MNI US OPEN - Powell to Begin Semi-Annual Testimony to Senate

EXECUTIVE SUMMARY

• DEMOCRATS TO MEET BEHIND CLOSED DOORS AMID DEBATE OVER BIDEN'S PATH FORWARD
• POWELL TO BEGIN SEMI-ANNUAL TESTIMONY TO CONGRESS
• NATO’S LEADER SUMMIT OVERSHADOWED BY ELECTIONS UPHEAVAL BACK HOME
• BOJ SOUNDS OUT MARKET PLAYERS BEFORE FINALIZING BOND-BUYING CUTS

MNI (LONDON) - Figure 1: Front-end of EUR vol curve continues to reverse Macron's election dip

Source: MNI/BBG

NEWS

US (ABC): House Democrats to Huddle Behind Closed Doors Amid Debate Over Biden's Path Forward

House Democrats on Tuesday will gather for a consequential day of closed-door meetings where the focus is expected to be largely on President Joe Biden's viability as a candidate and the path for the party going forward. House Democrats will huddle at the Democratic National Committee headquarters just steps from the U.S. Capitol at 9 a.m., according to notices obtained by ABC News. In a sign of how sensitive the conversation is expected to be, lawmakers' cellphones will be collected at the door, presumably to prevent real-time leaks about the private discussion.

US (WaPo): Biden’s Push Appears to Stave Off Defections And Win New Backing

President Biden won new support for his reelection bid Monday and headed off further defections among Democratic lawmakers as Congress returned to Capitol Hill, at least temporarily stemming a tide of dissent at the outset of what could be a pivotal week in his fight for political survival. From influential liberals such as Rep. Alexandria Ocasio-Cortez (D-N.Y.) to figures such as Senate Majority Leader Charles E. Schumer (D-N.Y.) to erstwhile critics such as Rep. Ilhan Omar (D-Minn.) to the powerful Congressional Black Caucus, a parade of Democrats embraced Biden's reelection run, a sharp reversal after a stretch when every day seemed to bring another defection.

US (BBG): Trump Says He Has Yet to Finalize Vice Presidential Pick

Donald Trump said he has yet to make a final decision on who his vice presidential pick will be but plans to make an announcement in the coming week. “It could even be during the convention that we’d do it. I’d love to do it during the convention,” Trump said in an interview with Sean Hannity on Fox News Monday night, referring to the Republican National Convention which begins July 15 in Milwaukee.  “I think it would be a very interesting build up and important for the convention. It will make it even more exciting,” he added.

NATO (BBG): Embattled Biden, Weakened Allies Fuel Doubts at NATO’s 75th

Joe Biden and NATO’s 31 other leaders had hoped their summit this week would celebrate fresh unity against Russia’s Vladimir Putin, send a warning to China and prove the alliance is as strong as ever in its 75th year. Instead, the three days of pageantry that start today will be overshadowed by domestic turmoil across the alliance, from Biden’s bid to quell angst over his calamitous debate performance to elections in France that undercut President Emmanuel Macron’s power base. German Chancellor Olaf Scholz is similarly weakened after his party’s abysmal results in European Parliament elections. 

ECB (BBG): ECB’s Panetta Plays Down Concerns About High Services Inflation

The European Central Bank shouldn’t be overly worried about stubborn services inflation and still-robust wage growth, Governing Council member Fabio Panetta said. “Concerns are not unwarranted, but they need to be put into perspective, as services prices tend to move differently from those of goods,” the Bank of Italy governor said Tuesday. Speaking at the annual meeting of the country’s banking association in Rome, Panetta reiterated that recent data and the outlook allow for a further gradual lowering of borrowing costs.

UK (BBG): Labour’s Minimum Wage Plan Becomes Concern for BOE and Business

Britain’s minimum wage increases are threatening to feed through to inflation and unintended consequences for employee benefits, putting Keir Starmer’s ambition to boost wages on a collision course with business groups and the Bank of England. Business groups are already complaining that the 10% increase in the minimum wage — also known as the national living wage — that came into force in April is putting a strain on corporate budgets and limiting their ability to hire. Starmer’s Labour government, which took power after a landslide election victory last week, pledged to revamp the lower threshold for pay to reflect a “genuine living wage.”

UK (Telegraph): Blair Predicts £50bn Labour Tax Raid

Sir Tony Blair has warned that Sir Keir Starmer will have to put up taxes by more than £50 billion unless he comes up with radical new ways to improve productivity. The chief economist at the former prime minister’s institute forecast that taxes would have to go up by 1.9 percentage points of GDP by the end of the Parliament to stabilise debt. Tax rises would also be needed to meet increasing health costs caused by an ageing society, to plug the decreasing tax take from oil and gas as part of the transition to net zero and to avoid austerity, a report from the Tony Blair Institute says.

GERMANY (MNI): German Insolvencies Slowed In June, Outlook Uncertain

The number of German firms going bankrupt fell for the second month in row in June,  according to the Leibniz Institute for Economic Research Halle (IWH), though with the number of companies going bust expected to rise in July the outlook for the summer is uncertain. Some 1,169 partnerships and corporations went insolvent in June, around 8% fewer than in May, but 11% higher in June 2023. Some 9,500 jobs were lost among the largest 10% of firms affected last month, around a third fewer than at the same time last year.

BOJ (BBG): BOJ Sounds Out Market Players Before Finalizing Bond-Buying Cuts

The Bank of Japan will speak face-to-face with market participants over the next couple of days in key meetings aimed at gauging a realistic pace for a reduction of its bond purchases to be announced later this month. The central bank’s financial markets department will host three gatherings with representatives from banks, securities firms and those buying bonds for financial institutions. Each session will last an hour, with the final meeting taking place Wednesday. 

BOJ (MNI): Opinions Vary on Scale of JGB Buying Reduction - BOJ

There is no consensus amongst JGB market players as to the degree the Bank of Japan should reduce the scale of bond purchases in coming months, the central bank said Tuesday. According to outcomes published Tuesday, opinions gathered in a consultation questionaire the BOJ sent to the market players ahead of planned meetings varied from a scale of bond buying set at zero through to the current level of JPY4 trillion per month being maintained

CHINA (MNI): China H2 Steel Outlook Subdued Amid Property Weakness

MNI (Beijing) Chinese steel rebar prices are likely to stage only a partial recovery in the second half after sliding to CNY3,275 per tonne from CNY3,996 in January as construction and infrastructure work declines, with a risk of further falls if output controls lead to gluts of iron ore and coal, local analysts told MNI. Prices should remain low during the summer off-season before fluctuating around CNY3,400-3,800 per tonne later in H2, given the property sector’s underwhelming performance, said Zhuo Guiqiu, ferrous metal researcher at Jinrui Futures.

BOK (MNI): Slowing Inflation Puts Q4 Cut in Sight

The Bank of Korea is likely to keep its policy rate unchanged at 3.50% at Thursday’s policy-decision meeting, with officials waiting for more evidence of a decline in inflation towards 2% before cutting the policy rate, observers told MNI. Key for this meeting will be how Governor Rhee Chang-yong refers to the disinflationary trend, said someone familiar with South Korea’s economy and monetary policy, adding that a rate cut is widely expected for the fourth quarter.

RUSSIA/CHINA (BBG): Russia’s Embrace of Chinese Yuan Stalls Over Risk from Sanctions

The rapid uptake of China’s yuan in President Vladimir Putin’s war economy, spurred by the fallout with the West over the invasion of Ukraine, may have hit its limit. Countries that continue to do business with Russia face growing US pressure, most notably through the threat of secondary sanctions. That’s proved an effective brake on further yuan usage in the country as it stifles bilateral trade and payments.

MNI RBNZ PREVIEW - July 2024: No Change, Waiting for Q2 Data

The RBNZ is highly likely to keep rates at 5.5% on July 10, which is unanimously expected, and leave its tone little changed as the MPC has made clear that it is too early to talk about rate cuts. Also, there won't be a press conference or updated staff forecasts and the economy is broadly developing as the central bank expects. The MPC may acknowledge the recent weak activity data but is likely to reiterate that monetary policy needs to remain "restrictive" to return inflation to target within a "reasonable timeframe", while it waits for Q2 CPI on July 17 and labour market data on August 7. The July discussion will be monitored to see if a hike was discussed again.

DATA

UK DATA (MNI): BRC-KPMG Retail Sales Fell For The First Time (ex Easter Anomaly) Since Jun-22

• UK BRC JUN BY VALUE SHOP SALES LFL -0.5% YY, TOTAL -0.2% YY

UK Total Retail Sales fell for the first time since June 2022 (excluding the volatile April Easter effect data) by 0.2% Y/Y (vs 0.8% consensus, and growth of 0.7% in May). Similarly Like-For-Like Sales fell for the first time since June 2022 (excluding the April anomaly) printing -0.5% Y/Y (vs 0.4% prior). As this is a value rather than volume series, the slowdown in sales continue  to reflect disinflation in goods prices. Total retail sales remains above the 3-month average decline of 1.1% (due to  the volatile April reading) but firmly below the 12-month average growth of  1.5%.

AUSTRALIA DATA (MNI): NAB Survey Signals Stall In Hiring, Price/Cost Pressures Ease

NAB June business confidence rose to +4 from -2, its highest in 18 months, but conditions fell 2 points to +4, the lowest since January 2022 and below the series average. Conditions are showing a deteriorating economy with all components falling in June, especially employment, but maybe businesses are feeling more positive about the outlook although confidence has been volatile. The easing in the price/cost components was good news after the pickup in May.

FOREX: Mixed Markets, Tight Ranges

• Markets are mixed early Tuesday, with a quiet Asia-Pac session making way for a quieter European morning. Ranges are tight and volatility is muted, putting the USD broadly flat - albeit off the overnight session lows.
• JPY is somewhat softer and is among the poorest performers in G10, however USD/JPY is well short of the best levels of last week, keeping the improvement off lows inside the recent range.
• NOK is a marginal underperformer, softer against all others in G10 as a moderating oil price weighs on commodity-exporters. USD/NOK is back above 10.60 and is bearing in on first major resistance at the 10.6674 50-dma - a break above which opens 10.6993 and the mid-June highs. 
• Tuesday is a scant session for data releases, keeping focus on the more consequential US inflation release for June set for Thursday. The central bank speaker slate is busier, however, with Fed's Barr, Powell and Bowman all set to make appearances. Powell presents the semi-annual testimony with an appearance in front of the Senate banking committee at 1500BST/1000ET. 

EGBS: Bunds and OATs Drift Lower Ahead of Powell Testimony

Bund and OAT futures have steadily drifted lower through the morning. With few meaningful macro catalysts to note, this likely represents a degree of profit-taking following yesterday’s rally and ahead of this week’s risk events (i.e. Fed Char Powell’s testimony today and US CPI on Thursday).

• Bund futures are -26 at 131.02, back within yesterday’s range.  Yesterday’s rally came as markets continued to digest mixed results from the second round of French elections.
• ECB’s Panetta provided an unsurprisingly dovish tone, while today’s green DSL supply may have weighed in the run-up to the 0900BST bidding deadline.
• Books for today’s dual-tranche EU-bond syndication currently exceed E110bln across the two bonds on offer.
• The German and French cash curves have lightly bear steepened, while 10-year peripheral spreads to Bunds are mixed.
• Fed Chair Powell is scheduled to testify at 1500BST today, with some precedent of text being released at the same time but always a chance it comes earlier.

GILTS: A Little Weaker, I/L Syndication Sees Record Orders

Gilts follow core global FI peers away from yesterday’s highs, although the moves are limited.

• Futures trade back below 98.00. Our technical analyst suggests the short-term outlook for the contract remains bearish, despite recent gains. Initial support - July 4 low (97.32).
• Yields 1-2 bp higher across the curve, light steepening.
• European & U.S. supply likely provides some spill over pressure, while Nov-54 I/L gilt supply sees a record order book for a linker.
• Wider macro matters set to dominate today, headlined by Fed Chair Powell.
• Further out, the hawkish wing of the BoE will appear tomorrow, with Pill and Mann scheduled. Pill’s comments could be particularly important for markets given his position as one of, if not the, most hawkish internal MPC member.

EQUITIES: This Week's Gains Reinforces Bullish Set Up in E-Mini S&P

A bull cycle in Eurostoxx 50 futures remains intact and attention is on resistance at 5039.84, 61.8% of the May 16 - Jun 14 sell-off. It was pierced Friday, a clear break of it would be a positive development and suggest scope for an extension of the bull cycle that started Jun 14. This would open 5082.32, the 76.4% retracement point. On the downside, a reversal would instead refocus attention on 4846.00, Apr 19 low and a key support. The trend condition in S&P E-Minis is bullish and this week’s extension reinforces this set-up. Fresh cycle highs confirm a resumption of the uptrend and maintain the bullish price sequence of higher highs and higher lows. Moving average studies are in a clear bull-mode set-up and this continues to highlight positive market sentiment. Sights are on 5668.00, a Fibonacci projection. Support is at 5526.86, the 20-day EMA.     

• Japan's NIKKEI closed higher by 799.47 pts or +1.96% at 41580.17 and the TOPIX ended 27.94 pts higher or +0.97% at 2895.55.
• Elsewhere, in China the SHANGHAI closed higher by 36.922 pts or +1.26% at 2959.372 and the HANG SENG ended 0.83 pts lower or 0% at 17523.23.
• Across Europe, Germany's DAX trades lower by 17.88 pts or -0.1% at 18453.31, FTSE 100 higher by 16.49 pts or +0.2% at 8209.99, CAC 40 down 30.26 pts or -0.4% at 7597.19 and Euro Stoxx 50 down 12.9 pts or -0.26% at 4956.93.
• Dow Jones mini up 59 pts or +0.15% at 39709, S&P 500 mini up 13.25 pts or +0.24% at 5638.5, NASDAQ mini up 73 pts or +0.35% at 20732.25.

Time: 10:10 BST

COMMODITIES: Moderate Pullback in WTI Futures Still Considered Corrective

A bull cycle in WTI futures remains in play and the latest pullback appears to be a correction. The recent breach of $80.11, the May 29 high and a key resistance, strengthened a bullish theme. Note too that $82.24, 76.4% of the Apr 12 - Jun 4 bear leg, has been cleared. Furthermore, moving average studies are in a bull-mode set-up. Sights are on $85.27, the Apr 12 high and a bull trigger. Initial firm support to watch is $79.63, the 50-day EMA. Gold traded higher last week and the yellow metal has pierced resistance at $2387.8, the Jun 7 high. This undermines a recent bearish theme and a clear break would be a bullish development and open the key resistance at $2450.1, the May 20 high. Initial support to watch lies at the 50-day EMA, at 2326.3. A clear break of this average would instead confirm a resumption of the reversal from May 20 and expose $2277.4, May 3 low.

• WTI Crude down $0.54 or -0.66% at $81.76
• Natural Gas up $0 or +0.08% at $2.368
• Gold spot up $3.54 or +0.15% at $2362.9
• Copper up $0.75 or +0.16% at $462.65
• Silver up $0.28 or +0.91% at $31.0357
• Platinum up $0.62 or +0.06% at $1004.44

Time: 10:10 BST

Date	GMT/Local	Impact	Country	Event
09/07/2024	0900/1100		EU	ECB's Cipollone at digital euro events by CB of Cyprus
09/07/2024	1000/0600	**	US	NFIB Small Business Optimism Index
09/07/2024	1255/0855	**	US	Redbook Retail Sales Index
09/07/2024	1315/0915		US	Fed Vice Chair Michael Barr
09/07/2024	1400/1000		US	Fed Chair Jerome Powell
09/07/2024	1530/1130	*	US	US Treasury Auction Result for Cash Management Bill
09/07/2024	1530/1130	**	US	US Treasury Auction Result for 52 Week Bill
09/07/2024	1700/1300	***	US	US Note 03 Year Treasury Auction Result
09/07/2024	1730/1330		US	Fed Governor Michelle Bowman
10/07/2024	0130/0930	***	CN	CPI
10/07/2024	0130/0930	***	CN	Producer Price Index
10/07/2024	0200/1400	***	NZ	RBNZ official cash rate decision
10/07/2024	0600/0800	***	NO	CPI Norway
10/07/2024	0800/1000	*	IT	Industrial Production
10/07/2024	1100/0700	**	US	MBA Weekly Applications Index
10/07/2024	-	***	CN	Money Supply
10/07/2024	-	***	CN	New Loans
10/07/2024	-	***	CN	Social Financing
10/07/2024	1330/1430		GB	BoE Pill At Asia House
10/07/2024	1400/1000	**	US	Wholesale Trade
10/07/2024	1400/1000		US	Fed Chair Jerome Powell
10/07/2024	1430/1030	**	US	DOE Weekly Crude Oil Stocks
10/07/2024	1530/1630		GB	BOE's Mann Panellist on UK Business investment
10/07/2024	1700/1300	**	US	US Note 10 Year Treasury Auction Result
10/07/2024	1830/1430		US	Chicago Fed's Austan Goolsbee