ECB chief Lagarde also confirmed his July rate hike plan continues
-Risk appetite gained ground on news that China has cut quarantine time for international travelers in half. Beijing and Shanghai have declared zero Covid cases for the first time in months. Shanghai Disneyland is set to reopen on June 30.
-Global macro revolved around G7 and NATO meetings as comments from officials announce up to $5 billion for global food security as leaders work on plan to export grain out of Ukraine. Officials also advised pushing to ban imports of Russian gold.
-Chinese Foreign Minister Zhao anticipated NATO talks and warned NATO not to destabilize Asia, which has exacerbated lingering geopolitical tensions.
-In Europe, ECB comments from the Kazaks and Lagarde confirmed plans for a 25 basis point hike in July. The Kazaks reiterated that the 50 basis point frontloading in July is also reasonable.
-A swath of economic data continued to disappoint as the Nordics, Sweden and Denmark, saw retail sales decline year-over-year. France and Germany both missed the consumer confidence figures.
-Asian overall closed 0.2-0.9% higher as bond yields were mixed. European indices start up 0.8 to 1.5% with higher bond yields. US futures are just in the green. Elsewhere Gold +0.1%, BTC -1.5%, ETH -0.4%, DXY -0.1%, Brent +1.6%, WTI +1.5%.
-For the future, awaiting statements from NATO officials and ECB members Lane, Elderson, Panetta, as well as BOE’s Cunliffe.
– Easing of some Chinese pandemic restrictions favoring risk appetite (China will halve the quarantine time for international travelers from 21 days to 10 days).
– Focus on the annual conference of the ECB in Sintra; NATO summit in Spain.
– Plenty of inflation data in the EU in the coming days (Germany on Wednesday, France on Thursday).
– China PBOC Open Market Operation (OMO) recorded its third consecutive injection and largest addition of liquidity to the financial system in nearly three months to meet month-end liquidity demands.
– Deputy Secretary-General Ou of the Chinese State Planner (NDRC) said the country faces new challenges to stabilize jobs and prices due to the coronavirus and the war in Ukraine. Government reiterated position that would not resort to flood-like stimulus measures. – Deploy the tools of its political reserve in a timely manner to face challenges.
– Russian Dep President of the Security Council Medvedev (former President): Any NATO encroachment on Crimea could lead to World War III.
– G7 members must consider ways to reduce energy costs, including the possibility of temporarily capping oil and gas import prices.
– The Northern Ireland to UK Protocol Bill passed second reading in the House of Commons (vote: 295 to 221) and progressed to committee stage.
– EU’s Sefcovic said the UK’s decision on the Northern Ireland protocol meant “constant uncertainty”; Called on the UK to return to the negotiating table.
– Citi/Yougov 12-month inflation expectations: 6.1% vs. 6.1% previously; Inflation expectations over 5 to 10 years: 4.0% against 4.2% previously.
clues [Stoxx600 +0.70% at 417.98, FTSE +1.05% at 7,334.29, DAX +0.87% at 13,300.25, CAC-40 +1.37% at 6,129.96, IBEX-35 +1.40% at 8,357.96, FTSE MIB +1.33% at 22,221.00, SMI -0.03% at 10,903.80, S&P 500 Futures +0.59%].
Market Focal Points/Key Themes
– Consumer Discretionary: Adidas [ADS.DE] +0.5% (Nike results).
– Manufacturer: Kongsberg Gruppen [KOG.NO] +2% (the United States confirms the supply of defense systems to Ukraine).
– Technology: Wise [WISE.UK] -5% (earnings), Wan Disco [WAND.UK] +11% (large order).
– ECB Director Lagarde reiterated its position that the General Council was planning to raise rates by 25 basis points at the July meeting because inflation in the region was excessively high. Position reiterated which also plans to raise key rates again in September; a larger increase would be appropriate if the medium-term inflation outlook persists or deteriorates.
– ECB reportedly considered combining a new anti-fragmentation tool with auctions where banks could park cash at a more favorable interest rate. A process of likely draining liquidity from the banking system to offset any bond purchases made to cap the borrowing costs of highly indebted countries. Would see bond purchases sterilized during weekly liquidity operations. The ECB could sell bonds in the core to finance purchases in the periphery to neutralize the impact. It has not yet been decided whether the ECB will make all the details public to give it maximum discretion when intervening in the market.
– The Kazaks of the ECB (Latvia, Hawk) said frontloading rate hikes of 50 basis points in July were reasonable; Its base case for rate hikes was 25 basis points in July and 50 basis points in September and underlines that the ECB must nip the inflation situation in the bud. Fragmentation risk cannot hamper monetary policy. Already had reinvestment flexibility and could offer other sharding tools if needed.
– China reduce quarantine times for international travellers. NATO should stop spreading provocative talk about China. Their new vision of China follows an old Cold War mentality (**Note: NATO was to label China a “systematic challenge” in its 10-year plan).
– Zhao Lijian, Chinese Foreign Ministry Spokesperson said NATO should not try to destabilize Asia.
– Moody’s affirmed Australia’s sovereign rating at Aaa, stable outlook.
– American official said the G7 would commit up to $5 billion for global food security. Ask ministers to consult “as a matter of urgency” with Third World countries to draw up a price cap around oil. The G7 will issue a collective statement acknowledging the harms of China’s uncompetitive behavior.
– Risk appetite found some breathing room in the session after China announced an easing of its pandemic restrictions.
– EUR/USD probed the vicinity of 1.06 focusing on the plethora of inflation data from the EU in the days ahead (Germany on Wednesday, France on Thursday). ECB Kazaks said they favored frontloading rate hikes, with a 50 basis point increase at the July meeting being reasonable. ECB chief Lagarde also confirmed that his July rate hike plan is continuing.
– GBP/USD at 1.2285 mid-session and USD/JPY at 135.70 (near 24-year highs).
– Bond yields were high again as inflation concerns simmered.
– (DE) Germany July GFK Consumer Confidence: -27.4v -27.3e (record low).
– (SE) Swedish trade balance for May (SEK): -1.9 billion against -3.2 billion previously.
– (SE) Sweden May Retail sales M/M: -0.6% vs. +0.4% before; Y/Y: -2.3% vs. +2.4% before.
– (DK) Denmark May retail sales M/M: -1.1% vs. +1.1% before; Y/Y: -7.0% vs. +1.2% before.
– (FR) France June Consumer confidence: 82 vs. 84th.
– (AT) Austria June manufacturing PMI: 51.2 vs. 56.6 before (24th consecutive expansion).
– (IT) April industrial sales in Italy M/M: 2.7% vs. 2.5% before; Y/Y: 22.0% vs. 21.6% before.
Issuance of fixed income securities
– (IDENTIFIER) Indonesia total sold IDR7.8T against target IDR9.0T in Islamic bills and bonds (sukuk).
– (UK) BMD sold £1.0bn in inflation-linked gilts at 0.125% in Aug 2031 (UKei) Real yield: -1.335% vs -2.829% before; bid to cover: 2.77xv 2.30x before.
– 05:25 (EU) Daily ECB liquidity statistics.
– 05:30 (ZA) South Africa Q1 Non-Farm Payrolls Q/Q: Non est v 0.6% forward; Y/Y: no east v 1.6% before.
– 05:30 (NL) Elderson of the ECB (Netherlands, SSM).
– 05:30 (HU) The Hungarian Debt Agency (AKK) will sell 3-month bonds.
– 05:30 (DE) Germany will sell 4.0 billion euros at 0.00% in October 2027 BOBL.
– 05:30 (EU) ECB allocation under the 7-day Main Refinancing Tender (MRO).
– 05:30 (ZA) South Africa will sell combined bonds of ZAR 3.9 billion in 2032, 2037 and 2044.
– 06:00 (IE) Ireland May Retail Sales Volume M/M: No is v 3.8% aging; Y/Y: none is v 6.1% before.
– 06:45 (US) Libor daily fixing.
– 07:00 (MX) Mexico May Unemployment rate NSA (unadj): 3.1%ev 3.0% before.
– 07:00 (UK) BOE Cunliffe.
– 07:00 (IT) ECB Panetti (Italy).
– 08:00 (UT) Decision of the Central Bank of Hungary (MNB) on interest rates: Should raise the base rate by 50 basis points to 6.40%.
– 08:00 (UK) Daily Baltic Dry Bulk Index.
– 08:30 (US) May boost merchandise trade balance: -$105.0 billion vs. -$106.7 billion before (revised from -$105.9 billion).
– 08:30 (US) Preliminary May Wholesale Stocks M/M: 2.2%ev 2.2% forward; Retail stocks M/M: 1.6%ev 0.7% before.
– 08:30 (CL) Survey of economists from the Central Bank of Chile.
– 08:55 (US) Weekly Redbook LFL sales data.
– 09:00 (US) Apr FHFA M/M House Price Index: 1.6%ev 1.5% before.
– 09:00 (US) April S&P/Case-Shiller House Price Index (20 cities) M/M: 1.95%ev 2.42% before; Y/Y: 21.15%ev 21.17% before; House Price Index (Overall) Y/Y: No is v 20.55% before.
– 09:00 (EU) ECB Weekly Forex Reserves.
– 09:00 (UT) Press conference on the Government’s post-rate decision of the Central Bank of Hungary.
– 09:00 (EU) Weekly update on ECB QE bond purchases.
– 09:20 (EU) NATO Summit.
– 10:00 a.m. (US) June Consumer Confidence: 100.0ev 106.4 before.
– 10:00 a.m. (US) June Richmond Fed Manufacturing Index: -5th vs. -9 before.
– 12:30 p.m. (US) Fed Daly.
– 1:00 p.m. (US) Treasury will sell 7-year notes.
– 15:00 (AR) Argentina’s current account in the first quarter: no est against 0.4 billion dollars before.
– 4:30 p.m. (US) Weekly API oil inventories.
– 05:00 PM (KR) South Korea Jun Consumer Confidence: No est v 102.6 ahead.
– 7:01 p.m. (UK) June BRC Shop Price Index Y/Y: No east against 2.8% before.
– 19:50 (JP) Japan May Retail Sales M/M: 1.0%ev 1.0% before (revised by 0.8%); Y/Y: 4.0%ev 3.1% before (revised from 2.9% ); ; Sales in store, supermarket Y/Y: 4.9%ev 4.0% before.
– 21:10 JP) Operation to buy BOJ 3-5 year bonds; Maturities of 5 to 10 years and 10 to 25 years.
– 9:30 p.m. (AU) Australia May Retail Sales M/M: 0.4%ev 0.9% ahead.
– 23:00 (TH) Thailand to sell THB 6.0 billion in 2072 bonds.