• European bourses have been edging lower throughout the morning despite the enthusiasm seen ahead of the cash open, with the ECB Sintra Forum underway.
• DXY is on a softer footing intraday with the range on either side of 102.50, whilst prelim rebalancing models tilt Dollar-negative.
• Debt futures have extended their pull-back from yesterday’s best levels to deeper lows.
• WTI and Brent futures have given up the mild gains seen in early European hours alongside a deterioration in risk sentiment.
• Overnight, Chinese state banks were spotted selling dollars in offshore currency markets to prop up the yuan, according to sources cited by Reuters.
• Looking ahead, highlights include US Durable Goods, Consumer Confidence, New Home Sales-Units, Canadian CPI, and supply from US.

27th June 2023

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EUROPEAN TRADE

EQUITIES

• European bourses have been edging lower throughout the morning despite the enthusiasm seen ahead of the cash open, with the ECB Sintra Forum underway.
• US equity futures are seeing modest gains with the NQ attempting to recoup some of its tech-driven losses on Monday.
• Equity sectors in Europe are mixed with Banks top of the leaderboard whilst Autos and Parts lag.
• Click here and here for a recap of the main European updates.
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FX

• DXY is on a softer footing intraday with the range on either side of 102.50, whilst prelim rebalancing models tilt Dollar-negative.
• EUR now stands as the modest outperformer amid more hawkish-leaning ECB commentary.
• CNH is firmer amid a stronger-than-expected PBoC Yuan fixing overnight alongside reports that Chinese state banks were said to be selling USD/CNH.
• Antipodeans initially outperformed amid Chinese optimism before waning alongside risk sentiment.
• Credit Agricole on month-end rebalancing: flows are likely to be mild USD selling across the board with the strongest sell signal in the case of the USD vs the SEK.
• Citi's prelim Month-end FX rebalancing: expectations Dollar negative. The model suggests FX rebalancing needs are tilted toward USD selling. Hedge and asset FX rebalancing needs are coinciding Negative US equity rebalancing flow estimated to dominate equity rebalancing.
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• Click here for the major FX option expiries.

FIXED INCOME

• Debt futures have extended their pull-back from yesterday’s best levels to deeper lows.
• Bunds initially experienced some impetus from a lower German Q3 refunding remit before ECB President Lagarde stressed that the war against inflation is still not over.
• Gilts were unfazed by a solid DMO linker sale.
• BTPs remain below par as they weigh up decent demand for short-dated Italian issuance.
• T-note also nudged up to the top end of its intraday parameter at one point before trimming gains, with the contract contained to a tight range.
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COMMODITIES

• WTI and Brent contracts have given up the mild gains seen in early European hours alongside a deterioration in risk sentiment.
• Spot gold as been constrained to a tight range amidst a light European data calendar but a busy speakers slate.
• Base metals relinquished most of their mild APAC gains which emanated from the aforementioned economic commentary from Chinese Premier Li, with prices recently hit amid a turn in the risk sentiment.
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CENTRAL BANKS

• ECB's Lagarde said "We have made significant progress but – faced with a more persistent inflation process – we cannot waver, and we cannot declare victory yet". "Inflation in the euro area is too high and is set to remain so for too long". "We have not yet seen the full impact of the cumulative rate hikes we have decided on since last July." "Barring a material change to the outlook, we will continue to increase rates in July." "...it is unlikely that in the near future the central bank will be able to state with full confidence that the peak rates have been reached", according to the ECB.
• ECB's Kazaks said market bets on rate cuts in early 2024 are wrong; sees rate hikes past July, "but when and by how much will be data dependent", according to Reuters. ECB's Kazaks said further rate hikes are necessary to tame inflation, and the risk of doing too little is bigger than the risk of doing too much, via CNBC. He added he cannot say at the moment how high rates will go and markets are making a mistake in predicting rate cuts.
• ECB's Simkus said we shouldn't rule out the option of a September hike, according to Bloomberg
• BoE's Dhingra said the external shock has not totally worn off; Wages are responding to inflation with a lag; Medium-term economic forecasts are not good at picking up turning points, according to Reuters.
• Morgan Stanley now expects Fed to deliver a 25bps rate hike in July, taking the terminal rate to 5.375% (prev. 5.1%), according to Reuters.

NOTABLE EUROPEAN HEADLINES

• German borrowing is to fall by EUR 14bln in Q3, according to Reuters.

EUROPEAN DATA RECAP

• UK BRC Retail Shop Price Index YY (Jun) 8.4% (Prev. 9.0%)

CRYPTO

• Bitcoin ekes mild intraday gains but remains under USD 30.5k in what has been a relatively contained session thus far.

GEOPOLITICS

RUSSIA/UKRAINE

• Russia's Kremlin said it sees no grounds right now to launch peace talks with Ukraine over Russia's "special military operation", according to Reuters.
• Belarusian President said all orders were given to the army to remain on full combat readiness; our country has the necessary capabilities to the Western threat, according to Sky News Arabia.
• Belarusian border guards monitor daily provocations on the borders with NATO countries, according to Belarusian President cited by Al Jazeera. Lukashenko added that if Russia falls, we will all fall, according to Al Arabiya.

OTHER

• Taiwanese Deputy Chief of Staff says we will destroy China's ships and planes that are approaching 22 km from the island, according to Al Arabiya.

GLOBAL NEWS

• Ukrainian army attacked Russian troops with chemical weapons in Donetsk, according to Tass cited by Al Arabiya
• Ukrainian President Zelensky said they are making advances in all sectors and it was a happy day, according to Reuters.
• Russian Defence Ministry said it was conducting tactical flight exercises over the Baltic Sea.
• US Secretary of State Blinken spoke with Kosovan PM Kurti to urge an immediate de-escalation in the north of Kosovo, while he spoke with Serbian President Vucic and urged Serbia to immediately take steps to implement commitments under the normalisation agreement.

APAC TRADE

• APAC stocks were mostly positive as the risk tone improved following the predominantly negative handover from the US where the major indices were subdued heading into quarter-end and the Nasdaq underperformed amid weakness in tech and communications.
• ASX 200 gained as strength in financials and cyclicals picked up the slack from the losses in tech and telecoms.
• Nikkei 225 was pressured in a continued pullback from the 33,000 level amid increasing speculation that the recent currency weakness could force the BoJ’s hand regarding YCC.
• Hang Seng and Shanghai Comp were firmer with Hong Kong led by gains in tech and property after the PBoC’s continued liquidity efforts, while Premier Li pledged to roll out effective policy measures during his speech at the WEF in Tianjin and it was also reported that US Treasury Secretary Yellen is planning a trip to China in July.

NOTABLE ASIA-PAC HEADLINES

• PBoC set USD/CNY mid-point at 7.2098 vs exp. 7.2194 (prev. 7.2056)
• China state banks were spotted selling dollars in offshore currency markets to prop up the yuan, according to sources cited by Reuters.
• Chinese Premier Li said the pandemic will be over and both visible and invisible barriers will disappear, while he added that countries should strengthen dialogue and communications to avoid misunderstanding with no country able to resolve all problems and unity is the right answer. Premier Li also commented that China will continue to provide a strong driving force for the global economy and roll out more effective policy measures to expand domestic demand and opening up. Furthermore, Li stated that Q2 economic growth will be higher than Q1 growth and China is expected to achieve its growth target of around 5% for 2023, according to Reuters.
• Chinese Premier Li said we will support the development of foreign companies in China; will not abuse security checks on foreign firms, according to Reuters.
• Chinese Premier Li said China will improve government procurement policies on medicines, according to Reuters.
• US Treasury Secretary Yellen reportedly plans a China trip in July to speak with her Chinese counterpart while the US prepares investment curbs, according to Bloomberg.
• New Zealand Finance Minister Robertson said the RBNZ Monetary Policy Committee Remit and Charter were renewed with only minor changes to the monetary policy framework, while he added that the MPC is now required to 'achieve and maintain' rather than 'keep' inflation between 1%-3% and the MPC should communicate key considerations of its decisions with regard to financial risks.