MNI US OPEN - Yen Rallies on Confluence of Bullish Factors

EXECUTIVE SUMMARY

• US FLOATS TOUGHER TRADE CURBS IN CHIP CRACKDOWN ON CHINA
• KANDA SAYS OFFICIALS NEED TO RESPOND IF SPECULATORS CAUSE EXCESSIVE FX MOVES
• UK HEADLINE INFLATION AT 2%, BUT SERVICES STICKY
• NEW ZEALAND CPI LOWER THAN EXPECTED BUT NON-TRADEABLES STUBBORNLY HIGH

MNI (LONDON) - Figure 1: Annual UK CPIH and CPI inflation rates unchanged from May 2024

Source: ONS

NEWS

US/CHINA (BBG): US Floats Tougher Trade Curbs in Chip Crackdown on China

The Biden administration, facing pushback to its chip crackdown on China, has told allies that it’s considering using the most severe trade restrictions available if companies such as Tokyo Electron Ltd. and ASML Holding NV continue giving the country access to advanced semiconductor technology. Seeking leverage with allies, the US is mulling whether to impose a measure called the foreign direct product rule, or FDPR, said people familiar with recent discussions. The rule lets the country impose controls on foreign-made products that use even the tiniest amount of American technology.

US (BBG): Biden to Propose Supreme Court Reforms, Including Term Limits

President Joe Biden is planning to unveil proposals that could dramatically reshape the Supreme Court, including term limits on justices who now sit on the court for life, according to a person familiar with the deliberations.  The effort represents a substantial shift for a president who has long resisted urging from many people in his party to support reforms to the high court, and comes as he is scraping for political support to bolster his beleaguered presidential campaign.

US (BBG): Trump’s One-Time Rivals Praise Him in Orchestrated Show of Unity

Nikki Haley once called Donald Trump “totally unhinged” and “diminished.” Florida Governor Ron DeSantis previously said the former president would embrace the most “worthless Republicans” if they “kiss the ring.” On Tuesday, they said he’s the best man to be the next president. A parade of Trump’s primary rivals took the stage at the Republican National Convention in Milwaukee to line up behind the man they once derided, a required public show of loyalty to ensure their future in a party firmly in Trump’s grasp.

ISRAEL (MNI): Hezbollah Leader Threatens Areas Previously Spared as Tension Ramps Up

Wires have been carrying comments from Hezbollah leader Hassan Nasrallah delivering an address as the prospect of all-out war with Israel remains a pressing threat to regional security. Nasrallah says that, "If [Israel] persist in targeting our civilians, [Hezbollah] will launch rockets and target settlements that have not been previously attacked". 

MNI ECB PREVIEW - JULY 2024: July Hold, September Cut

With no material developments on the data front since June and various GC members playing up the importance of quarterly projection meetings, the ECB will keep policy rates unchanged this week. Although the ECB has previously shown that its data dependence and meeting-by-meeting approach has a degree of inbuilt flexibility (as was the case when steering markets to expect the June cut), there is no need to pre-commit to a September cut at this juncture. Given the stickiness of domestic inflationary pressures – namely service prices – we continue to caution that a ‘one-and-done’ is a small, but still significant, risk for 2024.

EUROPEAN PARLIAMENT (MNI): Meloni Party MEP Elected to Senior Position for First Time

In the second round of voting for the 14 vice presidents of the European Parliament on 16 July, Italian MEP Antonella Sberna was elected. Sberna hails from the conservative Brothers of Italy (FdI) of PM Giorgia Meloni, and he becomes the first politician from the party to take a senior EU position. Historically, the political groups of the centre - the centre-right European People's Party (EPP), the centre-left Socialists and Democrats (S&D) and the liberal Renew Europe (RE) - had formed a cordon sanitaire in order to block politicians they few as 'far right' from senior positions.

UK (Telegraph): Starmer Pledges to ‘Take the Brakes Off’ Planning Rules to Build 1.5m Homes

Sir Keir Starmer will pledge to “take the brakes off Britain” by tearing up planning restrictions to build 1.5 million new homes. The Prime Minister said he wants to create wealth around the country by unlocking economic growth as he prepared for Wednesday’s King’s Speech setting out his legislative agenda. Planning rules will be changed so that communities are restricted to having a say on “how, not if” new homes and infrastructure are built. The King’s Speech will unveil a number of other Bills including one to bring private rail companies into public ownership once their contracts expire, with no compensation.

JAPAN (RTRS): Kanda Says Officials Need to Respond if Speculators Cause Excessive FX Moves, Kyodo Reports

Japan's top currency diplomat Masato Kanda said on Wednesday he would have to respond if speculators cause excessive moves in the currency market and that there was no limit to how often authorities could intervene, Kyodo News reported. "I have no choice but to respond appropriately if there are excessive moves caused by speculators," the vice finance minister for international affairs told Kyodo in an interview.

JAPAN (BBG): Japan’s Kono Says Central Bank Needs to Raise Rates to Lift Yen

A prominent minister running Japan’s digital agency left the door open for a bid to become prime minister as he called on the central bank to increase interest rates to boost the value of the yen and bring down energy and food costs.  Speaking on Bloomberg Television on Wednesday, Kono Taro highlighted the problems generated by the yen’s sharp decline against the dollar, including the inflationary effect on domestic prices. Kono said that while a cheaper yen can help boost exports, the benefit to the country was now limited because many Japanese companies have production facilities overseas.

JAPAN (MNI): Ueda's US Concerns to Impede BOJ July Rate Hike

Heightened uncertainty over the U.S. economy will make a Bank of Japan rate hike less likely and fuel Governor Kazuo Ueda’s cautious approach to monetary policy when the board meets July 30-31, MNI understands. Ueda will prefer to hold the policy interest rate until he receives evidence the U.S. economy will not deteriorate sharply. While the BOJ has not revealed whether Ueda will attend next month’s Jackson Hole economic meeting, the governor joined last year’s session and will likely make an appearance this year to gather insight into the U.S. economy.

CHINA (BBG): China Central Bank Uses Hedge Fund Tactic to Tame Bond Bulls

China’s central bank is readying a bold new experiment in global monetary policy — taking a leaf out of the hedge fund playbook and arranging to short sell bonds. As President Xi Jinping and his top Party colleagues prepared for this week’s once-in-five-year Third Plenum to chart the broad economic path ahead, Governor Pan Gongsheng’s People’s Bank of China has been busy lining up “hundred of billions” of government bonds it could sell to prevent a bubble forming in the nation’s $4 trillion debt market.

CHINA (BBG): China Youth Unemployment Hits Lowest Since December to Near 13%

China reported its lowest youth unemployment rate last month since a new methodology was introduced in January. Joblessness declined for a third straight month to reach 13.2% for people between 16 and 24 years old, compared with 14.2% in May, according to data released Wednesday by the National Bureau of Statistics. It’s still more than double the overall unemployment rate. The statistics bureau didn’t provide any explanation accompanying the youth jobless figures.

RUSSIA (BBG): Russia Faces Power Outages After Nuclear Plant Malfunction

Several Russian regions faced power outages after a malfunction at a nuclear power plant forced authorities to limit electricity to the grid amid soaring temperatures in the south of the country. Russia temporarily restricted the electricity supply in some southern regions by 1.5 gigawatts after power-generating equipment malfunctioned at the Rostov Nuclear Power Plant, the Energy Ministry said in a Telegram post Tuesday. The outage occurred due to false tripping of generator protection, and the unit was brought back online early Wednesday, Rosatom Corp. said on Telegram.

DATA

UK DATA (MNI): UK Headline Inflation at 2%, But Services Sticky

• UK JUN CPI +0.1% M/M, +2% Y/Y
• UK JUN CORE CPI +0.2% M/M, +3.5% Y/Y
• UK JUN SERVICES CPI +0.6% M/M, +5.7% Y/Y
• UK JUN RPI +0.2% M/M, +2.9% Y/Y
• UK JUN OUTPUT PPI -0.3% M/M, +1.4% Y/Y

UK annual inflation rose 2.0% in June, as in May, the Office for National Statistics said Wednesday, a liitle higher than expectations. On a monthly basis, CPI rose by 0.1% in June. Accommodation services rose 9.81% Y/Y (up from 6.97% Y/Y) which is a +0.09ppt
increase to headline CPI versus May and a +0.19ppt increase to services CPI. Cultural services rose from +7.36% Y/Y to +7.27% Y/Y - which had a negligible contribution. So at first glance the Swift contribution add around 0.19ppt to services CPI and 0.09ppt to headline CPI.

EUROZONE DATA (MNI): Final June HICP Confirms Sticky Services Narrative

• EUROZONE JUN FINAL HICP +0.2% M/M, +2.5% Y/Y
• EUROZONE JUN FINAL CORE HICP +0.4% M/M, +2.9% Y/Y 

Eurozone final headline HICP confirmed the rounded June flash prints (i.e. to 1dp), at +2.52% Y/Y (vs 2.52% flash, +2.57% in May) and +0.21% M/M (vs +0.21% flash, +0.22% in May). Contributions from all main categories remained largely unchanged compared to May - keeping the overall narrative of sticky services inflation intact for the moment. Core inflation on an annual basis printed broadly in line with flash at +2.87% Y/Y (+2.86% flash, +2.87% May) - on a sequential comparison. The M/M  to 1dp was revised up by a tenth - but using the unrounded this was only an increase from +0.34% to +0.35% (+0.44% May).

NEW ZEALAND DATA (MNI): NZ CPI Prints Lower Than Expected at 3.3% Y/Y

New Zealand’s headline consumers price index fell to 3.3% y/y in Q2, from 4% in Q1, 30 basis points lower than the Reserve Bank of New Zealand’s May forecasts. CPI grew at 0.4% q/q. The annual non-tradable inflation rate printed at 5.4% y/y, down from Q1’s 5.8%. The RBNZ's measure of core inflation from its sectoral factor model moderated to 3.6% y/y in Q2 from 4.2%, the lowest since Q3 2021 but still above the central bank's 1-3% band. Both core tradeables and non-tradeables moderated but as with headline inflation, the bulk of the work was done by the former rising only 0.8% y/y. Underlying non-tradeables inflation moderated to a still high 4.8% y/y in Q2  from 5.1% in Q1 and its peak of 5.5% a year ago.

FOREX: JPY Rallies Against All Others as Carry Trade Falters

• JPY is considerably stronger against all others, as a multitude of triggers push USD/JPY to fresh pullback lows. Currency Official Kanda reiterated opposition to one-sided currency moves, while weakness in chipmakers and semiconductors names drove global equity weakness, further bolstering the JPY's safe haven status. Nearby support in USD/JPY has been cleared, with the pace of the decline picking up on the break of Y156.83 - the 38.2% retracement of the Dec'23 - Jul'24 bull leg.
• GBP also trades well, with GBP/USD topping the 1.30 level and touching a year-to-date high on the back of a 0.1ppts beat for UK CPI. While the release has not entirely wiped out the odds of a rate cut from the BoE in August, the chances have slimmed considerably to ~7bps as of this morning. 
• A weaker USD backdrop pervades, with the greenback softer against all others. Desks have noted Trump's appearance in Bloomberg Businessweek posted late yesterday, within which he flagged his concern with the strong dollar exchange rate, citing weakness in both JPY and CNY as causing issues with international trade. This favours EURUSD, which has touched its highest level since March 14. A clear break of key resistance at 1.0916, Jun 4 high, had been the next key hurdle for bulls and price action confirms the bullish trend structure for the pair.
• Focus for the duration of Wednesday trade turns to US housing starts and building permits data, to be followed by industrial and manufacturing production for June. The Fed schedule is slightly busier, with appearances from Fed's Barkin & Waller due ahead of the Beige Book release. 

EGBS: Bund Futures Drift Higher as Equities Remain Pressured

Bunds have drifted higher through the morning, taking cues from softer European equity futures. Today’s range has nonetheless been narrow (just 31 ticks), with Bunds +23 at 132.61 at typing.

• The June 25 high at 132.80 provides the first resistance, before the bull trigger at 133.21 (June 14 high).
• There was little net reaction in EGBs to the softer-than-expected UK CPI report, with temporary factors likely driving the surprise in services inflation.
• Eurozone final June HICP confirmed flash estimates, with headline at 2.5% Y/Y and core 2.9% Y/Y.
• The German cash curve has lightly bull flattened, despite impending 30-year supply at 1030BST.
• The softer European equity backdrop has pulled 10-year peripheral spreads away from intraday tightest levels, with spreads slightly wider on the day.
• Tomorrow’s ECB meeting remains this week’s key regional focus.

GILTS: Off Early Lows as Equities Struggle, Supply Passes Smoothly

Gilts have recovered from early session lows.

• Weakness in equity markets provides some support after the firmer-than-expected UK CPI data weighed.
• This morning’s 5-year supply passed smoothly enough, with the cover ratio topping 3.00x, although price metrics were on the softer side.
• Gilt futures +11 at 98.63, back from yesterday’s late highs.
• The bullish technical theme remains in play, with a noisy CPI release doing little to alter that picture.
• Initial resistance at yesterday’s high (98.79), which protects the June 25 high (98.92).
• Initial support not seen until the July 11 low (97.63).
• Cash gilt yields 0.5-2.5bp higher, curve bear flattens.
• SONIA futures also off lows -2.0 to +1.0.
• BoE-dated OIS shows ~8.5bp of cuts for Aug vs. ~10bp late yesterday, 47bp of easing though year-end vs. ~49bp late yesterday.
• A reminder that the King’s Speech will be delivered late this morning, with labour market data due tomorrow.

EQUITIES: Trend Condition in Eurostoxx 50 Futures Still Bullish Despite Pullback

A bull cycle in Eurostoxx 50 futures remains intact despite the latest pullback - a correction. 5039.84, 61.8% of the May 16 - Jun 14 sell-off, has been cleared. This resulted in a print above 5082.32, the 76.4% retracement. A clear break of it would be a positive development and suggest scope for an extension towards 5132.00, the Jun 6 high. The 50-day EMA has been pierced, the next support is at 4903.00, the Jul 2 low. The trend condition in S&P E-Minis is bullish and the contract is holding on to its recent gains. The continuation higher last week confirmed a resumption of the uptrend and maintains the bullish sequence of higher highs and higher lows. Moving average studies are in a clear bull-mode set-up too and this continues to highlight positive market sentiment. Sights are on the 5741.34, a Fibonacci projection. Firm support is at 5593.47 the 20-day EMA.

• Japan's NIKKEI closed lower by 177.39 pts or -0.43% at 41097.69 and the TOPIX ended 10.71 pts higher or +0.37% at 2915.21.
• Elsewhere, in China the SHANGHAI closed lower by 13.449 pts or -0.45% at 2962.855 and the HANG SENG ended 11.43 pts higher or +0.06% at 17739.41.
• Across Europe, Germany's DAX trades lower by 39.95 pts or -0.22% at 18477.71, FTSE 100 lower by 22.72 pts or -0.28% at 8141.8, CAC 40 down 25.52 pts or -0.34% at 7554.67 and Euro Stoxx 50 down 41.7 pts or -0.84% at 4906.03.
• Dow Jones mini down 67 pts or -0.16% at 41190, S&P 500 mini down 41 pts or -0.72% at 5676.25, NASDAQ mini down 257 pts or -1.25% at 20340.5.

Time: 10:05 BST

COMMODITIES: Rally in Gold to Fresh Record High Opens $2500

WTI futures have traded lower this week marking an extension of the current corrective cycle. Support to watch lies at $80.10, the 50-day EMA. A clear break of this level would signal scope for a deeper retracement and open $74.94, the Jun 10 low. For bulls, a reversal would refocus attention on resistance at $84.52, the Jul 5 high. Clearance of this level would resume the bull cycle. The trend condition in Gold remains bullish and this week’s gains reinforce current conditions. The yellow metal traded higher Tuesday and breached key resistance and the bull trigger at $2450.1, the May 20 high. This confirms a resumption of the medium-term uptrend and opens the $2500.00 handle next. Moving average studies are in a clear bull-mode set-up, highlighting a rising trend. Initial support is at $2374.5, the 20-day EMA.

• WTI Crude up $0.12  or +0.15% at $80.93
• Natural Gas down $0.01 or -0.64% at $2.177
• Gold spot up $3.57 or +0.14% at $2473.76
• Copper up $1.55 or +0.35% at $446.9
• Silver down $0.29 or -0.93% at $30.958
• Platinum up $12.45 or +1.24% at $1017.81

Time: 10:05 BST

Date	GMT/Local	Impact	Country	Event
17/07/2024	0900/1100	***	EU	HICP (f)
17/07/2024	0900/1000	**	GB	Gilt Outright Auction Result
17/07/2024	1030/1130		GB	King's Speech
17/07/2024	1100/0700	**	US	MBA Weekly Applications Index
17/07/2024	1230/0830	*	CA	International Canadian Transaction in Securities
17/07/2024	1230/0830	***	US	Housing Starts
17/07/2024	1300/0900		US	Richmond Fed's Tom Barkin
17/07/2024	1315/0915	***	US	Industrial Production
17/07/2024	1335/0935		US	Fed Governor Christopher Waller
17/07/2024	1430/1030	**	US	DOE Weekly Crude Oil Stocks
17/07/2024	1700/1300	**	US	US Treasury Auction Result for 20 Year Bond
17/07/2024	1800/1400		US	Fed Beige Book
18/07/2024	2350/0850	**	JP	Trade
18/07/2024	0130/1130	***	AU	Labor Force Survey
18/07/2024	0600/0700	***	GB	Labour Market Survey
18/07/2024	-		US	ECB Meeting
18/07/2024	0900/1100	**	EU	Construction Production
18/07/2024	1215/1415	***	EU	ECB Deposit Rate
18/07/2024	1215/1415	***	EU	ECB Main Refi Rate
18/07/2024	1215/1415	***	EU	ECB Marginal Lending Rate
18/07/2024	1230/0830	***	US	Jobless Claims
18/07/2024	1230/0830	**	US	WASDE Weekly Import/Export
18/07/2024	1230/0830	**	US	Philadelphia Fed Manufacturing Index
18/07/2024	1245/1445		EU	ECB Monetary Policy Press Conference
18/07/2024	1415/1615		EU	ECB's Lagarde presents MonPol decision on podcast
18/07/2024	1430/1030	**	US	Natural Gas Stocks
18/07/2024	1530/1130	*	US	US Bill 08 Week Treasury Auction Result
18/07/2024	1530/1130	**	US	US Bill 04 Week Treasury Auction Result
18/07/2024	1605/1205		US	San Francisco Fed's Mary Daly
18/07/2024	1700/1300	**	US	US Treasury Auction Result for TIPS 10 Year Note
18/07/2024	1745/1345		US	Dallas Fed's Lorie Logan
18/07/2024	2000/1600	**	US	TICS