MNI US OPEN - One More to Come as Riksbank Hike 25bps

NEWS

RIKSBANK (MNI): Riksbank Hikes 25bps and Signals One More to Come

The Riksbank hiked 25 basis points Thursday, raising the policy rate to 3.75% from 3.5% and said it expected to do at least one more 25 basis point hike this year. The central bank said also increased the planned pace of government bond sales to SEK5 billion per month from SEK 3.5 billion from September. The policy measures were in line with expectations for the central bank to raise the policy rate 25 bps while delivering something more than just a standalone hike, with the board opting for accelerated asset sales and the projected quarterly rate peak was raised to 4.05% from 3.65% in the Monetary Policy Report.

EUROPEAN COUNCIL (MNI): Summit Begins w/Focus On Ukraine, Economy, China Relations

The European Council leaders' summit gets underway later today in Brussels with the war in Ukraine (and the fallout from the Wagner mutiny), the state of the EU economy, and Sino-European relations in focus. Arrivals and doorstep comments due to begin around 1130CET (0530ET, 1030BST). The summit then begins proper at 1300CET, with NATO Secretary-General Jens Stoltenberg also set to be in attendance alongside member state leaders. A press conference will take place later today with Commission President Ursula von der Leyen, Council President Charles Michel, and Swedish PM Ulf Kristersson (no timings yet).

ECB (MNI): ECB to Be “More Data Dependent Than Ever” - De Cos

The European Central Bank should be “more data dependent” than ever in regard its September meeting, one that is “absolutely open”, Bank of Spain’s Governor Pablo Hernandez de Cos said on Thursday in an event about Financial Stability in Madrid. The situation in the euro area is “more two sided” now, with upside risks for inflation and the possible appearance of second round effects, while new evidence suggests that monetary policy transmission is working, Hernandez de Cos said, speaking alongside Federal Reserve Chair Jay Powell. The magnitude of the tightening process that will start to show its

US (MNI): Fed’s Powell Wants Stronger Bank Regulation, Supervision

Federal Reserve Chair Jerome Powell believes regulators need to learn lessons from the U.S. bank failures in March and sees the need for strengthened supervision and regulation of mid-sized banks. Speaking at a Bank of Spain conference on financial stability Thursday, Powell said the U.S. banking system overall is “sound and resilient,” with capital and liquidity at the largest U.S. banks more than doubling since the financial crisis.

US (BBG): Banks Pass Fed Stress Test With Mixed Outlook for Payouts

Wall Street’s biggest banks all passed the Federal Reserve’s annual stress test, clearing a key hurdle toward paying billions of dollars to stockholders — but with a mixed picture for potentially sweetening those rewards. Shares of JPMorgan Chase & Co. and Wells Fargo & Co. were among the US lenders to rise in early trading Thursday as analysts at Jefferies Financial Group Inc. listed them among banks most likely to see one of their key capital requirements eased in light of the results. The firms’ balance sheets showed an improved resiliency in this year’s test.

US/CHINA (BBG): Yellen Says She Hopes to Meet New Leaders on Possible China Trip

US Treasury Secretary Janet Yellen said one of the reasons she hopes to travel to China is to establish contact with “a new group of leaders” as she reiterated calls for the world’s two largest economies to work together on crucial global challenges. “We need to get to know one another,” Yellen said, according to excerpts of an interview with MSNBC. “We need to discuss our disagreements with one another so that we don’t have misunderstandings, don’t misunderstand one another’s intentions,” she said in the interview, set to be broadcast on the network Wednesday night.

CHINA (MNI): Stimulus Boost in H2 Will Be Limited - Zhu Min

China will not implement large stimulus measures to support the economy in H2, as authorities remain concerned about high debt levels, according to Zhu Min, former deputy director at the IMF. Speaking at the World Economic Forum in Tianjin, Zhu reiterated Premier Li Qiang’s recent comments the economy was on track to reach 5% GDP growth this year. Zhu said officials will focus policy support on structural transition towards green and high technology and also targeted measures to boost consumption.

BOJ (BBG): Ueda Says More Confidence in 2024 Prices Needed For BOJ Shift

Bank of Japan Governor Kazuo Ueda suggested it’s possible to start normalizing monetary policy if the BOJ becomes confident inflation will pick up next year. For now, underlying inflation remains below 2%, and the BOJ’s outlook is for price increases to slow toward the end of the year, Ueda said Wednesday. He didn’t specify whether he was talking about the fiscal year that ends next March.

BOJ (MNI): July YCC Adjustment Unlikely - Ex-BOJ Economist

The Bank of Japan is unlikely to adjust yield curve control at its next meeting in July, its former chief economist Seisaku Kameda told MNI, adding that he had been surprised at the BOJ’s determination under its new governor to make absolutely sure it achieves 2% inflation.“The BOJ seems to be more cautious about adjusting YCC than I expected a few months ago,” said Kameda, who left the Bank in 2022 and is now executive economist at Sompo Institute Plus.

JAPAN/SOUTH KOREA (MNI): FX Swap Deal Highlights Continued Thaw in Relations

Following a meeting between Japanese Finance Minister Shun'ichi Suzuki and his South Korean counterpart Kyoo Kyung-ho - the first of its kind since 2016 - the two countries have agreed to resume a USD10bn currency swap deal that was suspended in 2015 amid a deterioration in bilateral relations. In a joint statement the ministers stated that "uncertainty over the global economic outlook is heightening", and that both "condemn Russia's war of aggression versus Ukraine." The agreement comes amid continuing signs of a notable thaw in Japanese-Korean relations amid joint security concerns about North Korean missile launches and a more assertive China in the Indo-Pacific region.

RBA (MNI): RBA Applies Judgement on Key Rates as Models Fail

Officials at the Reserve Bank of Australia are applying their own judgement to estimate the neutral levels of interest rates and unemployment as the hiking cycle reaches an inflection point, following the recent failures of their existing econometric models, MNI understands. With inflation at 6.8% in April, the cash rate at 4.1% is currently well below the real neutral model average rate last estimated at about 1% in 2022.

RBNZ (MNI): Loosened MPC Rules Seen Spurring RBNZ Policy Debate

A move to allow more active economists to join the Reserve Bank of New Zealand’s Monetary Policy Committee will help spur debate and could lead to more use of the body’s voting function when setting the Official Cash Rate, ex-staffers told MNI. The Treasury will replace two MPC members over the coming year, with the second and final two-year terms for both Peter Harris and Caroline Saunders expiring in 2024.

RUSSIA/UKRAINE (BBG): Wagner’s Exit From Ukraine Won’t Radically Alter Course of War

When troops from Russia’s Wagner group left Ukraine’s battlefields for last weekend’s aborted uprising across the border, officials in Kyiv could barely conceal their joy at the prospect for disarray in Moscow. But the withdrawal of the Kremlin-funded mercenaries — who provided Russia with some of its most brutal and capable combat units — hasn’t so far made it easier for Ukraine’s high-stakes counteroffensive, and it’s not clear whether it will, according to officials and analysts.

DATA

EUROZONE JUN ECO SENTIMENT 95.3; (FCST 95.7); MAY 96.4 (MNI)
EUROZONE JUN CONSUMER CONF -16.1; (FLASH -16.1); MAY -17.4 (MNI)

SPAIN DATA (MNI): HICP Dips Below 2% Threshold, Core Remains Elevated

• SPAIN JUN FLASH HICP +0.6% M/M (FCST +0.4%); MAY -0.1% M/M
• SPAIN JUN FLASH HICP +1.6% Y/Y (FCST +1.5%); MAY +2.9% Y/Y
• SPAIN JUN FLASH CORE CPI +5.9% Y/Y (FCST +5.5%); MAY +6.1% Y/Y

Spanish inflation eased in the June flash data, albeit slightly less than expected by consensus on the annualised prints, with HICP y/y 0.1pp higher and core CPI 0.4pp higher than expected. HICP slowed by 1.3pp to +1.6% y/y, dipping below the 2% ECB target for the first time since March 2021. INE highlighted that the softer 2023 increase in fuel, electricity and food prices accounted for the bulk of downwards pressure on June's headline prints. Yet the +0.6% m/m uptick in harmonised prices on the month flags that short-term price pressures persist.

GERMAN DATA (MNI): MNI Projects CPI to Rise to +6.38% in Small Upside Surprise

• SAXONY JUN CPI +0.3% M/M, +6.8% Y/Y
• BAVARIA JUN CPI +0.2% M/M, +6.2% Y/Y
• HESSE JUN CPI +0.2% M/M, +6.1% Y/Y
• NRW JUN CPI +0.3% M/M, +6.2% Y/Y

We have now received state data that equates to 89.1% weighting of the national German CPI print (due at 1300 BST/1400 CET). MNI calculations estimate that CPI rose by +0.26% m/m, and by +6.38% y/y in June. This is based on the published index values for available state data. This implies a 0.3pp acceleration on the annualised figure from +6.1% y/y in May. (German headline inflation peaked in October/November peak at +8.8% y/y.) For m/m and y/y, our estimate is around 0.1pp above the current Bloomberg consensus forecast.

UK MAY M4 MONEY SUPPLY +0.2% M/M, +0% Y/Y (MNI)
UK BOE MAY CONSUMER CREDIT GBP1.14 BLN (MNI)
UK BOE MAY MORTGAGE APPROVALS 50,524 (MNI)
UK BOE MAY SECURED LENDING GBP-0.09 BLN (MNI)

SWEDEN MAY RETAIL SALES -5.4% Y/Y (MNI)
SWEDEN JUN ECON TENDENCY 90.3; MAY 89.3 (MNI)

JAPAN DATA (MNI): Japan May Retail Sales +5.7% Y/Y; 15th Monthly Rise

• JAPAN MAY RETAIL SALES +5.7% Y/Y; APR +5.1%

Japanese retail sales rose 5.7% y/y in May, following the 5.1% y/y growth reported last month, marking the 15th monthly rise. On a monthly basis, retail sales rose 1.3%, converting last 1.1% drop in April. General merchandise sales picked up 3.9% y/y, slower than the 6.9% y/y increase last month, while sales of fabric apparels and accessories falling 3.7% y/y, expanding from the decrease of 0.6% y/y in April. Sales of food and beverages increased 6.6% y/y, the same as the growth last month.

AUSTRALIA DATA (MNI): Retail Bounces as Consumers Spend in Sales & at Restaurants

• AUSTRALIA MAY RETAIL SALES +0.7% M/M

Retail sales for May rose a stronger than expected 0.7% m/m after being flat the previous month. This was the highest monthly rise since August 2022, apart from the Christmas season, and stands 0.8% above October. Turnover values are now +4.2% y/y after 4.3% y/y in April, in line with stabilising CBA spending intentions. Given the May CPI was flat and ex volatile items up 0.5% m/m, sales volumes may have been positive. Ahead of the July 4 RBA meeting, labour market and retail data were stronger but headline inflation lower with stickier core. It is likely to be another "finely balanced" decision.

AUSTRALIA DATA (MNI): Vacancies Down But Elevated Level Signals Tight Labour Market

While job vacancies fell 2% q/q in Mar-May, the 4th consecutive drop, they remain elevated at around 89% higher than February 2020. This means that businesses are still "reporting difficulties in recruiting and retaining staff" according to the ABS. The labour market remains tight consistent with employment data.

FOREX: JPY Off Bottom as South Korean Currency Swap Deal Confirmed

• JPY markets have been volatile, with USD/JPY sitting in minor negative territory having dragged off the session highs on heavy volumes. A notable volume spike in futures helped drag the pair off 144.70 cycle highs, with close to $500mln trading in futures markets inside 60 seconds. The move preceded confirmation of a new currency swap deal worth $10bln signed between Japan and South Korea - a sign of thawing relations between the countries in light of more fraught tensions with North Korea and China.
• As a result, JPY is among the strongest performers in G10, with AUD trading similarly well. AUD/USD appears to have found a bottom at the overnight lows of 0.6596 and trades more constructively headed through the NY crossover.
• Eurozone inflation data remains a focus, with Spanish CPI coming in ahead of expectations. Meanwhile, regional German CPIs are showing, on a weighted basis, national CPI tracking +0.3% M/M (around 0.26% M/M unrounded) and 6.4% Y/Y (around 6.38% unrounded), a little above the 0.2% M/M /6.3% Y/Y estimates coming into today.
• Weekly jobless claims and tertiary US GDP for Q1 are the data highlights ahead, with pending home sales to follow. The preliminary German CPI release for June also crosses, with markets expecting CPI to rise 0.2% on the month, and 6.3% on a Y/Y basis.

BONDS: Continued Inflation Pressures Yields Higher

• Core fixed income has been under pressure this morning with Spanish inflation (particularly core inflation) coming in higher than expected and German state inflation data also pointing to upside risks to the national print which is due out this afternoon. Powell also spoke this morning but said nothing new.
• Despite the inflation surprise coming in the euro area, 10-year Bunds, gilts and UST yields have all moved a similar 4.0-4.5bp higher today, with 2-year yields seeing the biggest moves in gilts. There has been some modest flattening of curves.
• Looking ahead, other than the national German inflation print (which will also include HICP), we will receive the third print of US GDP as well as weekly claims data.
• TY1 futures are down -0-12 today at 112-28 with 10y UST yields up 4.4bp at 3.754% and 2y yields up 5.5bp at 4.768%.
• Bund futures are down -0.39 today at 134.19 with 10y Bund yields up 4.4bp at 2.356% and Schatz yields up 4.9bp at 3.141%.
• Gilt futures are down -0.28 today at 956.69 with 10y yields up 4.0bp at 4.351% and 2y yields up 6.9bp at 5.198%.

EQUITIES: Eurostoxx 50 Futures Continue Recovery From Monday Low

The Eurostoxx 50 futures uptrend remains intact and the pair has recovered from Monday’s low. A bearish cycle since Jun 16 resulted in a correction. The contract breached support at 4301.00, the Jun 8 low. This level represented a key short-term support and an extension lower would expose 4241.00, the May 31 low and an important medium-term support point. 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 the recent pullback still appears to be a correction. The latest move lower has allowed an overbought trend condition to unwind. Attention is on initial key support at the 20-day EMA, which intersects at 4370.75. 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.

• Japan's NIKKEI closed higher by 40.15 pts or +0.12% at 33234.14 and the TOPIX ended 2.35 pts lower or -0.1% at 2296.25.
• Elsewhere, in China the SHANGHAI closed lower by 6.995 pts or -0.22% at 3182.381 and the HANG SENG ended 237.69 pts lower or -1.24% at 18934.36.
• Across Europe, Germany's DAX trades higher by 3.26 pts or +0.02% at 15952.49, FTSE 100 lower by 10.89 pts or -0.15% at 7489.61, CAC 40 up 25.56 pts or +0.35% at 7312.81 and Euro Stoxx 50 up 11.35 pts or +0.26% at 4356.71.
• Dow Jones mini up 42 pts or +0.12% at 34143, S&P 500 mini up 5 pts or +0.11% at 4422.5, NASDAQ mini up 28 pts or +0.19% at 15157.25.

COMMODITIES: Gold Trades at 3-Month Low; $1885.8 Mar 15 Low Marks Next Support

WTI futures remain in a bear mode condition and short-term gains are considered corrective. Attention is on support at $67.21, the May 31 low, that 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. The contract is trading below resistance at $75.70, the Jun 5 high. A break of this level would signal a reversal. Trend conditions in Gold remain bearish and the yellow metal is trading at this week’s lows. Fresh trend lows reinforce current bearish conditions, confirming a resumption of the downtrend and extending the price sequence of lower lows and lower highs. The focus is on $1885.8, the Mar 15 low. Key resistance is $1985.3, the May 24 high. Initial resistance is $1939.8, the 20-day EMA.

• WTI Crude up $0.35 or +0.5% at $69.88
• Natural Gas up $0.01 or +0.34% at $2.676
• Gold spot down $1.17 or -0.06% at $1906.64
• Copper down $3 or -0.8% at $371.1
• Silver up $0.07 or +0.31% at $22.7773
• Platinum up $4.4 or +0.48% at $919.8