MNI US OPEN - Smaller Fall in Monthly UK GDP Driven by Flat Services

NEWS

US/CHINA (BBG): Top US, Chinese Diplomats Set to Hold Second Talks in a Month

US Secretary of State Antony Blinken and China’s top foreign policy official, Wang Yi, will hold their second talks in a month, as the two largest economies ramp up high-level dialog to stabilize ties. The senior diplomats will meet in Jakarta on the sidelines of the annual Association of Southeast Asian Nations gathering of foreign ministers on Thursday. Their meeting last month in Beijing was the thorniest of Blinken’s visit to China, with Wang blasting “illegal” US sanctions and putting the blame for worsening ties on Washington.

US/CHINA (MNI): Beijing is Open to Raimondo China Visit

MNI (London) Comments hitting wires from the Chinese Commerce Ministry stating that China is "open" to a visit from US Commerce Secretary Gina Raimondo and is, "in communication with the US side... pushing for constructive, pragmatic cooperation," with the US. Raimondo has been instrumental in crafting much of the Biden administration policy on semiconductor and tech export controls and is considered by many analysts to be the US official most central to stabilising the US-China commercial relationship.

US/CHINA (NYT): Chinese Hackers Targeted Commerce Secretary and Other US Officials

The hackers took aim at specific email accounts in the State and Commerce Departments, officials said. Chinese hackers penetrated the email accounts of Commerce Secretary Gina Raimondo and other State and Commerce Department officials in the weeks before Secretary of State Antony J. Blinken traveled to Beijing in June, U.S. officials said on Wednesday. The investigation of the efforts by the Chinese hackers, who likely are affiliated with China’s military or spy services, is ongoing, American officials said.

BOJ (MNI): BOJ Mulls Softer 10-Yr Target, Flexible YCC Bands

The Bank of Japan may soften its stance on its 'around 0%' long-term interest rate target and remove the current trading band, but it will likely pledge to keep the yield curve at low levels through all possible measures, MNI understands. The Bank could aim to promote an environment where interest-rates move based on the market view’s of the economy under a more flexible YCC, possibly amending its stance as soon as the next policy meeting, MNI understands. But the BOJ will keep buying Japanese government bonds and maintain its fixed-rate bond buying operation, not only to restrict surges in interest rates, but also to stabilise financial markets.

RBA (MNI): RBA Should Pause Rate Hikes - Ex-Board McKibbin

The Reserve Bank of Australia runs the risk of over tightening should it hike further, as supply-side disruptions dissipate and inflation peaks, a former board member told MNI this week. Warwick McKibbin, now Australian National University economics professor and an RBA board member between 2001-2011, said in an exclusive interview that energy and shipping prices have reverted to 2019 levels and supply shocks from Covid and the Ukraine war may have self-corrected. Further hikes will continue to slow an economy already decelerating due to the supply-side adjustments, he said.

BOK (MNI): Rate Steady At 3.5%, Restrictive Stance Intact

The Bank of Korea Thursday decided unanimously to keep its policy interest rate unchanged at 3.5% for the fourth consecutive meeting, amid growing concern over the weaker economy due to sluggish exports. The decision was widely expected as the country suffered from a slower economy due to weaker exports and as inflation has fallen steadily. BOK Governor Rhee Chang-yong ruled out an imminent rate cut, noting the Board wanted to maintain the restrictive policy stance for a considerable time and the government remained vigilant against future inflation.

INDIA (BBG): India Considers Banning Most Rice Exports on Inflation Fears

India, the world’s biggest rice shipper, is considering banning exports of most varieties, a move that may send already lofty global prices higher as the disruptive El Niño weather pattern returns. The government is discussing a plan to ban exports of all non-Basmati rice, according to people familiar with the matter. That’s because of rising domestic prices and authorities want to avoid the risk of more inflation, said the people, who asked not to be identified as the information is not public.

COMMODITIES (BBG): IEA Cuts Global Oil Demand Outlook for 2023 as Economy Slows

Global oil demand won’t grow as fast as previously expected this year due to the faltering economies of developed nations, the International Energy Agency said. World fuel consumption will increase by 2.2 million barrels a day — or about 2% — in 2023, a reduction of about 220,000 barrels from last month’s forecast, the Paris-based agency said in a report on Thursday. Demand nonetheless remains on track to hit record levels later this year, draining inventories substantially in the second half.

COMMODITIES (BBG): Iron Ore Rises on Hopes of Stimulus After China Data Disappoints

Iron ore rose as hopes increased that Beijing will deliver more economic aid for the beleaguered property sector, as investors shrugged off disappointing trade data from China. The steelmaking staple extended a two-day climb after closing 3% higher Wednesday. Investors continue to seek signs that China is boosting efforts to shore up its economic recovery, with state-owned media calling on Beijing to curb “excessive risk aversion” on lending to developers.

COMMERCIAL REAL ESTATE (BBG): WFH to Erase $800 Billion From Office Values, McKinsey Says

Remote work risks wiping $800 billion from the value of office buildings in major cities, highlighting the potential losses that landlords are facing from post-pandemic changes in employment trends. Covid-19’s push toward hybrid work has driven the need for office space down with vacancy rates rising, McKinsey Global Institute said Thursday in a report that modeled the impact on valuations by 2030 in nine cities globally. The estimate for $800 billion in valuation losses represents a 26% decline compared to levels in 2019, with the blow at risk of deepening to as much as 42%, the consultancy firm said.

DATA

UK DATA (MNI): Smaller Fall in Monthly GDP Driven by Flat Services

• UK MAY GDP -0.1% M/M, +0% 3MM, +0.1% 3M Y/Y
• UK MAY SERVICES INDEX +0% M/M, +0% 3MM

Monthly GDP seeing a smaller fall than expected at -0.1%M/M (towards the top of analyst expectations) which means that the 3m/3m figure is flat (versus general expectations of a -0.1% fall). Services was also flat which seems to be the biggest driver of the upside surprise here.

UK MAY TRADE BALANCE GBP -6.58BN (MNI)
UK MAY IND PROD -0.6% M/M, -2.2% Y/Y (MNI)
UK MAY MANUF OUTPUT -0.3% M/M, -1.2% Y/Y (MNI)
UK MAY CONSTRUCTION OUTPUT -0.2% MM, +0.2% 3M3M, +0.2% YY (MNI)

EUROZONE DATA (MNI): Eurozone May Industrial Production up 0.2% m/m

• EUROZONE MAY IP +0.2% M/M, -2.2% Y/Y

Eurozone industrial production rose 0.2% m/m in May, slower than the 1.0% rise in April but broadly in line with consensus (0.3%). It fell 2.2% y/y, faster than consensus of -1.2% y/y. Capital goods offered support, rising 1.0% m/m and 2.5% y/y, while energy exerted a predictable drag (-1.1% m/m). With the ECB focused heavily on inflation, the expected m/m slowdown in industrial production will be unlikely to alter its deliberations ahead of the July monetary policy meeting.

FRANCE JUN CPI +0.2% M/M, +4.5% Y/Y (MNI)
FRANCE JUN HICP +0.2% M/M, +5.3% Y/Y (MNI)

CHINA (MNI): China H1 Exports Slow, International Trade Challenging

• CHINA H1 TRADE SURPLUS +$408.69 BLN; JAN-MAY +$359.48 BLN
• CHINA H1 EXPORTS -3.2% Y/Y; JAN-MAY +0.3% Y/Y
• CHINA H1 IMPORTS -6.7% Y/Y; JAN-MAY -6.7% Y/Y
• CHINA JUN TRADE SURPLUS +$70.62 BLN; MEDIAN +$74.75 BLN
• CHINA JUN EXPORTS -12.4% Y/Y VS MEDIAN -10.0% Y/Y
• CHINA JUN IMPORTS -6.8% Y/Y VS MEDIAN -4.2% Y/Y

MNI (Beijing) China's exports registered a 3.2% y/y fall in H1, led by sliding demands from external economies as well as the high base effect, while imports fell 6.8% y/y, data released by China Customs on Thursday showed. Trade showed strong resilience in H1, especially as domestic production recovered rapidly after the pandemic, but global economic uncertainty still pressures trade stability and quality improvement, a customs spokesperson said. June's exports decreased by 12.4% y/y, dipping further from last month's 7.5% y/y drop, and weaker than the 10.8% y/y consensus, marking the third monthly fall. Exports in the first half of 2023 totaled USD1.66 trillion.

FOREX: AUD, NZD Remain Primary Beneficiaries of USD Weakness

• The USD downtick post-CPI has extended into a second session, helping keep the greenback under pressure against all others in G10. As was the case Wednesday, the main beneficiaries have been AUD and NZD currencies, which continue to erase a large part of the losses posted in late June, with AUD/USD continuing to narrow the gap with the $0.6900 handle - a move above which would put prices at the best levels since mid-February.
• The USD Index has again plumbed a new pullback low, putting the pullback from the early July high above 3%. The moves accompany continued softening in market-implied Fed rate pricing, with the peak rate in November dropping close to 10bps over the past two sessions.
• The winning streak in GBP/USD extends to six sessions, putting prices at best levels since April last year. This opens next resistance at the Apr21 high of 1.3090 and the 1.00 projection of the May 25 - Jun 16 - Jun 29 price swing. This week's spot rally has forced markets to significantly mark up the implied odds of further GBP/USD strength into year-end. Options markets now imply a 25.6% chance of spot above 1.35 by year-end (and 8.3% above 1.40), up from 13.2% and 3.9% this time last week.
• Given the outsized market reaction to CPI yesterday, PPI comes into focus ahead as markets look for similar clues of slowing inflation pressures. June PPI is expected to slow to 0.4% on a Y/Y basis, and down to 2.6% ex-food and energy. Central bank speakers due Thursday include Fed's Daly and Waller as well as the release of the ECB accounts from the June policy decision.

BONDS: Yesterday's Themes Continue to Dominate

• Yesterday's theme of paring back expectations of both the pace and peak of hiking cycles has continued into today, with core fixed income moving higher, led by the short-end. This has seen the Treasury curve in particular bull steepen while the gilt curve has seen a largely parallel shift higher. German cash has also seen a decent move higher, although the curve has actually flattened marginally.
• Core fixed income is a bit off the highs of the day but the moves remain noteworthy.
• Looking to later today, we will receive the Accounts of the June ECB rate decision as well as US PPI data.
• TY1 futures are up 0-11 today at 112-19+ with 10y UST yields down -3.9bp at 3.821% and 2y yields down -9.4bp at 4.653%.
• Bund futures are up 0.96 today at 132.91 with 10y Bund yields down -7.7bp at 2.460% and Schatz yields down -7.1bp at 3.142%.
• Gilt futures are up 0.70 today at 946.66 with 10y yields down -6.1bp at 4.449% and 2y yields down -5.2bp at 5.161%.

EQUITIES: E-Mini S&P Continues Post-US Inflation Data Advance

Eurostoxx 50 futures are holding on to this week’s gains. The break higher has resulted in a move above the 50-day EMA at 4331.70 and price is through 4371.00, the Jul 6 high. Clearance of this latter level highlights a potentially stronger bull cycle and attention turns to key resistance and the bull trigger at 4447.00, the Jul 3 high. Key support and the bear trigger has been defined at 4220.00, the Jul 7 low. A bull theme in S&P E-minis remains intact. Yesterday’s gains resulted in a break of resistance at 4498.00, the Jun 30 high. This confirms a resumption of the uptrend and maintains a bullish price sequence of higher highs and higher lows. The contract has also traded through 4500.00 and this opens 4532.08, a Fibonacci projection. First support lies at 4428.89, the 20-day EMA. Clearance of this level would be a short-term bearish development.

• Japan's NIKKEI closed higher by 475.4 pts or +1.49% at 32419.33 and the TOPIX ended 21.51 pts higher or +0.97% at 2242.99.
• Elsewhere, in China the SHANGHAI closed higher by 40.346 pts or +1.26% at 3236.48 and the HANG SENG ended 489.67 pts higher or +2.6% at 19350.62.
• Across Europe, Germany's DAX trades higher by 65.65 pts or +0.41% at 16086.76, FTSE 100 higher by 16.06 pts or +0.22% at 7430.84, CAC 40 up 38.15 pts or +0.52% at 7369.35 and Euro Stoxx 50 up 22.15 pts or +0.51% at 4381.75.
• Dow Jones mini up 76 pts or +0.22% at 34629, S&P 500 mini up 15.75 pts or +0.35% at 4523.5, NASDAQ mini up 100.5 pts or +0.65% at 15544.5.

COMMODITIES: WTI Futures Continue to Trade Above Key Resistance at $75.70

The current bull cycle in WTI futures remains intact. The contract has recently breached $72.72, the Jun 21 high and yesterday’s move higher resulted in a break of key resistance at $75.70, the Jun 5 high. This strengthens current bullish conditions and paves the way for a climb towards $78.03, a Fibonacci retracement point. Key short-term support has been defined at $66.96, the Jun 12 low. Initial support is at $71.83, the 20-day EMA. Gold traded higher again yesterday and in the process managed to trade through resistance at the 50-day EMA. The average intersects at $1944.4 and the break signal scope for a continuation of the current corrective cycle. This opens $1968.00, the Jun 16 high. Key resistance has been defined at $1985.3, the May 24 high where a break would highlight a stronger reversal. Key support and the bear is at $1893.1, the Jun 29 low.

• WTI Crude up $0.09 or +0.12% at $75.94
• Natural Gas up $0.01 or +0.27% at $2.64
• Gold spot up $2.75 or +0.14% at $1960.57
• Copper up $1.05 or +0.27% at $386.45
• Silver up $0.08 or +0.32% at $24.2075
• Platinum up $7.06 or +0.74% at $961.97