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MNI US OPEN - US Core CPI Expected to Slow from Modest May Beat


Figure 1: Recent US Inflation Developments


MNI US CPI PREVIEW: Core Seen Softer on Used Cars Drag

Consensus puts core CPI inflation at 0.3% M/M in June as it slowed from a modest beat of 0.44% in May. It’s seen almost entirely coming from used car prices pulling back after two rapid 4.4% increases. Analysts look for declines of circa -1% although yesterday’s Manheim prices sliding -4.2% caught markets attention. Elsewhere, non-housing core services could have eased a touch (with the usual pitfalls vs its PCE equivalent) and we also watch non-used car core goods after its exactly unchanged May print. There is no evidence that the downside miss in nonfarm payroll gains last Friday has deterred FOMC participants from signalling their preference to raise rates twice more this year.

US (BBG): US Wins Conditional Digital-Tax Truce as Global Deal Advances

The Biden administration secured an extension of a worldwide freeze on new digital taxes, putting it on a collision course with Canada after Ottawa refused to endorse the deal. The Organization for Economic Cooperation and Development unveiled the one-year extension in Paris Wednesday. This gives the more than 140 nations involved until the end of 2024 to ratify a new global rule-book for allocating taxing rights over the largest multinationals, known as OECD Pillar One. The 2021 standstill on so-called digital services taxes helped defuse trade battles while negotiators sought to iron out the broader tax agreement.

MARKETS (BBG): SEC Removes ‘Swing Pricing’ From Money-Market Fund Rule Plan

Money-market funds are set for a reprieve on “swing pricing” as Wall Street’s top regulator wraps up rules aimed at stemming rapid outflows during times of financial stress. The Securities and Exchange Commission still intends to impose other fees that will affect parts of the $5.5 trillion industry, according to a person familiar with the matter who asked not to be identified discussing the plans ahead of the meeting. The regulator’s rules are meant to discourage runs like the one in March 2020 and shield remaining shareholders from costs tied to the high level of redemptions.

US/NATO (MNI): Security Assurances for Ukraine to be Announced Today with G7

White House National Security Council Europe Director, Amanda Sloat, has told reporters in Vilnius, Lithuania, that the US will today announce long-term security assurances for Ukraine in coordination with the G7 today at the NATO summit. Comes after NATO leaders released a statement yesterday which scrapped political and economic reforms for NATO membership mandated by the Membership Action Plan and promised Ukraine NATO membership "when allies agree" and when "conditions are met." Ukrainian President Volodymyr Zelensky responded with a highly critical message on social media stating, "It's unprecedented and absurd when time frame is not set neither for the invitation nor for Ukraine's membership."

NATO (MNI): Zelensky Seeks Clarity On NATO As Meeting With Scholz Gets Underway

Reuters reporting that a meeting between Ukrainian President Volodymr Zelensky and German Chancellor Olaf Scholz in underway at the NATO summit in Vilnius, with the Ukrainian leader likely to press Scholz on moderating his opposition to Kyiv's NATO membership. NATO leaders issued a cautiously worded statement yesterday which failed to deliver a timeline for Ukraine's membership in NATO, even after resolution of the war with Russia. Germany and the US are widely viewed as leading the opposition to Ukraine's NATO membership, believing the risk of expanding the conflict with Russia outweighs the deterrent benefits of Ukraine joining the alliance.

UK (MNI): UK Banks Resilient to Severe Stress, BOE Report

UK households and business are already under pressure from higher interest rates but they have been resilient so far and that the major UK banks would be able to maintain lending to the real economy even under a severe scenario of persistent inflation and rising global rates, the Bank of England's latest Financial Stability report finds. The BOE's projected rise in UK household's average mortgage debt servicing ratio showed that the peak is set to be below the peaks seen in the mid 1990s and in the 2000s, with the ratio assumed to rise to 8.0% compared to 6.2% now.

CHINA (MNI): PBOC Cuts Expected, 5% GDP On Track - Economists

MNI (Beijing) The People’s Bank of China will likely cut policy rates in H2 as economic conditions worsen and policymakers shelve their wait-and-see approach, despite Beijing's continued stance that GDP remains on track to tip 5% growth this year, leading economists told MNI. "The PBOC needs to cut the MLF [medium-term lending facility] rate once or twice in H2 to stabilise market expectations," said Dan Wang, chief economist at Hang Seng Bank. "Recent data ends consensus that H1's more targeted approach could ignite a broad based recovery.”

CHINA (CSJ): China Seen to Ramp Up Fiscal Stimulus to Boost Economy

China is expected to boost fiscal support to the economy with more policy tools, China Securities Journal says in a front-page report, citing analysts. China is likely to ease local governments’ fiscal pressure by issuing special sovereign bonds, report cites Zhixin Investment economist Lian Ping as saying. China may consider issue more special local government bonds to fund infrastructure projects, Lian is cited as saying

CHINA/NATO (MNI): China Criticises "Groundless Accusations" in NATO Communique

MNI (London) China's Foreign Ministry Spokesperson, Wang Webin, has called on NATO to stop "groundless accusations and provocative remarks," included in yesterday joint communique issued by leaders at the NATO summit in Vilnius, Lithuania. The NATO joint communique says, "[China's] stated ambitions and coercive policies challenge our interests, security and values," and criticised PRC's use of "political, economic, and military tools" to "project power, while remaining opaque about its strategy, intentions and military build-up." China's EU Mission said in a statement that the joint communique "wantonly distorts" China's position and policies, adding that China "resolutely opposes NATO's eastward movement into the Asia-Pacific region."

CHINA/AUSTRALIA (BBG): China Asks for Extra Month to Decide on Australia Barley Tariffs

Australia has agreed to China’s request for an extra month to decide whether to lift duties on Australian barley, according to a spokesperson for Foreign Minister Penny Wong. In April, Australia agreed to temporarily suspend a WTO case against China over the barley tariffs for a three-month period, with a possible fourth month if needed. China has now requested this extension, spokesperson said

JAPAN (MNI): Households’ 5-Year Inflation Outlook Flat at 5% - BOJ

Japanese households’ median inflation expectations five years ahead stood at 5%, the Bank of Japan’s quarterly consumer survey released Wednesday showed, which is unchanged from the previous quarter. However, the number of households who expect prices to rise rose to 79% from 75.4% The median expectation a year ahead stood at 10%, also unchanged from three months ago, but the number of households expect price to rise increased to 86.3% from 85.7% in March. Overall, the survey outcome was favorable for BOJ officials focused on how inflation expectations have evolved amid corporate price hikes.

RBA (MNI): Lowe Lays Out Board Meeting Reform

The Reserve Bank of Australia board from 2024 onwards will meet eight times a year, a reduction from its current 11 meeting schedule, following recommendations made by the RBA review in April. Speaking at an industry lunch Wednesday, RBA Governor Philip Lowe said four meetings will occur on the first Tuesday of February, May, August and November while the remainder will be held midway between these meetings. “The exact dates for 2024 will be published soon and the dates for future years will be published well in advance,” Lowe said.

RBA (MNI): RBA to Rejig Relationship with Aussie Regulators

The Reserve Bank of Australia will update its MoU with the members of the Council of Financial Regulators (CFR) and the Australian Prudential Regulation Authority to set out clearer commitments on cooperation. The move follows recommendations made by the RBA review earlier in April that related to the Reserve’s financial stability goals. The review recommended: "the RBA Monetary Policy Board commit to providing CFR with formal advice, when monetary policy is likely to affect, or be affected by, risks to financial stability. This should include formal advice to APRA on its use of macroprudential tools.

RBNZ (MNI): RBNZ Holds Steady at 5.5% as High OCR Bites

The Reserve Bank of New Zealand’s Monetary Policy Committee left its official cash rate unchanged today at 5.5%, holding steady for the first time since August 2021 as inflation declines from its peak and the country’s economy slows. In a statement, the committee said rates would need to remain restrictive for the foreseeable future, "to ensure consumer price inflation returns to the 1-3% target range, while supporting maximum sustainable employment." “Core inflation is expected to decline as capacity constraints ease,” the MPC noted. “While employment is above its maximum sustainable level, there are signs of labour market pressures dissipating and vacancies declining.”

TAIWAN (BBG): Taiwan Chip Exports Plunge 21% as Device Makers Clear Inventory

Taiwan’s exports of integrated circuit chips dropped for a sixth consecutive month in June on slowing global demand. Exports decreased 20.8% from a year earlier to a four-month low of $12.6 billion, according to data from Taiwan’s Ministry of Finance. The island is home to Apple Inc. and Nvidia Corp.’s go-to chipmaker, Taiwan Semiconductor Manufacturing Co., along with a coterie of smaller but essential chip industry players. The annual decline was the largest since March 2009, partly amplified by a high base last June.


SPAIN DATA (MNI): Final Inflation Data Flags Sticky Services Despite Headline Fall

  • SPAIN JUN FINAL HICP +0.6% M/M; +1.6% Y/Y (=FLASH); MAY +2.9% Y/Y

The final June data for Spanish inflation confirmed flash estimates. HICP decelerated by 1.3 percentage points to +1.6% y/y, falling below the ECB's 2% target for the first time since March 2021. On the month, harmonised prices rose +0.6%. The key downwards drivers were lower fuel and electricity prices, which saw transport HICP fall to -7.8% y/y (vs -4.0% y/y in May) and housing decline to -12.7% y/y (vs -10.4% in May). To a lesser extent, food inflation stepped down (+10.3% y/y vs +12.0% in May). Yet leisure and culture inflation accelerated to +6.9% y/y (vs +5.9% in May), in part due to stronger tourist packages costs

JAPAN DATA (MNI): Japan June CGPI Rise Slows to 4.1% vs. May 5.2%


The y/y rise in Japan's corporate goods price index slowed to 4.1% in June from May's revised 5.2% – the sixth straight deceleration – showing that upstream cost increases have peaked, Bank of Japan data released Wednesday showed. Pass-through of cost increases, however, continued downstream, such as beverages and foods –mainly frozen foods – due to a time lag caused by firms transferring high costs to retail prices. The CGPI fell 0.2% from the previous month, weighed down by lower electric, gas and water prices vs. an unrevised 0.7% fall in May. June’s rise was the lowest level since July 2021 when it increased 3.8% y/y, for the 28th straight y/y rise.

FOREX: USD/JPY Prints Sixth Lower Low; Vols Bid Pre-CPI

  • USD/JPY has already secured the sixth consecutive session of lower lows today, with the losing streak extending through the 50-dma support and swinging the 14-day RSI closer to technically oversold territory (although not there yet, RSI currently at 37 points - lowest since January).
  • This marks the longest streak of lower lows since early November last year - a week or two after the last confirmed Japanese FX intervention on 24th October. In early November, lower lows were printed over 8 sessions, spanning a fall of over 7% in the pair. Rate differentials and an unwind of extreme positioning remains responsible, raising the focus on this Friday's CFTC CoT release (reflecting data as of the close yesterday).
  • The greenback sits lower, with the dollar on the backfoot against all others in G10, mirroring the continued modest softening of market-implied Fed rate expectations. The USD Index has inched to new lows, narrowing the gap with the May low at 101.027.
  • Looking ahead, the US CPI release takes centre stage, with market consensus looking for inflation to slow sharply on both the headline and core readings (down to 3.1% and 5.0% respectively).
  • Markets are clearly primed for an outsized market reaction to today's release, with overnight implied vols well bid across G10 FX: EUR/USD overnight vols have added 8 points to trade at the highest since mid-June, while USD/JPY o/n vols have cleared 17 points ahead of the inflation release at 1330BST/0830ET.
  • The frequency of central bank speakers also picks up after a quieter start to the week: Fed's Barkin, Kashkari, Bostic and Mester are set to speak as well as ECB's Vujcic and Lane. The Bank of Canada decision is also due, with the BoC seen resuming their tightening cycle with a 25bps hike to 5.00%.

BONDS: Pulled Higher Ahead of US CPI

  • Core fixed income has moved higher this morning, with gilts seeing the biggest moves. However, the gilt curve remains off yesterday's highs while USTs have exceeded yesterday's highs ahead of the key US CPI release later.
  • Consensus puts core CPI inflation at 0.3% M/M in June as it slowed from a modest beat of 0.44% in May. There is no evidence that the downside miss in nonfarm payroll gains last Friday has deterred FOMC participants from signalling their preference to raise rates twice more this year. An above-expected print and/or a report with strong details in ex-shelter services would reinforce the "higher for longer" theme; a miss most impactful for September pricing.
  • TY1 futures are up 0-8+ today at 111-17 with 10y UST yields down -2.9bp at 3.943% and 2y yields down -1.6bp at 4.860%.
  • Bund futures are up 0.32 today at 131.27 with 10y Bund yields down -3.1bp at 2.615% and Schatz yields down -1.8bp at 3.285%.
  • Gilt futures are up 0.60 today at 932.25 with 10y yields down -6.7bp at 4.592% and 2y yields down -8.5bp at 5.326%.

EQUITIES: Bear Threat Still Present in Eurostoxx Futures Despite Latest Move Higher

The latest move higher in Eurostoxx 50 futures appears to be a correction and a bear threat remains present. The contract traded sharply lower last week, clearing a number of key support levels. 4241.00, the May 31 low, has been breached highlighting a potential reversal, opening 4208.50, a Fibonacci retracement. Key short-term resistance is seen at 4329.40, the 50-day EMA. A clear break of this average would ease bearish pressure. A bull theme in S&P E-minis remains intact and the pullback last week appears to be a correction. First support at 4420.62, the 20-day EMA, remains intact. Clearance of this level would strengthen a bearish threat and expose 4368.50, Jun 26 low and a key support. On the upside, the bull trigger is at 4498.00, the Jun 16 high. A clear breach of this level would confirm a resumption of the uptrend and open 4532.08, a Fibonacci projection.

  • Japan's NIKKEI closed lower by 259.64 pts or -0.81% at 31943.93 and the TOPIX ended 14.92 pts lower or -0.67% at 2221.48.
  • Elsewhere, in China the SHANGHAI closed lower by 25.233 pts or -0.78% at 3196.134 and the HANG SENG ended 201.12 pts higher or +1.08% at 18860.95.
  • Across Europe, Germany's DAX trades higher by 111.76 pts or +0.71% at 15902.05, FTSE 100 higher by 58.3 pts or +0.8% at 7340.86, CAC 40 up 58.71 pts or +0.81% at 7279.29 and Euro Stoxx 50 up 38.71 pts or +0.9% at 4325.48.
  • Dow Jones mini up 34 pts or +0.1% at 34498, S&P 500 mini up 6 pts or +0.13% at 4479.75, NASDAQ mini up 27.25 pts or +0.18% at 15288.25.

COMMODITIES: WTI Futures Approach Key Resistance at $75.70, Jun 5 High

The current short-term bull cycle in WTI futures remains intact. The contract has recently breached resistance at $72.72, the Jun 21 high. This strengthens a short-term bullish condition and a continuation would expose key resistance at $75.70, the Jun 5 high. A break of this level would highlight an important bullish break. On the downside, key short-term support is at $66.96, the Jun 12 low. Initial support lies at $69.69, the Jul 3 low. Gold has traded higher again today. The latest climb is considered corrective and the trend condition is unchanged and remains bearish. Recent fresh lows confirmed a resumption of the downtrend, extending the price sequence of lower lows and lower highs. Moving average studies are in a bear mode position highlighting current medium-term sentiment. Key resistance is $1985.3, the May 24 high. Initial resistance is $1943.9, the 50-day EMA.

  • WTI Crude up $0.27 or +0.36% at $75.01
  • Natural Gas down $0.02 or -0.7% at $2.711
  • Gold spot up $4.04 or +0.21% at $1935.87
  • Copper up $0.7 or +0.19% at $377
  • Silver up $0.06 or +0.24% at $23.1705
  • Platinum up $8.05 or +0.87% at $937

12/07/20230900/1000**UKGilt Outright Auction Result
12/07/20231100/0700**USMBA Weekly Applications Index
12/07/20231230/0830USRichmond Fed's Tom Barkin
12/07/20231345/0945USMinneapolis Fed's Neel Kashkari
12/07/20231345/1545EUECB Lane panels at NBER conference.
12/07/20231400/1000***CABank of Canada Policy Decision
12/07/20231400/1000CABank of Canada Monetary Policy Report
12/07/20231430/1030**USDOE Weekly Crude Oil Stocks
12/07/20231500/1100CABank of Canada Governor press conference
12/07/20231600/1200***USUSDA Crop Estimates - WASDE
12/07/20231700/1300USAtlanta Fed's Raphael Bostic
12/07/20231700/1300**USUS Note 10 Year Treasury Auction Result
12/07/20231800/1400USFed Beige Book
12/07/20232000/1600USCleveland Fed's Loretta Mester
13/07/20230600/0700**UKUK Monthly GDP
13/07/20230600/0700**UKIndex of Services
13/07/20230600/0700***UKIndex of Production
13/07/20230600/0700**UKTrade Balance
13/07/20230600/0700**UKOutput in the Construction Industry
13/07/20230645/0845***FRHICP (f)
13/07/20230900/1100**EUIndustrial Production
13/07/2023-EUECB Lagarde & Panetta in Eurogroup Meeting
13/07/20231230/0830**USJobless Claims
13/07/20231230/0830**USWASDE Weekly Import/Export
13/07/20231430/1030**USNatural Gas Stocks
13/07/20231530/1130*USUS Bill 08 Week Treasury Auction Result
13/07/20231530/1130**USUS Bill 04 Week Treasury Auction Result
13/07/20231700/1300***USUS Treasury Auction Result for 30 Year Bond
13/07/20231800/1400**USTreasury Budget
13/07/20232245/1845USFed Governor Christopher Waller

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