements an unchanged 7-2 vote at today’s BoE decision, with rates set to be left unchanged.
• Yesterday’s services CPI reading will present the major point of worry for the MPC, after it topped BoE and wider sell-side expectations.
• We don’t think the data will provide a meaningful change to the BoE’s guidance/ overarching view, but that outcome cannot be completely ruled out.

EQUITIES: E-Mini S&P Extends Bull Cycle, Trades Above 5500.00

The trend condition in Eurostoxx 50 futures remains bullish, however, a corrective cycle is in play and this has resulted in a pullback from the May high. Recent weakness has also resulted in a break of 4943.00, the Jun 11 low, highlighting potential for a deeper retracement. A resumption of weakness would open 4762.00, the Apr 19 low and a key support. Firm resistance is at 5046.00, Jun 12 high. The uptrend in S&P E-Minis remains intact and the contract has traded higher this week, confirming an extension of the current bull cycle. Price has recently cleared 5430.75, the May 23 high and bull trigger. This confirmed a resumption of the uptrend. Note that MA studies are in a bull-mode position too, highlighting positive market sentiment. Sights are on 5594.66 next, a Fibonacci projection. Initial support lies at 5433.13, the 20-day EMA.

• Japan's NIKKEI closed higher by 62.26 pts or +0.16% at 38633.02 and the TOPIX ended 3.1 pts lower or -0.11% at 2725.54.
• Elsewhere, in China the SHANGHAI closed lower by 12.612 pts or -0.42% at 3005.437 and the HANG SENG ended 95.07 pts lower or -0.52% at 18335.32.
• Across Europe, Germany's DAX trades higher by 91.63 pts or +0.51% at 18159.54, FTSE 100 higher by 11.64 pts or +0.14% at 8216.75, CAC 40 up 32.66 pts or +0.43% at 7602.86 and Euro Stoxx 50 up 25.08 pts or +0.51% at 4910.53.
• Dow Jones mini down 13 pts or -0.03% at 38849, S&P 500 mini up 17.75 pts or +0.32% at 5509, NASDAQ mini up 118.75 pts or +0.6% at 20038.

Time: 09:50 BST

COMMODITIES: WTI Futures Hold Onto This Week's Gains

WTI futures have traded higher this week, extending the current bull phase. The climb has resulted in a break of $80.11, the May 29 high and a key resistance. A clear breach of this hurdle would cancel a recent bearish theme and pave the way for $82.24, a Fibonacci retracement point. Initial firm support to watch is $77.74, the 20-day EMA. A break would be seen as an early potential reversal signal. Gold is in consolidation mode and trades closer to its recent lows. A sharp sell-off on Jun 7 reinforced a S/T bearish theme. The yellow metal has pierced the 50-day EMA, at 2315.7. A clear break would confirm a resumption of the reversal from May 20 and open $2277.4, the May 3 low. Clearance of this price point would also strengthen a bearish theme. Initial firm resistance is $2387.8, the Jun 7 high.

• WTI Crude down $0.25 or -0.31% at $81.32
• Natural Gas down $0.03 or -1.03% at $2.879
• Gold spot up $5.27 or +0.23% at $2333.76
• Copper up $1.8 or +0.4% at $447.1
• Silver up $0.38 or +1.29% at $30.2085
• Platinum up $0.65 or +0.07% at $982.51

Time: 09:50 BST