MNI US OPEN - RN Majority Odds Dwindle as Opposition Begins to Cooperate

EXECUTIVE SUMMARY:

• RN MAJORITY PROSPECTS DECLINING AS CENTRIST & LEFTIST CANDIDATES WITHDRAW
• DEMOCRATS WEIGH MID-JULY VOTE TO FORMALLY TAP BIDEN AS NOMINEE
• ECB MEMBERS OFFER FAMILIAR RHETORIC IN SINTRA
• ISRAEL TELLS PALESTINIANS TO LEAVE KHAN YOUNIS AS HAMAS REGROUPS

Figure 1: Implied probability of RN winning an outright majority, %

Source: Polymarket

NEWS

US (BBG): Democrats Weigh Mid-July Vote to Formally Tap Biden as Nominee

The Democratic National Committee is considering formally nominating Joe Biden as early as mid-July to ensure that the president is on November ballots, while helping to stamp out intra-party chatter of replacing him after last week’s poor debate performance. A potential date for Biden’s nomination is July 21, when the Democratic convention’s credentials committee meets virtually, according to people familiar with the matter, who spoke on condition of anonymity. Democrats had already planned to nominate Biden, 81, before their August convention in order to ensure he appears on the ballot in Ohio, which had an Aug. 7 deadline for candidates to be certified.

US (BBG): US to Fight Labor Shortage With New Chips Act Worker Program

The Biden administration is kicking off a program to cultivate the US computer-chip workforce, aiming to stave off a labor shortage that threatens to undermine domestic semiconductor production. The program, described as a workforce partner alliance, will use some of the $5 billion in federal funding set aside for a new National Semiconductor Technology Center. The NSTC plans to award grants to as many as 10 workforce development projects with budgets of $500,000 to $2 million.

FED (BBG): Fed’s Goolsbee Says Policymakers Should Prepare For Rate Cuts

Federal Reserve Bank of Chicago President Austan Goolsbee said policymakers should cut interest rates if US inflation continues to fall back to the 2% target. The Chicago Fed chief, speaking Tuesday on Bloomberg TV in Sintra, Portugal, said he feels “we are on a path to 2%” inflation and “if you just hold the rates where they are while inflation comes down, you are tightening — so you should do that by decision, not by default.” Goolsbee’s comments follow data out last week that showed the Fed’s preferred gauge of underlying inflation increased 0.1% in May, the slowest pace in six months.

FRANCE (MNI): RN Majority Prospects Declining as Centrist & Leftist Candidates Withdraw

Eligible candidates face a deadline of 1800CET (1200ET, 1700BST) to formally declare whether they intend to run in the 7 July second round legislative elections. This comes as the so-called 'republican front' of centrist and left-wing parties seek to minimise gains for the right-wing nationalist Rassemblement National (National Rally, RN) by reducing the number of tripartite run-offs that could split the vote and allow the RN to win a majority. According to Le Monde, as of 0850BST, a total of 191 third/fourth-placed candidates have announced their withdrawal. Of these, 123 are from the left-wing New Popular Front (NFP) alliance, while 66 are from the centrist presidential camp (Ensemble).

ISRAEL (BBG): Israel Tells Palestinians to Leave Khan Younis as Hamas Regroups

The Israeli army ordered Palestinians to leave Khan Younis ahead of a possible new assault, underscoring the struggle to stop militants regrouping in areas that were previously cleared. The Israel Defense Forces warned people in eastern neighborhoods of Gaza’s second-biggest city to evacuate. The military said warplanes hit the area overnight after 20 rockets were fired toward Israel. While there were no injuries among Israelis, it was one of the worst missile barrages from Gaza in weeks.

ECB (BBG): Kazaks Says Market Bets of 1-2 ECB Cuts Consistent With Baseline

Expectations that the European Central Bank will cut interest rates one or two more times this year seem “quite reasonable,” Governing Council member Martins Kazaks told CNBC in an interview. Policymakers should take time to assess euro-area inflation data as it arrives, Kazaks said, adding that price pressures are expected to move sideways in the coming months. He argued that the ECB won’t keep rates high for unnecessarily long, but also said that he wouldn’t like to see any further delays in reaching the 2% target.

ECB (BBG): Guindos Says ECB Not Following Pre-Determined Interest-Rate Path

The European Central Bank isn’t following a pre-set path toward lower interest rates as uncertainty remains high, Vice President Luis de Guindos told CNBC in an interview. Geopolitical risks, wars in the Middle East and Ukraine and elections in France complicate an assessment of the economy and price trends, Guindos said, adding that the next months “won’t be easy.”

ECB (BBG): Centeno Says Better Forecasts Mean ECB Can Look at Every Meeting

Improving confidence in the European Central Bank’s inflation forecasts allows policymakers to consider interest-rate cuts at every meeting, Governing Council member Mario Centeno told CNBC in an interview. While officials must be prudent in assessing the outlook, some of the latest data have proved the ECB’s projections correct, Centeno said. He argued that the labor market is the “biggest pillar of stability and income growth for our citizens,” suggesting confidence in a rebound in consumer spending.

ECB (BBG): ECB Must Be Patient With Further Interest-Rate Cuts, Muller Says

The European Central Bank can probably lower borrowing costs again before year-end, but shouldn’t rush to do so, according to Governing Council member Madis Muller. “If the actual outcome ends up being close to our latest projections, then we most likely can further reduce the level of policy restrictiveness this year,” Estonia’s central-bank governor said in an interview in Sintra, Portugal. “When exactly and how much remains to be seen.”

ECB (BBG): ECB’s Lane Says June Data Won’t Answer Questions on Services

Inflation data for last month won’t provide answers to the European Central Bank’s lingering questions on underlying price pressures, according to Chief Economist Philip Lane. Speaking to Bloomberg TV, he joined President Christine Lagarde in signaling that another cut in interest rates in July is unlikely, calling for patience in collecting evidence that the ECB is heading toward its 2% target.

CHINA (BBG): China’s Bonds Seen Settling Into Range With Yield Floor on PBOC

China’s central bank’s plan to borrow bonds may slow but won’t quash their rally, as the fundamental reasons driving demand for debt are unlikely to reverse, according to analysts. The impact of the People’s Bank of China move may instead be to put a floor on yields and send them into a range, they said. Benchmark yields rebounded from a record low Monday after the PBOC said it would borrow government bonds from primary dealers, a sign it may be contemplating selling securities to cool down a hot bond market.

CHINA (BBG): China New Home Sales Struggle in Face of Lopsided Recovery

Chinese developers are facing headwinds offloading new home inventory, despite a rebound in second-hand transactions in mega cities. In Shenzhen, new home sales fell 4% in June compared with last year, even after the government relaxed measures to stimulate the market. Midland Realty said developer inventory remains high, adding to the polarizing results between new and existing apartment sales. In the capital of Beijing, new property sales underperformed existing ones in June, said Centaline Group analyst Zhang Dawei.

RBA (BBG): RBA August Rate Hike Remains in Play, Minutes Show

Australia’s central bank saw the need to remain “vigilant” to upside price risks, even as it left interest rates at a 12-year high last month because recent data hadn’t been sufficient to derail its inflation outlook. Minutes of the Reserve Bank’s June 17-18 meeting released Tuesday showed that the board discussed further tightening but decided that the case to leave the key rate at 4.35% was the “stronger one.” The RBA also reiterated it will do what’s necessary to return inflation to its 2%-3% target and that it was “difficult either to rule in or rule out” future policy moves.

COMMODITIES (BBG): Copper Extends Rebound on Hopes for China Stimulus, US Rate Cuts

Copper rose for a third session, extending its rebound from the lowest close in more than two months, as investors assess possible stimulus in China and rate cuts in the US. The metal is gaining as investors expect some policy boost from this month’s so-called Third Plenum, one of China’s biggest annual policy meetings, Chaos Ternary Research Institute said in a note. The rising possibility of another Donald Trump presidency may have also boosted expectations for rate cuts in the US, it added.

DATA

UK JUN BRC SHOP PRICES -0.2% M/M, +0.2% Y/Y (MNI)

EUROZONE DATA (MNI): Flash Inflation In-Line With Tracking; Services Remain Sticky

EUROZONE JUN FLASH HICP +2.5% Y/Y
EUROZONE JUN FLASH CORE HICP +2.9% Y/Y
EUROZONE MAY UNEMPLOYMENT RATE 6.4%

Eurozone June flash headline printed in-line with MNI's tracking estimate of 2.5% Y/Y (vs 2.5% cons; 2.6% prior) and 0.2% M/M (vs 0.3% cons; 0.2% prior). On an unrounded basis, headline was 2.52% Y/Y and 0.21% M/M. Core HICP came in a tenth higher than consensus, remaining at 2.9% Y/Y (vs 2.8% cons; 2.9% prior). On an unrounded basis, core was 2.86% Y/Y and 0.34% M/M. Looking at the individual categories, services inflation remained sticky, as   was expected at 4.1% Y/Y (the same level as May) although it was possibly   boosted in June by the European football championships. Non-energy industrial goods remained unchanged in Y/Y terms at 0.7% Y/Y - the first time it hasn't decline since February 2023, although this had been expected to continue to moderate.

FOREX: Greenback Remains Favoured as US Yields Hold Monday Rally

• With the US yield curve consolidating and holding the majority of yesterday's rally, the greenback is firmer again headed into NY hours. The USD Index has topped the Monday high and remains within range of 106.130 - strength through which puts the greenback at the best level since early May. 
• The single currency trades poorly, with both EUR/USD and EUR/GBP in the red. Moves come as focus remains on the French political process. Pollsters and betting odds continue to the fade the implied probability of the right-wing RN winning an outright majority after the election second round on Sunday.  Preliminary Eurozone CPI came in alongside expectations at 2.5% - as indicated by the outturns from the composite regions including Germany yesterday and late last week.
• While GBP's Tuesday trade has been middling in G10, the pair remains within range of key support at the 1.2613 mark. Further selling pressure headed into the election on Thursday (results due through the night on Friday) would result in six-week lows for the pair and exposure of 1.2580, the 50% retracement for the upleg posted off the April low. 
• JOLTS job openings data is the highlight of the US calendar Tuesday, with the ECB's central banking conference in Sintra also set to continue. The highlight today will likely be a panel appearance from Fed's Powell, ECB's Lagarde and BCB's Campos Neto at 1430BST/0930ET. 

EGBs: Higher-than-expected June Core Inflation Keeps Pressure On EGBs

Downward pressure in major EGB futures has persisted after Eurozone flash June core inflation was a tenth above consensus on a rounded basis at 2.9%.

• However, the “low” unrounded core print (at 2.86%) has likely limited downside moves, alongside recent ECB-speak from Sintra downplaying the importance of individual data points and acknowledging the bumpiness of monthly inflation readings.
• OAT and BTP futures are both close to intraday lows and were already underperforming before the inflation release, amid a broad risk-off tone across global markets (stronger USD, weaker European equity futures).
• Bunds are +2 at 130.43. Yesterday’s sell-off undermined a recent bullish theme and signalled scope for a deeper retracement. First support lies at 130.28. 
• EGB curves have generally steepened, while 10-year peripheral spreads to Bunds are wider as a result of the risk environment.
• The 10-year BTP/Bund spread is ~3bps wider at ~153bps, with today’s Q1 fiscal data (debt/GDP at 8.8% vs 7.4% prior) likely also factoring in.
• The remainder of today’s regional calendar centres on ECB-speak from the Sintra forum, while US job openings headline across the Atlantic.

EQUITIES: E-Mini S&P Eases Further Away From Last Week's Highs

The trend condition in Eurostoxx 50 futures remains bullish and the recovery from the Jun 14 low appears to be an early reversal of the May 16 - Jun 14 correction. Attention is on 5039.84, a Fibonacci retracement. Clearance of this level would be a positive development. On the downside, a reversal lower would instead signal a resumption of the bearish corrective cycle that started May 16 and open 4846.00, the Apr 19 low and a key support. The trend condition in S&P E-Minis is unchanged and signals remain bullish. Resistance at 5430.75, the May 23 high and bull trigger, has recently been cleared. This break confirmed a resumption of the primary uptrend. Note that the recent pause in the trend appears to be flag formation - a bullish continuation signal. Sights are on 5594.66, a Fibonacci projection. Support to watch is 5488.93, the 20-day EMA.

• Japan's NIKKEI closed higher by 443.63 pts or +1.12% at 40074.69 and the TOPIX ended 32.34 pts higher or +1.15% at 2856.62.
• Elsewhere, in China the SHANGHAI closed higher by 2.281 pts or +0.08% at 2997.011 and the HANG SENG ended 50.53 pts higher or +0.29% at 17769.14.
• Across Europe, Germany's DAX trades lower by 135.7 pts or -0.74% at 18155.43, FTSE 100 lower by 32.93 pts or -0.4% at 8133.76, CAC 40 down 45.17 pts or -0.6% at 7515.69 and Euro Stoxx 50 down 36.5 pts or -0.74% at 4893.47.
• Dow Jones mini down 124 pts or -0.31% at 39388, S&P 500 mini down 23.75 pts or -0.43% at 5510, NASDAQ mini down 109.75 pts or -0.55% at 19943.

COMMODITIES: WTI Futures Trading at Highest Level Since April

A bull cycle in WTI futures remains in play and the contract traded higher Monday, starting the week on a bullish note. 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. This opens $85.27, the Apr 12 high and a bull trigger. Initial firm support to watch is $79.04, the 50-day EMA. A bear threat in Gold remains present and the yellow metal continues to trade closer to its recent lows. The sell-off on Jun 7 reinforced a short-term bearish theme. Price has pierced the 50-day EMA, at 2318.9. A clear break of this EMA 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 up $0.51 or +0.61% at $83.85
• Natural Gas down $0 or -0.12% at $2.473
• Gold spot down $0.59 or -0.03% at $2332.1
• Copper down $0.05 or -0.01% at $441.3
• Silver down $0.1 or -0.35% at $29.364
• Platinum up $1.24 or +0.13% at $984.65

Date	GMT/Local	Impact	Country	Event
02/07/2024	1030/1230		EU	ECB's Schnabel chairing panel on Geopolitical shock and inflation
02/07/2024	-	***	US	Domestic-Made Vehicle Sales
02/07/2024	1255/0855	**	US	Redbook Retail Sales Index
02/07/2024	1330/1530		EU	ECB's Lagarde in policy panel at ECB forum
02/07/2024	1330/0930		US	Fed Chair Jerome Powell
02/07/2024	1400/1000	***	US	JOLTS jobs opening level
02/07/2024	1400/1000	***	US	JOLTS quits Rate
02/07/2024	1530/1130	*	US	US Treasury Auction Result for Cash Management Bill
03/07/2024	0130/1130	**	AU	Retail Trade
03/07/2024	0700/0300	*	TR	Turkey CPI
03/07/2024	0800/1000		EU	ECB's De Guindos chairing MonPol Cycles session
03/07/2024	0900/1100	**	EU	PPI
03/07/2024	0900/1100		EU	ECB's Cipollone chairing Productivty session
03/07/2024	1030/1230		EU	ECB's Lane chairing panel on equilibirum interest rates
03/07/2024	1100/0700	**	US	MBA Weekly Applications Index
03/07/2024	1100/0700		US	New York Fed's John Williams
03/07/2024	1230/0830	**	US	Trade Balance
03/07/2024	1230/0830	**	CA	International Merchandise Trade (Trade Balance)
03/07/2024	1230/0830	***	US	Jobless Claims
03/07/2024	1330/1530		EU	ECB's Lagarde closing remarks at ECB Forum
03/07/2024	1400/1000	***	US	ISM Non-Manufacturing Index
03/07/2024	1430/1030	**	US	DOE Weekly Crude Oil Stocks
03/07/2024	1600/1200	**	US	Natural Gas Stocks
03/07/2024	1800/1400	***	US	FOMC Minutes