• European bourses are on the backfoot as the region plays catch-up to the losses on Wall Street yesterday
• US equity futures trade on either side of the unchanged mark with no stand-out performers thus far
• In FX, Dollar is mostly bid, CHF outperforms, JPY is rangy, EUR sees conflicting inflation prints, and antipodeans lag
• Bunds unwind all and a bit more of their hefty post-NRW CPI gains as other German states show smaller inflation slowdowns and Spanish HICP soars
• Chinese President Xi said China's COVID prevention control and strategy is correct and effective and must stick with it
• Looking ahead, highlights include German CPI Prelim, US GDP Final, OPEC Meeting, Speeches from Fed's Powell, Mester & Bullard, ECB's Lagarde, de Guindos & Schnabel, BoE's Bailey & MPC-elect Dhingra

29th June 2022

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GEOPOLITICS

RUSSIA-UKRAINE

DEFENCE/MILITARY

• US President Biden said will make sure NATO is ready to meet threats from all directions across all domains land, air, and sea; US army is to establish a fifth army HQ in Poland.
• Russian Deputy Foreign Minister said Russia views negatively the plans by Finland and Sweden to join NATO, via Ifx

ENERGY/ECONOMIC SANCTIONS & UPDATES

• India's top cement maker Ultratech is paying for Russian coal in Chinese Yuan, according to a customs document cited by Reuters.
• Russian Foreign Minister said Moscow has not yet been informed about the detention of tanker with Russian oil products by US authorities, via Reuters.

OTHER

• US, South Korean and Japanese joint drills show a sinister aim toward North Korea and are a dangerous prelude to the creation of an Asian version of NATO, while the reckless moves by the US and allies will cause catastrophic consequences of self-destruction, according to North Korean state media KCNA.

CENTRAL BANKS

• ECB's Lane said there are two-way inflation risks: "on the one side, there could be forces that keep inflation higher than expected for longer. On the other side, we do have the risk of a slowdown in the economy, which would reduce inflationary pressure", via ECB.
• ECB's Holzmann said "We will have to make an assessment where the economic development is going and where inflation stands and afterwards there’s ample room to hike in 0.25 and 0.5 levels to whatever rate we think, we consider reasonable" via CNBC.
• ECB's Simkus said if data worsens, then he wants a 50bps July hike as an option, 50bps hike is very likely in September; ECB's fragmentation tool should serve as a deterrent, via Bloomberg.
• ECB's Herodotou said EZ inflation will peak this year, via CNBC.
• ECB's Wunsch said government aid may spell more rate hikes, via Bloomberg; 150bps of hikes by March 2023 is reasonable
• ECB is said to be weighting whether or not they should announce the size and duration of their upcoming bond-buying scheme, according to Reuters sources.
• Fed's Mester (2022, 2024 voter) said on a path towards restrictive interest rates; July debate between 50bps and 75bps hike, via CNBC. Mester said if inflation expectations become unanchored, monetary policy would have to act more forcefully; current inflation situation is a very challenging one, via Reuters.
• SARB Governor said a 50bps hike is "not off the table", Via Bloomberg
• CBR Governor said she does not see risks of deflation; sees room to cut rates; sticking to policy of floating RUB exchange rate.
• PBoC will step up implementation of prudent monetary policy, will keep liquidity reasonably ample.

EUROPEAN TRADE

EQUITIES

• European bourses are on the backfoot as the region plays catch-up to the losses on Wall Street yesterday.
• Sectors are mostly lower (ex-Energy) with a defensive tilt as Healthcare, Consumer Products, Food & Beverages, and Utilities are more cushioned than their cyclical peers.
• Stateside, US equity futures trade on either side of the unchanged mark with no stand-out performers thus far, with the contracts awaiting the next catalyst.
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FX

• Dollar mostly bid otherwise as rebalancing demand underpins - DXY pivots 104.500 within 104.700-350 confines.
• Franc outperforms on rate and risk considerations - Usd/Chf breaches 0.9550 and Eur/Chf approaches parity.
• Euro erratic in line with conflicting inflation data - Eur/Usd rotates around 1.0500.
• Aussie and Kiwi undermined by downturn in sentiment - Aud/Usd loses 0.6900+ status, Nzd/Usd wanes from just over 0.6250.
• Yen rangy following firmer than forecast Japanese retail sales and BoJ Governor Kuroda reaffirming intent to remain accommodative - Usd/Jpy straddles 136.00.
• Nokkie welcomes oil worker wage agreement with unions to avert strike action, but Sekkie hampered by softer Swedish macro releases pre-Riksbank policy call tomorrow - Eur/Nok probes 10.3000, Eur/Sek hovers around 10.6800.
• Rand rattled by decline in Gold and ongoing SA power supply problems, but Rouble rallies irrespective of CBR and Russian Economy Ministry divergence over deflation.
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FIXED INCOME

• Bunds unwind all and a bit more of their hefty post-NRW CPI gains as other German states show smaller inflation slowdowns and Spanish HICP soars.
• Gilts suffer more pronounced fall from grace in relative terms and US Treasuries slip from overnight peaks in sympathy.
• UK debt and STIRs also await testimony from MPC member elect to see if newbie leans dovish, hawkish or middle of the road
• 10 year benchmarks settle off worst levels within 147.37-145.14, 112.66-11.85 and 117-12+/116-27 respective ranges awaiting comments from ECB, Fed and BoE heads at Sintra Forum.
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COMMODITIES

• WTI and Brent front-month futures traded with no firm direction in early European hours before picking up modestly in recent trade.
• US Private Inventory (bbls): Crude -3.8mln (exp. -0.6mln), Cushing -0.7mln, Distillate +2.6mln (exp. -0.2mln) and Gasoline +2.9mln (exp. -0.1mln).
• Norway's Industri Energi and SAFE labour unions agreed a wage deal for oil drilling workers and will not go on strike, according to Reuters.
• OPEC to start today at 12:00BST/07:00EDT; JMMC on Thursday at 12:00BST/07:00EDT followed by OPEC+ at 12:30BST/07:30EDT, via EnergyIntel.
• Libya's NOC suspends oil exports from Es Sider port.
• Spot gold is under some mild pressure as the Buck and Bond yields picked up, with the yellow metal back to near-two-week lows
• Base metals are mixed but off best levels after President Xi reaffirmed China's COVID stance – LME copper fell back under USD 8,500/t
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NOTABLE EUROPEAN HEADLINES

• UK expects defence spending to reach 2.3% of GDP and said PM Johnson will announce new military commitments to NATO, according to Reuters.

NOTABLE EUROPEAN DATA

• UK BRC Shop Price Index YY (Jun) 3.1% (Prev. 2.8%)
• German North Rhine-Westphalia State CPI MM* (Jun) -0.1% (Prev. 0.9%); YY 7.5% (Prev. 8.1%)
• German Bavaria State CPI MM (Jun) 0.2% (Prev. 1.0%; YY 7.9% (Prev. 8.1%)
• German Brandenburg State CPI MM (Jun) 0.0% (Prev. 1.5%); YY 8.0% (Prev. 8.5%)
• German Hesse State CPI MM* (Jun) 0.0% (Prev. 1.0%); YY 8.1% (Prev. 8.4%)
• German Baden-Württemberg State CPI MM* (Jun) 0.1% (Prev. 0.9%); YY 7.1% (Prev. 7.4%)
• German Saxony State CPI MM (Jun) 0.0% (Prev. 1.1%); YY 7.7% (Prev. 8.0%)
• Spanish HICP Flash YY (Jun) 10.0% vs. Exp. 8.7% (Prev. 8.5%)
• EU Services Sentiment (Jun) 14.8 vs. Exp. 12.5 (Prev. 14.0, Rev. 14.1)
• EU Industrial Sentiment (Jun) 7.4 vs. Exp. 4.6 (Prev. 6.3, Rev. 6.5)
• EU Economic Sentiment (Jun) 104.0 vs. Exp. 103.0 (Prev. 105.0)
• EU Consumer Confid. Final (Jun) -23.6 vs. Exp. -23.6 (Prev. -23.6)
• EU Selling Price Expec (Jun) 50.4 (Prev. 56.1, Rev. 55.5)
• EU Cons Infl Expec (Jun) 42.6 (Prev. 45.6, Rev. 45.5)
• EU Business Climate* (Jun) 1.47 (Prev. 1.26, Rev. 1.28)

CRYPTO

• Bitcoin trades modestly softer on either side of USD 20,000.

APAC TRADE

EQUITIES

• APAC stocks were pressured amid headwinds from the US where disappointing Consumer Confidence data added to the growth concerns.
• ASX 200 failed to benefit from better than expected Retail Sales and was dragged lower by weakness in miners and tech.
• Nikkei 225 fell beneath the 27,000 level as industries remained pressured by the ongoing power crunch.
• Hang Seng and Shanghai Comp. conformed to the negative picture in the region although losses in the mainland were initially stemmed after China cut its quarantine requirements which the National Health Commission caveated was not a relaxation but an optimization to make it more scientific and precise.

NOTABLE APAC HEADLINES

• Chinese President Xi said China's COVID prevention control and strategy is correct and effective and must stick with it, via state media. Shanghai will gradually reopen museums and scenic sports from July 1st, state media reports.
• US Deputy Commerce Secretary Graves said the US will take a balanced approach on Chinese tariffs and that a clear response on China tariffs is coming soon, according to Bloomberg.
• China State Council's Taiwan Affairs Office said it firmly opposes the US signing any agreement that has sovereign connotations with Taiwan, according to Global Times.
• BoJ Governor Kuroda said Japanese Core CPI reached 2.1% in April and May which is almost fully due to international energy prices and Japan's economy has not been affected much by the global inflationary trend so monetary policy will stay accommodative, according to Reuters.
• Japanese govt to issue power supply shortage warning for a fourth consecutive day on Thursday, according to a statement.
• S&P affirms China's rating A+/A-1, outlook stable.

DATA RECAP

• Australian Retail Sales MM (May F) 0.9% vs. Exp. 0.4% (Prev. 0.9%)
• Japanese Retail Sales YY (May) 3.6% vs. Exp. 3.3% (Prev. 2.9%, Rev. 3.1%)