MNI US OPEN: UK Headline Inflation Slows, Core Still Sticky

NEWS

US (BBG): Threat of US Auto Worker Strike Looms as Union Calls Talks Slow

The leader of the United Auto Workers union on Tuesday asked members to grant him the ability to call a strike, arguing contract talks with the three major Detroit carmakers are moving too slow. The group has been negotiating with General Motors Co., Ford Motor Co. and Stellantis NV for 30 days and the parties have yet to discuss economic terms, said Shawn Fain, the UAW president, in a Facebook Live webcast. To move forward, Fain argued it was “critically important” that union locals at the three carmakers vote to authorize the strike.

CANADA (MNI): Trudeau's Liberals Continue to Slide in Polls as CPC Wins Youth Support

The main opposition centre-right Conservative Party of Canada (CPC) has recorded double-digit leads over PM Justin Trudeau's centre-left Liberal Party of Canada (LPC) for the first time since October 2011 in a development that could force Trudeau to a more active policy stance in case of a snap election in 2024. In recent months, CPC leader Pierre Poilievre has been able to garner significant support among a crucial electoral cohort for Trudeau, the under-40s. Rising anger at the cost of housing, especially in the electorally-crucial Greater Toronto Area (GTA), has seen many younger renters swing behind Poilievre

MNI NORGES BANK PREVIEW - AUGUST 2023: Fade in CPI Favours Single Hike

A much smaller error term in the Bank’s CPI projection will allow for a 25bps hike to 4.00% this month, turning focus to the September forecast round for the next steer on policy. Such a move would be infitting with the bank’s communication at the June MPR, in which they stated that additional rate hikes would be required by the end of the summer. Subsequently, a further 25bps rise to 4.25% is looking likely in September.

PBOC (MNI): Data-Driven PBOC Cuts Could Push LPR Lower

MNI (Beijing) The People’s Bank of China will be expected to announce a reduction in the benchmark 1- and 5-year Loan Prime Rates next week in line with surprise reductions to its minimum lending facility and reverse repo rates on Aug 15 following weak economic data. Property market weakness will also be to the fore of PBOC thinking, with trouble at Country Garden, once China's largest property developer by sales, sending ripples through global markets.

CHINA (BBG): China Asks Some Funds to Avoid Net Equity Sales as Markets Sink

Chinese authorities asked some investment funds this week to avoid being net sellers of equities, as a rout in the nation’s financial markets deepened, people familiar with the matter said. Stock exchanges issued the so-called window guidance to several large mutual fund houses, telling them to refrain for a day from selling more onshore shares than they purchased, according to the people who asked not to be identified discussing private information.

CHINA (BBG): China Digs Deeper Into Toolbag in Grapple With Investor Gloom

Chinese policymakers moved to improve fragile market sentiment Wednesday with a step up in its recent support for the yuan and an injection of cash to the financial system. The People’s Bank of China injected the largest amount of short-term cash since February one day after it slashed interest rates on a slew of monetary tools. Minutes before the liquidity addition, the central bank also offered the most forceful guidance to yuan traders since October via its daily reference rate for the managed currency.

CHINA (21st Century Business Herald): FX Regulators Expected to Stabilize Yuan in Due Course

Forex regulators have sent a clear signal that policy tools will be used in due course should depreciation pressure on the yuan increase, said Wang Qing, chief macro analyst at Golden Credit Rating. The People's Bank of China said on Tuesday it will issue CNY20 billion three-month and CNY15 billion one-year central bank bills in Hong Kong on August 22, the fifth time this year. Wang said the issuance scale has increased significantly, which tightens yuan liquidity in the offshore market and increases the cost of shorting yuan.

CHINA (21st Century Business Herald): Pressure on Real Estate Remains Significant

Herald Property developers have continued performing weakly in July, influenced by weak sales and high debt repayment schedules. Chen Wenjing of the China Index Academy said policymakers would need time for stimulus measures to take effect, and therefore weakness could continue in the short term. Wang Xiaoqiang from the Zhuge Real Estate Data Research Center believed the market would struggle to escape the current downward trend without additional substantial policy support.

RBNZ (MNI): RBNZ Holds OCR, Pushes Out Forecasts

The Reserve Bank of New Zealand’s monetary policy committee held the Official Cash Rate steady at 5.5% for the second consecutive meeting Wednesday, noting the rate was constraining spending and inflation, while the accompanying August Monetary Policy Statement pushed out its forecasts for the elevated OCR. In a statement reminiscent of July’s, the MPC noted the restrictive rates would remain for sometime and “consumer price inflation will return to within its target range of 1 to 3% per annum, while supporting maximum sustainable employment.”

AUSTRALIA (BBG): LNG Strike Risks Drag On in Australia as New Talks Eyed

Woodside Energy Group Ltd. and officials representing workers at some of its liquefied natural gas facilities are likely to hold more talks next week after failing to reach agreement on issues that could trigger strikes and disrupt global exports. Discussions on Tuesday over demands around pay and other conditions by staff at the North West Shelf LNG operations in Western Australia failed to reach any consensus, the Offshore Alliance, which includes two key labor unions, said in a Facebook post on Wednesday.

THAILAND (BBG): Thai Court Clears Legal Hurdle to Pave Way for Fresh PM Vote

Thailand’s constitutional court rejected a petition challenging a parliament decision last month to deny pro-democracy leader Pita Limjaroenrat a second shot at the prime minister’s job, clearing the way for lawmakers to hold a fresh vote. The nine-member court unanimously rejected the petition on Wednesday, saying the plaintiffs were not eligible to challenge the parliament resolution as their rights were not directly violated. The court also turned down a request to delay the next premier vote.

CORPORATE (BBG): Intel Terminates Tower Deal After Failing to Get Approvals

Intel Corp. said it’s walking away from its attempt to acquire Tower Semiconductor Ltd., abandoning a $5.4 billion deal after failing to win regulatory approval in time. Intel Corporation has mutually agreed with Tower Semiconductor to terminate the Feb. 2022 agreement, it said in a statement Wednesday. The Israeli firm confirmed the deal was scrapped. The two companies were expected to call off the deal after failing to get Chinese approval, Bloomberg News reported earlier.

COMMODITIES (BBG): Wheat Rebounds After Russia Attacks Ukrainian Port on Danube

Wheat advanced from the lowest level since early June after Russia attacked a Ukrainian port on the Danube river, a further escalation of hostilities in the key Black Sea region. Futures in Chicago rose as much as 1.3% after tumbling 6% over the past three sessions. Russia was targeting grain infrastructure, and storages and silos have suffered after the attack on Wednesday night, Oleh Kiper, head of the military administration of Odesa region, said on Telegram. He didn’t name the port.

COMMODITIES (BBG): Iron Ore Falls on China Property Woes as Steel Mills Curb Output

Iron ore fell as steel plants in China curb production amid a deepening crisis in the nation’s property sector. Singapore futures of the key steelmaking material have dropped about a quarter from a March peak, and have been hovering around the $100 a ton level for about two weeks. Prices have been impacted by a myriad of negative economic signs coming from China, the world’s biggest metals consumer, especially in its steel-intensive property market.

DATA

UK DATA (MNI): UK Inflation Slows, but Sticky Core Will Worry BOE

• UK JUL CPI -0.4% M/M, +6.8% Y/Y
• UK JUL CORE CPI +0.3% M/M, +6.9% Y/Y
• UK JUL INPUT PPI -0.4% M/M, -3.3% Y/Y
• UK JUL OUTPUT PPI +0.1% M/M, -0.8% Y/Y

UK headline inflation fell sharply in July, largely in line with expectations, but core inflation was unchanged at 6.9%, giving the Bank of England's Monetary Policy Committee ammunition for another rate hike in September, data released by the Office for National Statistics on Wednesday showed. Headline CPI fell 0.4% month -on-month, with the annual rise at 6.8% -- the slowest since February 2022 -- and slightly below the Bank of England's projection. The data was a big step towards Prime Minister Rishi Sunak's year-end target of around 5%.

UK JUNE HOUSE PRICE INDEX RISES 1.7% Y/Y (BBG)

EUROZONE FLASH Q2 GDP +0.3% Q/Q, +0.6% Y/Y (MNI)
EUROZONE JUN IP +0.5% M/M, -1.2% Y/Y (MNI)

AUSTRALIA DATA (MNI): Westpac Lead Indicator Continues to Signal Sub-Trend Growth

The Westpac leading index for July was flat on the month after rising 0.1%.This has left annualised 6-month growth at -0.6%, which leads activity relative to trend by 3 to 9 months, and suggests that growth will likely remain below trend in H1 2024. This measure has been negative since July 2022 and averaged -0.73% in the last year but appears to have stabilised. Westpac is forecasting GDP growth of 1% in 2023 improving slightly to 1.4% in 2024.

FOREX: GBP, NZD on Top as Both Markets Show Need for Further Tightening

• NZD outperforms all others in G10, with NZD/USD looking to snap the downtrend posted off the mid-July highs and a close $0.60 today would go someway to arresting the downside momentum. Moves follow the RBNZ decision overnight, at which the bank kept the headline policy rate unchanged, however signalled that further rises in the policy rate may be necessary to combat inflation ahead.
• GBP/USD showed through the week's highs on the back of the CPI release, which added to inflation concerns triggered in yesterday's wages data. While headline CPI pulled lower, the rate came in just above expectations and core CPI held stubbornly close to cycle highs. The data showed another series high for services inflation, which will remain a key concern for the Bank of England ahead. The 50-dma could cap topside ahead, crossing at 1.2781. A break and close above this mark would be a bullish development.
• Concerns around the Chinese economy remain a key driver - with the USD weaker and US stock futures holding close to yesterday's lows. Markets remain on watch for further policy action given the cuts to the open market operation rates earlier this week. USD/CNH printed a new August high at 7.3387.
• US housing starts and building permits data takes the US data focus ahead, with industrial production and the Fed minutes also set for digestion.

BONDS: Contained Within Yesterday's Ranges

• TY1, Bund and gilt futures have all been contained within yesterday's ranges so far today. Treasuries and Bunds are both a bit higher but gilts a little lower.
• The highlight of the session has been the release of UK inflation data ahead of the European market open. Core inflation (driven by another increase in services) came in slightly higher than expected. BOE is actually a little lower than yesterday with 31bp priced for the September meeting with 75bp still fully priced by March 2024. Eurozone IP and the second print of Q2 GDP have done little to move markets.
• Looking ahead we will receive the FOMC Minutes later today and ahead of that US housing data and IP data.
• TY1 futures are up 0-11 today at 110-03+ with 10y UST yields down -3.4bp at 4.181% and 2y yields down -5.4bp at 4.901%.
• Bund futures are up 0.20 today at 131.03 with 10y Bund yields down -1.6bp at 2.655% and Schatz yields down -2.1bp at 3.081%.
• Gilt futures are down -0.11 today at 927.70 with 10y yields up 2.1bp at 4.607% and 2y yields up 1.6bp at 5.129%.

EQUITIES: Move Lower in E-Mini S&P This Week Reinforces Bearish Conditions

A bearish threat in Eurostoxx 50 futures remains present following the recent reversal from 4513.00, the Jul 31 high. Yesterday’s sharp sell-off reinforces current bearish conditions. The contract is testing support at 4276.00, the Aug 8 and 15 low. Clearance of this level would strengthen a bearish threat and expose 4220.00, the Jul 7 low. Key short-term resistance is unchanged at 4420.00, Aug 10 high. Bearish conditions in the E-mini S&P contract remain intact and this week’s move lower has reinforced current conditions. The contract is through the 50-day EMA and has breached channel support drawn from the Mar 13 low - the channel base is at 4461.67. A clear channel breakout would signal scope for a continuation lower and open 4411.25, the Jul 10 low. Initial resistance to watch is at the 20-day EMA - at 4515.45.

• Japan's NIKKEI closed lower by 472.07 pts or -1.46% at 31766.82 and the TOPIX ended 29.47 pts lower or -1.29% at 2260.84.
• Elsewhere, in China the SHANGHAI closed lower by 26.048 pts or -0.82% at 3150.128 and the HANG SENG ended 251.81 pts lower or -1.36% at 18329.3.
• Across Europe, Germany's DAX trades higher by 32.58 pts or +0.21% at 15800.04, FTSE 100 lower by 8.03 pts or -0.11% at 7381.01, CAC 40 up 25.2 pts or +0.35% at 7292.9 and Euro Stoxx 50 up 11.53 pts or +0.27% at 4300.1.
• Dow Jones mini up 71 pts or +0.2% at 35079, S&P 500 mini up 10.25 pts or +0.23% at 4464.25, NASDAQ mini up 47.25 pts or +0.31% at 15154.25.

COMMODITIES: Recent Pullback in WTI Futures Appears Technically Corrective

The uptrend in WTI futures remains intact and the latest pullback appears to be a correction. Last week’s gains confirmed a resumption of the bull cycle. Price breached resistance at $83.59, the Nov 7 2022 high. The break strengthened a bullish condition and has paved the way for a climb towards $87.43, a Fibonacci projection. Moving average studies are in bull-mode condition highlighting an uptrend. Initial firm support lies at $78.69, Aug 3 low. Gold remains bearish and the yellow metal traded lower again yesterday, maintaining the bear cycle that started Jul 20. Sights are on key support at $1893.1, the Jun 29 low. A break of this level would strengthen bearish conditions. On the upside, initial firm resistance to watch is $1941.6, the 50-day EMA. A break of this level would highlight a possible short-term reversal.

• WTI Crude down $0.08 or -0.1% at $80.9
• Natural Gas up $0 or +0.11% at $2.661
• Gold spot up $3.59 or +0.19% at $1905.25
• Copper up $1.65 or +0.45% at $372.2
• Silver up $0.23 or +1.02% at $22.749
• Platinum up $2.02 or +0.23% at $894.5