MNI US OPEN - USD Softer to Start Fed Week

NEWS

MNI FED PREVIEW - JUNE 2023: How to Communicate a Hawkish Hold

The FOMC’s tightening cycle is likely to “skip” June’s meeting, with the Committee holding rates at 5.00-5.25% while signalling that it currently expects to hike at the following meeting in July. While data and events since early May have on balance probably justified another 25bp hike, some data have left room for doubt, and the FOMC has set a fairly high bar to further tightening. In an effort to maintain a hiking bias, the Statement’s forward rate guidance is likely to remain unchanged, with the updated economic projections showing that an additional rate hike is expected by year-end.

US/IRAN (BBG): Iran Says There Are No Negotiations With US Over Nuclear Deal‘

Iran denied reports it’s in talks with the US over an interim nuclear deal to get sanctions relief. “We confirm no such thing as negotiations for an interim agreement or new arrangements to replace the nuclear deal,” foreign ministry spokesman Nasser Kanaani said in a press conference in Tehran on Monday. He said, though, that the Islamic Republic is engaging with the US through intermediaries about prisoner swaps. The two could be “very close” to an agreement if the Americans show “determination,” he said.

US (BBG): Trump Retains His Base With Risk of Political Violence in Focus

Former President Donald Trump is broadly holding on to his Republican base as he heads to court to face federal charges that are raising concern about the risk of violence incited by some of his most fervent supporters. With Trump facing a 37-count indictment for mishandling classified documents after leaving the White House, about three quarters of likely Republican primary voters in a CBS News/YouGov poll said they view the accusations as politically motivated.

UK (BBG): Sunak Faces a New Electoral Challenge After Johnson Resigns

Prime Minister Rishi Sunak faces a new electoral challenge after Boris Johnson’s surprise resignation from Parliament triggered at least three by-elections that could highlight softening support for the Conservative Party. Johnson quit Friday night after receiving the finding of the Parliament’s Privileges Committee investigation into whether he misled lawmakers over his knowledge of Covid-19 rule breaches by officials. While the findings haven’t been made public, the former premier called the report a “political hit job” in a scathing resignation letter.

BOE (BBG): BOE’s Haskel Says Policy Should ‘Lean Against’ Risk of Inflation

Bank of England policy maker Jonathan Haskel said the central bank must guard against persistent inflation risks, an indication he may back further interest-rate increases. Writing in the Scotsman newspaper, Haskel said further hikes in the BOE’s benchmark lending rate can’t be ruled out because prices are still rising faster than the 2% target. “We are monitoring indicators of inflation momentum and persistence closely,” Haskel wrote in a column published Monday.

BOE (BBG): BOE’s Catherine Mann Says UK Government Needs Longer-Term Agenda

A Bank of England policy maker urged the UK government to move economic policy away from being an emergency response tool and onto a more sustainable footing. Catherine Mann, who sits on the nine-member panel setting interest rates, said fiscal and monetary policy makers need to “transition from a crisis-policy phase to a longer-term agenda that tackles underlying economic, social, and environmental challenges.”

ITALY (MNI): Berlusconi Death Could Presage Forza Italia Struggles

Former Italian Prime Minister and head of junior coalition partner centre-right Forza Italia (FI) Silvio Berlusconi has died aged 86. While Berlosconi did not serve in the Cabinet of incumbent PM Giorgia Meloni he remained an important figure in directing FI policy, and over the past two years was sometimes at odds with Meloni over what the Italian gov'ts stance towards the Russian invasion of Ukraine should be.

JAPAN (MNI): Upside Inflation Risks Build Before New Forecast

The Bank of Japan may express concern about rising upside risks to inflation at its meeting later this week but it is likely to keep its policy settings on hold, as it continues to monitor data ahead of revised forecasts due the following month. The BOJ could modify the wording of its assessment of inflation to reflect a higher-than-previously-anticipated pass-through of higher costs by companies to consumers. The BOJ’s current median price view announced in April is for 1.8% inflation this fiscal year, with core prices dipping below 2% towards the middle of the period.

JAPAN (BBG): Ex-Deputy Governor Sees No BOJ Normalization in Coming Months

The Bank of Japan is likely to stick with rock bottom interest rates in the near future including at this week’s policy meeting, according to a former deputy governor. “It’s still too early to call that this inflation has been sustainable and stable,” ex-deputy chief Masazumi Wakatabe said in an interview on Bloomberg TV Monday. “My guess is that at the June meeting there will be nothing.”

CHINA (MNI): Finance Industry Needs Reforms for Green Transition - Expert

China's finance industry must reform to better support the green transition, according to Li Yang, chairman at the National Finance and Development Laboratory. Li said China's green transition faces a large funding gap as the finance industry only supports "pure green" projects such as sustainable energy and electric vehicles. In the future, policymakers must ensure finance makes funding available to high-carbon firms and projects transitioning to low carbon. Regulators also need to improve market measurement and pricing mechanisms to become more efficient. (Source: 21st Century Herald)

UKRAINE (RTRS): Ukraine Says It Retakes Village in ‘First Results’ of Counterattack

Ukraine said on Sunday its troops had made territorial advances on three villages in its southeast, the first liberated settlements it has reported since launching a counter-offensive this past week. Kyiv's forces posted unverified videos showing soldiers hoisting the Ukrainian flag at a bombed-out building in the village of Blahodatne in Donetsk region and posing with their unit's flag in the adjacent village of Neskuchne.

COMMODITIES (BBG): Oil Extends Losses on Demand Woes as Goldman Cuts Outlook Again

Oil extended losses amid persistent concerns around the demand outlook as Goldman Sachs Group Inc. cut its price forecast again. Brent futures traded near $74 a barrel after capping a 1.8% decline last week, the biggest weekly drop since early May. Goldman made its third downward price revision for the global benchmark in six months, trimming its estimate to $86 for the end of the year on rising supplies and waning demand.

COMMODITIES (BBG): Iron Ore Sheds Nearly 5% After Goldman’s China Property Warning

Iron ore fell for the first time in nine sessions as Goldman Sachs Group Inc. warned that property weakness would likely be a multiyear growth drag for China’s economy. The steel-making staple dropped almost 5% in Singapore after the investment bank said in a note that it sees persistent problems in Chinese real estate, mainly related to lower-tier cities and private developer financing. There was no quick fix and the property recovery was likely to be “L-shaped,” according to Goldman.

DATA

JAPAN DATA (MNI): PPI Weaker than Expected

• JAPAN MAY CORP GOODS PRICE INDEX +5.1% Y/Y; APR REV +5.9%
• JAPAN MAY CORP GOODS PRICE INDEX -0.7% M/M; APR REV +0.3%

Japan's May PPI printed weaker than expected, coming in at -0.7% m/m (forecast-0.2%), although Apr was revised slightly higher to 0.3%, versus 0.2% prior. The y/y pace came in at 5.1% y/y, versus 5.6% expected and 5.9% prior. Import prices were a noticeable drag at -9.6% y/y, while industry results were mixed. Manufacturing slightly negative in y/y terms.

FOREX: USD Softer to Kick Off Fed Week

• The greenback is the poorest performing currency in early G10 trade Monday, with markets happy to keep the dollar weaker ahead of the FOMC decision Wednesday and the core expectation of an unchanged 'skip' meeting from the Fed.
• The USD Index is within range of last week's lows but is yet to make any material test on the first key support undercutting at the 103.01 100-dma. Weakness through here would open 102.74 - the 50% retracement for the April - May upleg as well as the 102.54 50-dma.
• SEK is the strongest performer in G10, helping USD/SEK fade off last week's best levels of 10.9459 to make some progress through the sharp late May rally in the pair. Swedish CPI takes focus later in the week, with May inflation crossing on Wednesday.
• The positive equity backdrop is helping provide some support for risk proxies, putting the likes of AUD and NZD toward the top-end of the table. The e-mini S&P sits just below Friday's highs and a dose of risk-on would put the index at the best level since August last year.
• Typically for a Monday, there are no key data releases to watch, with the speaker slate similarly quiet. An appearance from the BoE MPC's most hawkish member - Catherine Mann - is set for 1500BST/1000ET, however the Chatham House Rules applying to the event may mean little in the way of major headlines.

BONDS: Greek Bonds Underperform After Fitch Declined to Upgrade Sovereign

Gilts have continued to cheapen, with a fairy parallel 4-5bp move now observed across the major benchmarks, while futures are -60 or so. The previously outlined hawkish offerings from BoE MPC Haskel have helped set the tone and come in front of scheduled comments from the most hawkish MPC Member, Catherine Mann, which will cross later today (15:00 London).

• Note that benchmark yields & futures have failed to challenge recent extremes today. SONIA futures sit little changed to 7bp cheaper through the reds, with the later reds/early greens providing the soft point on the broader strip.
• BoE-dated OIS is little changed to a touch higher vs. levels outlined earlier, with terminal pricing operating just above 5.55% in policy rate terms.
• GGBs now underperform the wider EGB space, widening by ~5bp vs. Bunds at the 10-Year point. This comes after a lack of initial impetus after Fitch chose only to affirm Greece's BB+; Outlook Stable sovereign credit rating status on Friday.
• WTI crude oil futures have moved further through last week's low, seemingly allowing wider core global FI markets to stabilise before moving off session cheaps. That leaves Tsys 0.5-1.5bp cheaper on the session, while Bunds are 1bp cheaper to 1bp richer, twist flattening and Gilts run 2.5-3.5bp cheaper across the curve. Verbal jousting out of China re: the U.S. hasn't represented a meaningful escalation in tensions but could also be factoring into the move in bonds (at the margin) on what is a quiet news day.

EQUITIES: E-Mini S&Ps Continue in Uptrend

Eurostoxx 50 futures remain in consolidation mode and price is trading above 4216.00, the May 31 low and a key support. For now, the recent gains appear to be a correction. The recent breach of support at 4252.00, the May 25 low, highlights a potential bearish threat. The contract 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. Clearance of this level would be bullish. S&P E-minis traded higher Friday and the contract has cleared its recent highs. This confirms a resumption of the uptrend and maintains the bullish price sequence of higher highs and higher lows, marking an extension of the bull cycle that started in October 2022. The focus is on the 4400.00 handle next. The 50-day EMA, at 4210.03 marks a key support. A break would signal a reversal. Initial firm support is at 4267.69, the 20-day EMA.

• Japan's NIKKEI closed higher by 168.83 pts or +0.52% at 32434 and the TOPIX ended 14.45 pts higher or +0.65% at 2238.77.
• Elsewhere, in China the SHANGHAI closed lower by 2.573 pts or -0.08% at 3228.833 and the HANG SENG ended 14.36 pts higher or +0.07% at 19404.31.
• Across Europe, Germany's DAX trades higher by 162.29 pts or +1.02% at 16112.25, FTSE 100 higher by 25.84 pts or +0.34% at 7589.13, CAC 40 up 60.43 pts or +0.84% at 7275.75 and Euro Stoxx 50 up 39.32 pts or +0.92% at 4330.32.
• Dow Jones mini up 51 pts or +0.15% at 33960, S&P 500 mini up 13.75 pts or +0.32% at 4318.5, NASDAQ mini up 77.25 pts or +0.53% at 14633.5.

COMMODITIES: E-Mini S&Ps Continue in Uptrend

Eurostoxx 50 futures remain in consolidation mode and price is trading above 4216.00, the May 31 low and a key support. For now, the recent gains appear to be a correction. The recent breach of support at 4252.00, the May 25 low, highlights a potential bearish threat. The contract 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. Clearance of this level would be bullish. S&P E-minis traded higher Friday and the contract has cleared its recent highs. This confirms a resumption of the uptrend and maintains the bullish price sequence of higher highs and higher lows, marking an extension of the bull cycle that started in October 2022. The focus is on the 4400.00 handle next. The 50-day EMA, at 4210.03 marks a key support. A break would signal a reversal. Initial firm support is at 4267.69, the 20-day EMA.

• Japan's NIKKEI closed higher by 168.83 pts or +0.52% at 32434 and the TOPIX ended 14.45 pts higher or +0.65% at 2238.77.
• Elsewhere, in China the SHANGHAI closed lower by 2.573 pts or -0.08% at 3228.833 and the HANG SENG ended 14.36 pts higher or +0.07% at 19404.31.
• Across Europe, Germany's DAX trades higher by 162.29 pts or +1.02% at 16112.25, FTSE 100 higher by 25.84 pts or +0.34% at 7589.13, CAC 40 up 60.43 pts or +0.84% at 7275.75 and Euro Stoxx 50 up 39.32 pts or +0.92% at 4330.32.
• Dow Jones mini up 51 pts or +0.15% at 33960, S&P 500 mini up 13.75 pts or +0.32% at 4318.5, NASDAQ mini up 77.25 pts or +0.53% at 14633.5.