MNI US OPEN - RBA Rate Hike Puts AUD On Top

NEWS

RBA (MNI): RBA Sticks to "Reasonable Timeframe" with 25bp Hike

The Reserve Bank of Australia lifted the cash rate 25bp to 4.1% today, its 12th hike since May 2022 and its highest level since April 2012, while the Board stuck to last month's message of returning inflation to its 2-3% target within a “reasonable timeframe. ”In a statement, the Board noted recent data points indicated the upside risks to the inflation outlook have increased and it had responded to this. “While goods price inflation is slowing, services price inflation is still very high and is proving to be very persistent overseas," the Board said.

ECB (MNI): Eurozone Consumer Price Expectations Dip - ECB Survey

Eurozone consumer inflation expectations for the next 12 months fell in April, the latest ECB survey showed, declining to 4.1% from 5.0% in March. Inflation expectations three years ahead decreased to 2.5%, from 2.9%. Uncertainty about inflation expectations 12 months ahead also decreased, the survey showed.

ECB (MNI): Asset Repricing Means Lower Terminal Rate - Knot

Monetary policymakers must be “bold but realistic” in pursuing price stability step-by-step, Dutch central bank chief Klaas Knot said in a speech Tuesday, amid the first signs that higher interest rates are being transmitted to the real economy, but with core inflation likely to hold stubbornly above target unless continued action is taken.

FRANCE (BBG): French Unions Hold New Strikes Against Macron Pension Reform

French unions are holding a fresh day of strikes against Emmanuel Macron’s pension reform in a test of whether the president has succeeded in getting much of the country to move on from the politically damaging fight. People face less disruption on Tuesday than during previous protests, which stretch back to January. Rail operator SNCF planned to operate nine out of 10 trains, while service is normal on the Paris subway. Some schools are closed.

UK (BBG): UK Homebuilding Shrinks at Pace Seen in 2009 Crash as Rates Soar

UK housebuilding is contracting at a pace seen during the financial crisis property crash 14 years ago as borrowers are squeezed by a surge in interest rates, a closely watched survey found. S&P Global said its PMI index for the sector dropped to 42.7, the lowest since May 2020 when homebuilding was brought to a standstill by the first Covid-19 lockdown. Excluding the pandemic, it was the weakest since 2009.

US/CHINA (BBG): US, China Hold ‘Candid’ Talks Days After Security Forum Spat

Senior US and Chinese officials held “candid” talks in Beijing, days after the two countries’ defense chiefs squared off at a fraught security forum exposing limits in mending the bilateral relationship. Daniel Kritenbrink, the top US State Department official for Asia, met with Vice Foreign Minister Ma Zhaoxu on Monday, becoming the most senior US official to publicly travel to Beijing since an alleged Chinese spy balloon derailed ties in February.

CHINA (BBG): China Asks Big Banks to Cut Deposit Rates Again to Boost Economy

Chinese authorities asked the nation’s biggest banks to lower their deposit rates for at least the second time in less than a year, according to people familiar with the matter, marking an escalated effort to boost the world’s second-largest economy. State-owned lenders were last week advised to cut rates on a range of products, including on demand deposits by 5 basis points and three-year and five-year time deposits by at least 10 basis points.

CHINA (BBG): China Says It’ll Work on Political Ukraine Solution With France

China said its top diplomat discussed working toward a political solution in Ukraine with a French official, as President Xi Jinping tries to position himself as a potential peacemaker in the conflict. Wang Yi and President Emmanuel Macron’s foreign policy adviser, Emmanuel Bonne, agreed during a Monday call to “create conditions to begin the political settlement process,” the Chinese Foreign Ministry said in a statement, without elaborating on what this would entail.

CHINA (BBG): China’s Assurances on Soaring Local Debt Fail to Ease Concerns

China’s bid to reassure investors over its soaring local debt did little to soothe concerns over financial stability risks in the world’s second-largest economy. Xinhua News agency published a report Monday quoting an unidentified official from the Ministry of Finance saying government finances are healthy and safe, and authorities had enough resources to tackle risks. Systemic risks would be avoided, the official said.

CHINA (MNI): China Steel Demand Improving In H2 - Fitch

Fitch Ratings has revised its outlook for China's steel sector to neutral from negative, citing expectations the government will maintain strong construction activity in H2, driven by high use of infrastructure linked special-purpose bonds.

JAPAN (MNI): Inflation View 2% If Target Achieved - BOJ's Ueda

Bank of Japan Governor Kazuo Ueda said on Tuesday that the expected inflation rate will rise to 2% if the 2% price target is achieved on a long-term basis. Ueda told lawmakers that the expected inflation rate has risen, compared with the deflationary-era and the custom or norm, where wages and prices do not rise, is changing gradually.

JAPAN (BBG): Japan Renews Chip Plan, Confirms Sales Goal of $108 Billion

The Japanese government revamped its chip strategy with a goal of tripling sales of domestically produced semiconductors to more than 15 trillion yen ($108 billion) by 2030, as the nation centers chips at the heart of its economic security policy. The revised strategy, released Tuesday, aims to strengthen efforts to develop and produce cutting-edge semiconductors that are critical for economic security measures and advanced technology like generative AI, according to the economy ministry.

UKRAINE (MNI): Breach Of Kakhovka Dam Risks Zaporizhzhia NPP; Ukraine Counteroffensive

The breach in the Nova Kakhovka dam upriver of the Dnipro from the city of Kherson poses significant risks to the stable functioning of the Zaporizhzhia nuclear power plant (NPP) as well as making any potential Ukrainian amphibious counterattack from the western bank of the Dnipro a much more difficult prospect.

SECURITY (MNI): South Korean Jets Scrambled As Chinese, Russian Planes Enter ADIZ

South Korea's Joint Chiefs of Staff have stated to reporters that four Russian and four Chinese jets breached South Korea's air defence identification zone(ADIZ), resulting in the scrambling of South Korean air force jets. The Joint Chiefs confirmed that the Chinese and Russian aircraft did not enter South Korean airspace

DATA

EUROZONE DATA (MNI): Retail Sales Flat in May

• EUROZONE APR RETAIL SALES 0.0% M/M (FCST +0.2%); MAR -1.2% M/M
• EUROZONE APR RETAIL SALES -2.6% Y/Y (FCST -3.0%); MAR -3.8% Y/Y

After a contractionary end to Q1, April euro area retail sales stalled on the month, remaining -2.6% y/y below April 2022 levels. The +0.5% m/m increase in non-food products signalled a slight uptick in demand, yet this was cancelled out by declining sales across food (-0.5% m/m) and auto fuels (-2.3%).* Looking forward, economic confidence for the euro area moderated in May, led by the slump in retail trade sentiment with deteriorating demand conditions flagged as a key concern.

EUROZONE MAY CONSTRUCTION PMI 44.6; APR 45.2 (MNI)

GERMAN DATA (MNI): Large-Scale Foreign Orders Driving Factory Orders Decline

• GERMANY APR FACTORY ORDERS -0.4% M/M (FCST +2.8%); MAR -10.9% M/M
• GERMANY APR FACTORY ORDERS -9.9% Y/Y (FCST -8.4%); MAR -11.2% Y/Y

German factory orders contracted for a second consecutive month in April, dipping by -0.4% m/m. This follows the substantial -10.9% m/m drop recorded in March, which reflected weak auto and a recalibration from February military vehicle orders. However, excluding large orders German manufacturing orders rose +1.4% m/m and domestic orders expanded by +1.6% m/m, implying that domestic demand saw muted growth in April.

UK BRC MAY BY VALUE SHOP SALES LFL +3.7% YY, TOTAL +3.9% YY (MNI)

JAPAN DATA (MNI): Japan Apr Wages Rise, Real Pay Stays Negative

• JAPAN APR HOUSEHOLD SPENDING -4.4% Y/Y; MAR -1.9%

Inflation-adjusted real wages, a barometer of household purchasing power, fell by 3% y/y in April following a 2.3% fall in March due to higher consumer price index, Ministry of Internal Affairs and Communications data showed Tuesday. Real wages stayed in negative territory for the 13th straight month in April, impeding consumer consumption, although pent-up demand has supported spending linked to services. Total CPI excluding imputed rents rose 4.1% y/y in April after a 3.8% increase in March. Total cash earnings, or nominal wages, posted a 1% y/y gain in April, slowing from 1.3% in March.

FOREX: AUD on Top as RBA Warn More to Come

• The RBA pushed against consensus with a 25bps hike to the cash rate target, boosting rates to 4.10% and signaling that further policy tightening could follow. In response, AUD rallied and sits firmer against all others in G10 - helping to extend the streak of higher intraday lows into a fifth session against the USD. AUD/USD is now within range of the 200-dma resistance at 0.6692 and a break above would open the mid-May highs of 0.6710.
• Chinese assets traded briefly firmer through the local close, with markets receiving a small boost on the back of reports out of China, as authorities ask the largest Chinese banks to cut their interest rates levied on deposit products - with steps to become effective as soon as this week. The release has raised some market concern about the aggregate financing data due later this week - with the policy step today potentially looking to get ahead of a weaker-than-expected release.
• GBP is among the poorest performers so far Tuesday, chewing through Monday's modest gains to narrow the gap with the pullback lows at 1.2369 - the next downside support.
• Data releases are few and far between Tuesday, keeping focus on the Canada Ivey PMI later today. ECB's Centeno and Vujcic make up the speaker slate, with Fedspeak off the agenda as markets sit inside the pre-meeting media blackout period.

BONDS: German Short End Outperforming, US TBill Sizes Eyed Later

Global core FI is strengthening in European morning trade Tuesday, with noticeable bull steepening in the German curve partially reversing the bear flattening of the past few sessions.

• Bunds are outperforming Gilts and Treasuries, and easily so at the short end, with the UK and US curves relatively flat.
• Although the session got off to a hawkish-leaning start after an unexpected 25bp hike (vs hold) from the RBA overnight, multiple factors pulled back on rates in the European morning.
• Some attention was paid to somewhat dovish headlines on commentary by ECB/DNB's Knot - though most of his comments were typically hawkish.
• Oil prices have fallen, with some risk-off sentiment evident in weaker equities and widening EGB periphery spreads.
• Data have been soft: April German factory orders were on the low side, Eurozone consumer inflation expectations in April reversed March's jump, and EZ April retail sales came in mixed.
• The rest of the session is relatively quiet: ECB's Centeno and Vujcic are the only scheduled speakers (FOMC still in blackout), and there is no US data scheduled.
• In supply, there will be unusually large interest in today's 4-/8-/17-week Tbill announcements at 1100ET given interest in the dynamics of the Treasury refilling its coffers. EU/Estonia/Croatia bond syndication is underway.

Latest levels:

• Sep US 10Y futures (TY) up 8.5/32 at 114-5 (L: 113-24 / H: 114-6.5)
• Sep Bund futures (RX) up 63 ticks at 134.77 (L: 133.82 / H: 134.82)
• Sep Gilt futures (G) up 42 ticks at 96.86 (L: 96.35 / H: 96.87)
• Italy / German 10-Yr spread 2.3bps wider at 178bps

EQUITIES: E-Mini S&Ps Remain Close to Recent Highs

Eurostoxx 50 futures traded higher Friday as the contract recovered from last Wednesday’s low of 4216.00. For now, the move higher appears to be a correction. Price action earlier last week reinforced a bearish theme - support at 4252.00, the May 25 low has been breached. Price has also pierced support at 4233.00, the May 4 low and a key short-term level. Resistance to watch is 4362.00, May 29 high, a break would be bullish. S&P E-minis trend conditions remain bullish following recent gains. Resistance at 4244.00, the Feb 2 high and a medium-term bull trigger, has been cleared. The break reinforces bullish conditions and confirms a resumption of the uptrend that started in October 2022. The focus is on 4327.50 next, the Aug 16 2022 high. The 50-day EMA, at 4149.71 remains a key support. A break is required to signal a reversal.

• Japan's NIKKEI closed higher by 289.35 pts or +0.9% at 32506.78 and the TOPIX ended 16.49 pts higher or +0.74% at 2236.28.
• Elsewhere, in China the SHANGHAI closed lower by 37.101 pts or -1.15% at 3195.34 and the HANG SENG ended 9.22 pts lower or -0.05% at 19099.28.
• Across Europe, Germany's DAX trades higher by 1.53 pts or +0.01% at 15965.19, FTSE 100 lower by 28.71 pts or -0.38% at 7571.5, CAC 40 down 7.09 pts or -0.1% at 7193.82 and Euro Stoxx 50 down 5.93 pts or -0.14% at 4287.31.
• Dow Jones mini down 33 pts or -0.1% at 33588, S&P 500 mini down 3 pts or -0.07% at 4278.5, NASDAQ mini down 3.5 pts or -0.02% at 14587.25.

COMMODITIES: WTI Futures Fade Off OPEC+ Induced Highs

WTI futures traded higher yesterday, piercing resistance at $74.73, the May 24 high. However, the contract has failed to hold on to its latest gains. A clear break of $74.73 would strengthen a bullish condition and signal scope for an extension higher. This would open $76.74, the Apr 28 high. For bears, a stronger reversal would instead signal a top and this would once again expose key support at $63.90, the May 4 low. The bear cycle in Gold remains intact and. The yellow metal is once again testing trendline support drawn from Nov 3 2022. The trendline intersects at $1949.1. A clear breach of this trendline would reinforce bearish conditions and open $1903.5, a Fibonacci retracement. Initial firm resistance is $1985.3, the May 24 high. A break of this level is required to signal a short-term reversal.

• WTI Crude down $1.57 or -2.18% at $70.56
• Natural Gas down $0.01 or -0.53% at $2.233
• Gold spot down $0.94 or -0.05% at $1960.64
• Copper down $3.9 or -1.04% at $372.85
• Silver down $0 or -0.01% at $23.5323
• Platinum down $2.95 or -0.29% at $1029.66