• APAC stocks traded mixed following a mostly negative US lead and better-than-expected Chinese activity data.
• European equity futures are indicative of a mildly positive open with Eurostoxx 50 +0.3% after the cash market closed with losses of 0.8% yesterday.
• DXY is relatively flat ahead of the European open, JPY leads G10 FX, Cable is back below 1.20.
• ECB's Schnabel said the ECB will not tolerate changes in financing conditions that threaten monetary policy transmission.
• Looking ahead, highlights include US Import/Export Prices & Retail Sales, FOMC Policy Announcement & Press Conference, Swiss SECO, IEA OMR, Speeches from ECB's Lagarde, de Cos & Panetta.

*Note, since the publication of this report there have been several pertinent updates:

• ECB is to hold an ad-hoc Governing Council meeting on Wednesday, to discuss current market conditions, via Reuters citing a spokesperson
• BoJ offers an additional emergency bond-buying operation; to buy unlimited amounts of 10yr JGBs on June 16th & 17th at 0.25%. Followed by, fall in JGB futures has triggered a circuit breaker at the Tokyo stock exchange, via Japan Exchange Group

US TRADE

• US stocks finished mostly negative but with losses contained amid cautiousness ahead of the FOMC, while calls increased for a 75bps rate hike and markets are pricing around 90% chances of such a move.
• SPX -0.38% at 3,735, NDX -0.21% at 11,312, DJIA -0.50% at 30,365, RUT -0.39% at 1,708
• Click here for a detailed summary.

NOTABLE US HEADLINES

• US Republicans are beginning to detail their plans to combat inflation and soften its impact on households, indicating some tax, trade and regulatory policies they might pursue if they take control of the House and Senate in the midterms, according to WSJ.
• White House reportedly weighs an oil profit tax but is wary of the supply impact, while Senate Finance Chair Wyden (D) is floating the idea of a 21% surtax on oil profits to blunt inflation, according to Bloomberg.

GEOPOLITICS

• US Deputy Treasury Secretary Adeyemo said a full US trade embargo on Russia would have a marginal impact on Russia's economy at best, according to Reuters.
• Russia considers Turkey's possible military operation in Syria as unwise and could cause an escalation, while Russia no longer considers Geneva a suitable venue for Syrian talks, according to RIA and TASS citing the Russian negotiator.

APAC TRADE

EQUITIES

• APAC stocks traded mixed amid cautiousness heading into the FOMC with markets pricing in a more than 90% chance of a 75bps rate hike, while the region also digested better-than-expected Chinese activity data.
• ASX 200 was led lower by energy, resources and tech, despite a 5.2% national minimum wage increase.
• Nikkei 225 failed to benefit from strong Machinery Orders data amid the ongoing currency-related jitters.
• Hang Seng and Shanghai Comp. were positive with encouragement from the latest activity data that showed surprise growth in Industrial Production and a narrower than feared contraction in Retail Sales, while attention was also on the PBoC which rolled over CNY 200bln through its 1-year MLF with the rate unchanged.
• US equity futures pared some of their recent losses but with upside capped on pre-FOMC caution; ES +0.2%
• European equity futures are indicative of a mildly positive open with Eurostoxx 50 +0.3% after the cash market closed with losses of 0.8% yesterday.

FX

• DXY was rangebound after pulling back from its highest level in around 20 years as yields cooled overnight, although remains above 105 ahead of the FOMC with markets pricing in over a 90% chance for a 75bps hike.
• EUR/USD was firmer after it bounced off support at 1.0400.
• GBP/USD nurses some of the prior day's losses after briefly weakening beneath 1.2000 and with the currency not helped by the cautious risk tone.
• USD/JPY was choppy but has eased from its recent peak with the JPY finding some reprieve amid the risk-off mood in Japan and strong Machinery Orders data.
• Antipodeans rebounded overnight in tandem with metal prices, while Goldman Sachs adjusted its RBA forecast to 50ps hikes in August and September from a prior view of 25bp moves.

FIXED INCOME

• 10yr UST futures recouped some of the prior day’s losses as yields slightly eased overnight amid positioning heading into the FOMC and with some pushing back against the notion of a 75bps hike which Evercore suggested: "risks looking like a panicky response".
• Bunds languished after a retreat beneath 143.00.
• 10yr JGBs were pressured despite the BoJ's presence in the market for around JPY 2.5tln of JGBs on top of its fixed-rate operation. Note, losses were then exacerbated in late trade amid some concerns that the BoJ could need to rethink its YCC policy.

COMMODITIES

• Crude futures lacked direction after inconclusive private inventory data and amid the cautious mood.
• US Energy Inventory Data (bbls): Crude +0.7mln (exp. -1.3mln), Cushing -1.1mln, Gasoline -2.2mln (exp. +1.1mln), Distillates +0.2mln (exp. +0.3mln)
• US DoE announced contract awards and issued the fourth emergency sale of crude oil from SPR (as previously announced), in which contracts were awarded to nine including Chevron (CVX), Exxon (XOM) and Marathon Petroleum (MPC).
• US Strategic Communications Coordinator Kirby said oil production will be on the agenda during President Biden's July 15th-16th trip to Saudi Arabia, according to MSNBC.
• White House Economic Adviser Deese said he has been in talks with oil company executives on refining capacity, according to Reuters.
• Libyan oil output is 100-150k BPD, according to an Oil Ministry spokesman cited by Reuters.
• European Commission President von der Leyen confirmed Israel will increase the supply of energy to the EU and tomorrow they will sign a trilateral agreement on gas between Israel, the EU and Egypt, as well as join forces to help combat the major food crisis, via Twitter.
• Spot gold was marginally higher as the dollar and yields slightly eased.
• Copper prices were firmer overnight after workers at Chile's Codelco threatened to strike yesterday.
• Workers at Chile's Codelco threatened to strike due to a lack of investment at the troubled smelter, according to Reuters.

CRYPTO

• Bitcoin remained pressured amid the ongoing cautious risk tone with prices beneath 22,000.

NOTABLE APAC HEADLINES

• PBoC injected CNY 200bln via 1-year MLF vs. CNY 200bln maturing with the rate kept at 2.85%, as expected.
• China's stats bureau said the main indicators show marginal improvement and the economy shows good recovery momentum, but added that the economic recovery still faces many difficulties and challenges. Furthermore, it said policies to stabilise economic growth gained traction and it expects economic performance to improve further in June due to policy support, but noted recovery is still at an initial stage and main indicators are at low levels, according to Reuters.
• Taiwan's top trade negotiator said Chinese military action against Taiwan would hit global trade much more than Russia's Ukraine invasion and that there would be a worldwide shortage of semiconductors in the event of a China military attack. Furthermore, the trade negotiator said Taiwan is working with India on settling its tech tariffs dispute before the WTO ruling, according to Reuters.
• Japan will work with the US to launch a domestic manufacturing base for 2-nm semiconductors as early as fiscal 2025, joining the race for commercialising the next-generation chip technology, according to Nikkei. Tokyo and Washington will provide support under a bilateral chip technology partnership and private companies from the two countries will pursue research on design and mass production.

DATA RECAP

• Chinese Industrial Output YY (May) 0.7% vs. Exp. -0.7% (Prev. -2.9%)
• Chinese Retail Sales YY (May) -6.7% vs. Exp. -7.1% (Prev. -11.1%)
• Japanese Machinery Orders MM (Apr) 10.8% vs. Exp. -1.5% (Prev. 7.1%)
• Japanese Machinery Orders YY (Apr) 19.0% vs. Exp. 5.3% (Prev. 7.6%)
• Australian Westpac Consumer Confidence Index (June) 86.4 (Prev. 90.4)

EU/UK

NOTABLE HEADLINES

• UK PM Johnson is reportedly determined to reverse Chancellor Sunak's planned GBP 15bln tax raid on business as he tries to firm up support following last week's confidence vote, according to The Times.
• UK PM Johnson is understood to have told his cabinet to 'de-escalate' the Northern Ireland Protocol stand-off with the EU, according to The Telegraph.
• UK exports to the EU during H1 of last year fell by 15.6% amid Brexit frictions, according to a study by Aston University cited by FT.
• 8/9 members (vs. 3/9 at the May meeting) of the Times' shadow MPC believe that the BoE should raise rates by 50bps at its policy meeting tomorrow, according to the Times.
• ECB's Schnabel said the ECB will not tolerate changes in financing conditions that go beyond fundamental factors and that threaten monetary policy transmission, while it will react to new emergencies with existing and potentially new tools, according to Reuters.