• European bourses are indecisive with the main macro story of the session thus far coming via UK inflation metrics.
• GBP only knee-jerked higher on the hotter-than-expected CPI before shedding all and more of its gains on economic implications of further BoE tightening.
• DXY is firmer pre-Powell whilst the JPY is softer following more dovish BoJ commentary.
• US Treasuries have regained composure whilst Bunds saw a full recovery and Gilts trimmed a bulk of opening losses.
• Russian Defence Ministry says it has thwarted an attempt by Kyiv to launch an attack on the Moscow region with drones.
• Looking ahead, highlights include BoC Minutes, Speeches from Fed's Powell, Jefferson, Cook, Goolsbee, Mester & ECB's Schnabel, supply from the US.

21st June 2023

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EUROPEAN TRADE

EQUITIES

• European bourses trade with little in the way of firm direction with the main macro story of the session thus far coming via UK inflation metrics.
• US equity futures trade in close proximity to the unchanged mark with the ES holding below the 4450 mark after yesterday’s selling pressure.
• Equity sectors in Europe have a slight negative bias with Real Estate names lagging peers as UK homebuilders suffer post-UK CPI.
• Click here and here for a recap of the main European updates.
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FX

• DXY is on a firmer footing after finding overnight support at exactly 102.50, with a softer JPY and GBP keeping the index underpinned but a resilient EUR hampering gains.
• GBP only knee-jerked higher on the hotter-than-expected CPI before shedding all and more of its gains in what seemed to be a realisation of the adverse economic implications from further and perhaps more aggressive BoE tightening.
• Yen is softer as Treasuries retreated and BoJ Board member Adachi stuck to dovish guidance overnight.
• Aussie remains top-heavy in the aftermath of not-so hawkish as anticipated RBA minutes yesterday alongside more pronounced Yuan depreciation overnight.
• Euro maintains 1.0900+ status with tailwinds from EUR/GBP and EUR/JPY (latter almost matching the new midweek y-t-d peak)
• PBoC set USD/CNY mid-point at 7.1795 vs exp. 7.1802 (prev. 7.1596)
• Click here for notable OpEx for the NY Cut.
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FIXED INCOME

• Bunds complete a full recovery from worst levels with the help of strong demand for long-end German issuance.
• Gilts saw a remarkable bounce after gapping lower at the open as markets ponder the economic implications of further BoE tightening.
• US Treasuries have also regained composure ahead of Fed Chair Powell alongside several other Fed speakers and supply on the calendar.
• Click here for more detail.

COMMODITIES

• WTI and Brent August futures see sideways trade in crude futures, with gains hampered by the hotter-than-expected UK CPI data ahead of tomorrow’s BoE announcement.
• Spot gold consolidates ahead of Fed Chair Powell’s testimony and after the yellow metal’s hefty losses yesterday upon a breach of the 100 DMA.
• Base metals are mixed amid the indecisive tone in the market, with copper prices relatively contained.
• Russia's Kremlin said there are no grounds to extend the Black Sea Grain Deal because it's not being implemented, according to Reuters.
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NOTABLE US HEADLINES

• Fed Vice Chair nominee Jefferson (voter) said in prepared remarks for the Senate confirmation hearing that he remains focused on returning inflation to 2% and that they must remain attentive to all of inflation, banking-sector stress, and geopolitical uncertainty. Jefferson added that the US banking system is sound and resilient but he remains attuned to any threats to its stability, while he also noted that inflation has started to abate, according to Reuters.
• Fed Board nominee Cook (voter) said in prepared remarks for the Senate hearing that she is focused on inflation until the job is done, while she added that the US economy is at a critical juncture and she has consistently supported the Fed's work to lower inflation.
• Fed Board nominee Kugler said in prepared remarks for the Senate confirmation hearing that she is deeply committed to setting monetary policy to reduce inflation and promote maximum employment. Kugler also stated that high inflation hurts workers and businesses alike, while she added it is important to bring inflation down to the Fed's 2% target.
• Amazon (AMZN) says its Prime Day event will be on July 11th and 12th, according to Reuters

NOTABLE EUROPEAN HEADLINES

• The Times' Shadow MPC voted 6-3 in favour of the BoE raising rates by 50bps this week (vs. market expectations of a 25bps move) in an "aggressive move to fight back against stubbornly high inflation"
• UK Chancellor Hunt says will not hesitate in our resolve to support the BoE as it seeks to squeeze inflation out of the economy, according to Reuters.
• ECB's Kazimir said in September a continuation of tightening policy is not certain; does not expect inflation to drop soon, via Reuters.
• ECB's Rehn will apply for leave of absence from the Central Bank if he becomes a presidential candidate, according to Reuters.

NOTABLE DATA

• UK CPI YY (May) 8.7% vs. Exp. 8.4% (Prev. 8.7%)
• UK CPI MM (May) 0.7% vs. Exp. 0.5% (Prev. 1.2%)
• UK Core CPI MM (May) 0.8% vs. Exp. 0.6% (Prev. 1.3%)
• UK Core CPI YY (May) 7.1% vs. Exp. 6.8% (Prev. 6.8%)

CRYPTO

• Bitcoin is firmer on the day and approaching USD 29,000 to the upside whilst Ethereum rose above USD 1,800 earlier in the session.

GEOPOLITICS

• Russian Defence Ministry says it has thwarted an attempt by Kyiv to launch an attack on the Moscow region with drones; all drones were shot down, according to Tass and Ria.
• Russia's Navy is to receive 2 new nuclear submarines by year-end, according to TASS.
• China's Ministry of Foreign Affairs commented on the US' Taiwan position in which it stated that the US has distorted its political promise to China.
• Shanghai Cyberspace Regulator says they have summoned three companies including Starbucks (SBUX) and Shake Shack (SHAK) for collecting excessive personal information, according to Reuters.

APAC TRADE

• APAC stocks were mostly subdued following the negative handover from Wall St amid the lack of bullish macro drivers and as participants look ahead to Fed Chair Powell's testimony in Congress.
• ASX 200 was dragged lower by weakness in the commodity-related sectors and the mood was not helped by the deterioration in the Australian Westpac Leading Index.
• Nikkei 225 was initially pressured but then clawed back losses with SoftBank among the biggest gainers during its AGM where CEO Son noted that AI is about to grow explosively and the time has come to shift to offence mode, while there were also comments from BoJ’s Adachi who stuck to the dovish script.
• Hang Seng and Shanghai Comp. were lower with Hong Kong underperforming on tech losses and as sentiment in the mainland remained dampened by the weaker outlook with HSBC cutting China's GDP forecast to 5.3% from 6.3%, while the PBoC’s continued liquidity efforts and the recent US-China rhetoric did little to spur risk appetite.

NOTABLE ASIA-PAC HEADLINES

• US President Biden said Chinese President Xi didn't know where the balloons were and didn't know a balloon was blown off course. Furthermore, Biden referred to Xi as a dictator and stated that Xi is in a position where he desires a resumption of relations with the US, while Biden also commented that climate envoy John Kerry may travel to China soon, according to Reuters.
• EU Summit draft conclusions call on China to engage in global challenges including climate change, biodiversity and debt relief, according to an EU official.
• Nasdaq executives plan to visit China this year to restart data partnership talks with companies there about access to economic data desperately sought by Western investors, according to Semafor.
• BoJ Governor Ueda says Japan's economy is picking up; the economy is likely to recover moderately; BoJ will patiently maintain easy monetary policy, according to Reuters.
• BoJ Board Member Adachi said inflation is faster than he expected but noted it is too early to tweak easy monetary policy and that their baseline price scenario is bound with uncertainty. Adachi said there are both upside and downside risks to the price outlook and longer-run downside risks appear to be bigger, while he reiterated it is appropriate to continue monetary easing under the YCC framework. Adachi said if the bond market function remains in the current state, then the chance of tweaking YCC in July is low.
• BoJ April meeting minutes stated members said it is important to continue with monetary easing and that a few members pointed out that past price increases in commodities and raw materials continued to be passed on to consumer prices with a time lag. BoJ minutes stated that they must support wage moment with easing and wage gains are needed for sustainable inflation goal, while some members said it was appropriate for the Bank to continue with current monetary easing due to the difficulty of assessing the suitability of future wage hikes and developments in inflation expectations.
• Japanese PM Kishida said they are to mobilise all policy steps to ensure wage growth; positive moves are emerging in Japan's economy, according to Reuters.