• APAC stocks were mostly negative with risk appetite cautious and global markets also likely to be hampered by the absence of US participants today.
• European equity futures are indicative of a softer open with Eurostoxx 50 -0.3% after the cash market closed higher by 0.3% yesterday.
• DXY is softer and on a 104 handle, AUD leads G10 FX, EUR/USD is back on a 1.05 handle. 
• French President Macron failed to win an absolute majority in parliament.
• Bitcoin remains under pressure after the tumultuous trade over the weekend with prices back beneath the 20,000 level.
• Looking ahead, highlights include Speeches from Fed’s Bullard, ECB’s Lagarde, Lane, Panetta, Kazaks & BoE’s Mann, Juneteenth holiday in the US.

US TRADE

• US stocks were mostly firmer on Friday amid a duration bias, with sentiment aided by the bid for Treasuries and the big tumble in oil prices, while cyclicals were pressured in the wake of disappointing industrial production and manufacturing data.
• SPX +0.14% at 3,671, NDX +1.24% at 11,265, DJIA -0.13% at 29,888, RUT +1.17% at 1,664.
• Click here for a detailed summary.

NOTABLE HEADLINES

• Fed’s Waller (voter) said he will support a 75bps hike in July if data comes in as he expects and said the Fed is ‘all in’ on re-establishing price stability. Waller also noted that even in a typical recession, there is a decent chance that the Fed will need to cut the policy rate to zero and buy bonds, while he supports using a less ‘restrictive’ criteria for QE tapering next time. Waller also commented that markets would have a heart attack if they did 100bps hikes and said they are at the stage to move rates a lot to get to neutral, then restrictive, according to Reuters.
• Fed’s Mester (2022, 2024 voter) said it will take a couple of years to get inflation back to 2% and that some inflation measures looked worse in May than in April, while she added that she is not predicting a recession despite a slowdown in growth and she wants to see some moderation in demand, according to CBS and Reuters.
• Fed’s Bostic (2024 voter) said he supported the 75bps rate hike last week and said they need to act decisively and affirmatively to get inflation under control. Bostic added Fed policy is data-dependent and that they need to be more muscular in policies, while he added they will do whatever it takes and all they can to get inflation back down to 2%, according to Reuters.
• US Treasury Secretary Yellen said she expects the economy to slow but added a recession is not at all inevitable and noted that consumer spending remains strong and the labour market is very strong. Yellen also said that inflation is unacceptably high, partly due to Russia’s war with Ukraine and that inflation causes are global, not local, with those factors unlikely to diminish immediately but she expects the pace of inflation likely to come down in the months ahead and said a gas tax holiday is certainly worth considering, according to an interview with ABC.

GEOPOLITICS

RUSSIA-UKRAINE

• Ukrainian President Zelensky said Russia is likely to intensify its attacks while Kyiv awaits the EU decision this week regarding the status as a candidate country, according to Reuters.
• Ukraine’s Interior Ministry official said the situation north of Kharkiv is quite difficult and Russian forces are trying to get closer to be able to shell the city again, according to Reuters citing national television.
• Ukraine’s Kharkiv region Governor said Russian rockets hit a gasworks in the Izium district and a large fire broke out although rescuers have localised the fire. It was also separately reported that rockets hit a district of Ukraine’s Kryvyi Rih which resulted in casualties, according to Reuters.
• UK PM Johnson said the Russians are grinding forward inch by inch in Ukraine and said they must make sure Ukrainians aren’t encouraged to go for a bad peace deal that won’t endure, while he added that Ukraine fatigue is setting in and it is important that Britain continues to show it is supporting Ukraine for the long-haul, according to Reuters.

APAC TRADE

EQUITIES

• APAC stocks were mostly negative with risk appetite cautious amid fluctuations in crypto and pressure in Chinese commodity prices, with global markets also likely to be hampered by the absence of US participants
• ASX 200 was dragged lower by commodity-related sectors with energy suffering from Friday’s oil slip.
• Nikkei 225 saw notable losses in the large industrial names and despite last week's dovish BoJ affirmation.
• Hang Seng and Shanghai Comp. swung between gains and losses after the PBoC unsurprisingly maintained its Loan Prime Rates and amid mixed COVID-related headlines in which mass testing in Shanghai found the virus was seemingly contained, although Shenzhen locked down certain neighbourhoods and Macau suffered its first outbreak in eight months which subsequently weighed on casino stocks.
• US equity futures lacked firm commitment amid a lack of drivers and with US participants away on Monday; ES +0.2%
• European equity futures are indicative of a softer open with Eurostoxx 50 -0.3% after the cash market closed higher by 0.3% yesterday.

FX

• DXY was pressured amid the US holiday weekend and despite the latest bout of hawkish Fed rhetoric, while there was a grim outlook from Nomura which cut its US 2023 real GDP growth forecast to -1.0% from +1.3% and sees the recession likely to start in Q4 this year.
• EUR/USD benefitted from the softer greenback and reclaimed the 1.0500 status as it gradually shook off the early sluggishness from French President Macron's failure to win an absolute majority in parliament.
• GBP/USD traded with marginal gains but with upside capped as the UK braces for disruptive rail and tube strikes.
• USD/JPY eased back below 135.00 but with downside stemmed after last week’s dovish BoJ assurance.
• Antipodeans nursed some of their recent losses against the dollar with the rebound also helped by a firmer CNY.

FIXED INCOME

• 10yr UST futures lacked direction with US cash markets to remain closed on Monday for the Juneteenth holiday.
• Bunds traded sideways as attention in Europe was focused on the French parliamentary election results.
• 10yr JGBs held on to most of Friday’s spoils after the BoJ remained unwavering in its dovish stance.

COMMODITIES

• Crude futures were lacklustre after last Friday's firm losses and amid mixed COVID-19 headlines from China.
• OPEC Secretary General Barkindo said the common objective with non-OPEC partners is to maintain market stability and not to raise prices or bring them down, according to Reuters.
• Iraq’s Oil Minister said Iraq is 100% committed to its share in the OPEC+ deal and expects the country’s total exports to be 3.9mln bps in June and 3.85mln bpd in July. Iraq’s Oil Minister also said that talks between Basra Oil Co. and Exxon Mobil (XOM) on the West Qurna 1 Oilfield reached a final decision in which South Oil Co. will acquire the biggest portion of Exxon’s share in West Qurna, according to Reuters.
• Germany announced new measures to reduce gas consumption in which it is introducing an auction mechanism to incentivise the industry to lower gas consumption and will provide a EUR 15bln credit line to the gas market operator to fill storage facilities, while the law foreseeing stronger reliance on coal-fired power plants will go to the upper house of parliament on July 8th, according to Reuters citing a government source.
• Italy’s Eni said its daily gas volume request to Gazprom on Monday will only be partially met, according to Reuters.
• India’s coal imports from Russia from May 27th to June 15th rose by over 500% Y/Y to USD 331.17mln, while crude imports to Russia for the same period rose to USD 2.22bln from USD 70.53mln a year ago, according to Reuters.
• Spot gold eked marginal gains owing to a softer greenback.
• Copper was pressured amid selling in Chinese commodities as Shanghai commodity traders entered the fray.

CRYPTO

• Bitcoin is ultimately lower after the tumultuous trade over the weekend with prices back beneath the 20,000 level.

NOTABLE APAC HEADLINES

• PBoC 1-Year Loan Prime Rate (Jun) 3.70% vs Exp. 3.70% (Prev. 3.70%)
• PBoC 5-Year Loan Prime Rate (Jun) 4.45% vs Exp. 4.45% (Prev. 4.45%)
• Shanghai’s weekend COVID testing found the virus seemingly contained, while China's Shenzhen locked down certain neighbourhoods due to COVID cases and Macau reported 21 positive COVID-19 cases on Sunday in its first outbreak in eight months, according to Bloomberg.
• US President Biden said he is in the process of making up his mind regarding China tariffs and said he will speak to Chinese President Xi “soon”, according to Reuters.
• US Treasury Secretary Yellen said President Biden is reviewing tariff policy on China and she added that some China tariffs inherited from the Trump administration serve no strategic purpose, according to ABC.
• US President Biden's administration officials rejected China's claims that the Taiwan Strait is not international waters, according to Bloomberg.
• US lawmakers are to introduce legislation in the week ahead to spur the White House to allocate more money to the Indo-Pacific region to counter China, according to FT.

EU/UK

NOTABLE HEADLINES

• RMT union confirmed that talks failed to resolve the dispute regarding pay, jobs and conditions for transport workers and three 24-hour strikes will go ahead on Tuesday, Thursday and Saturday. It was also reported that the RMT union leader accused the government of blocking progress in negotiations and warned that disruption could last all year and beyond if a deal is not reached, according to FT and The Guardian.
• UK Transport Secretary Schapps said rail strikes are a huge mistake and will punish millions of people, while the government will say more regarding ideas to alleviate the pressure on airports this week, according to FT and Reuters.
• Irish PM Martin said they would be in a very serious situation if UK legislation on the Northern Ireland Protocol is enacted and said substantive negotiations with the UK are needed to try to find a settlement to post-Brexit trade with Northern Ireland, according to Reuters.
• UK Manufacturers are calling for the government to provide more help to weather the storm amid a weak economic outlook, according to The Guardian.
• French President Macron’s centrist camp failed to win an absolute majority in parliament and won 245 out of the 577 seats, while the left-wing NUPES won 131 seats, far-right RN won 89 seats and Republicans won 61 seats, according to results from the French Interior Ministry.
• French government spokeswoman said they are still the strongest group in parliament even if the result is a disappointment and they will reach out to all other moderate parties who “want to move on the country”, according to Reuters.
• EU is to propose new rules this week that would allow it to impose trade sanctions on countries that breach conditions on labour rights and climate change in bilateral deals with the EU, according to FT.
• ECB’s Rehn said the central bank should limit the increase in borrowing costs of the bloc’s more indebted members but will not solve their debt issues or let budget concerns dictate monetary policy, according to Reuters

DATA RECAP

• UK Rightmove House Price Index MM (Jun) 0.3% (Prev. 2.1%)
• UK Rightmove House Price Index YY (Jun) 9.7% (Prev. 10.2%)