German inflation data ticks higher due to base effects, Spain CPI moves back within target

Notes/observations

- European CPI showcased persistence with German state readings for Jun rising compared to prior month, ~6.5% YoY. National CPI reading at 08:00 ET. Spain June prelim CPI hotter than expected, with core hitting 5.9% against 5.5% estimate, but still declined from prior month of 6.1%.

- Japan officials continued to reference concern over weak JPY currency levels. USD/JPY approached 144.7 earlier in the session, at levels not seen since Nov and in previous range of a BOJ rate check (1st step ahead of FX intervention).

- US Fed Chair Powell noted a strong majority of Fed policymakers expect 2 or more rate hikes by year end and that Fed has not taken consecutive moves off the table, speaking at a banking event in Madrid.

- Asia closed mixed with Hang Seng under-performing at -1.2%. EU indices are -0.2% to +0.7%. US futures are +0.2%. Gold -0.1%, DXY 0.0%; Commodity: Brent +0.3%, WTI +0.4%, TTF -4.2%; Crypto: BTC +0.4%, ETH -0.4%.

Asia

- Japan May Retail Sales M/M: 1.3% v 0.8%e; Y/Y: 5.7% v 5.2%e v 5.1% prior.

- Australia May Retail Sales M/M: 0.7% v 0.1%e.

- Japan BOJ Gov Ueda stated that underlying inflation was below target. Yen currency influence by many factors, global policies. If it became reasonably sure about 2nd part of inflation forecast, that would be good reason for reconsidering policy change.

Europe

- ECB's Lagarde: Reiterates view that if baseline stands we will likely hike in July.

- ECB’s Villeroy (France): Inflation expectations remain well anchored; More confident on soft landing but not without pain.

- ECB's Stournaras (Greece): Too early to say what ECB will do in September.

- BOE Gov Bailey noted that data showed clear signs of persistence of inflation. Domestic economy turned out to be much more resilient than forecast; Would do what is necessary to get inflation to target.

- SNB’s Maechler: Underlying price dynamics are really persistent.

Americas

- Fed Chair Powell at Sintra noted that policy had not been restrictive for very long; might not be restrictive enough. Would not take moving at consecutive meetings off the table. Significant probability could get an economic downturn but it was not the most likely case.

- Fed bank stress test results: All 23 banks passed this year's stress tests; Collective losses would be at $541B in a severe recession scenario.

Speakers/fixed income/FX/commodities/erratum

Equities

Indices [Stoxx600 +0.16% at 456.78, FTSE -0.10% at 7,492.78, DAX -0.01% at 15,947.05, CAC-40 +0.46% at 7,319.93, IBEX-35 +0.28% at 9,507.68, FTSE MIB +0.69% at 27,829.00, SMI -0.09% at 11,173.70, S&P 500 Futures +0.13%].

Market focal points/Key themes: European indices open generally mixed with an upward bias, and continued on those lines through early trading; sectors leading the trend include industrials and communication services; sectors trending towards the downside include consumer discretionary and real estate; apparel subsector supported following H&M results; ESI to be acquired by Kysight; Matas Acquires KICKS Group from Axel Johnson; GAM sells its FMS business to Carne; focus on upcoming German flash inflation figures; earnings expected in the upcoming US session include Greenbrier and Rite Aid.

Equities

- Consumer discretionary: H&M [HMB.SE] +10.0% (reports final H1 results), Zumtobel [ZAG.AT] +0.5% (reports FY23, initial FY24 guidance), Kering [KER.FR] -1.0% (analyst action - cut to Hold at HSBC).

- Consumer staples: Casino Guichard-Perrachon [CO.FR] -30.0%, Rallye [RAL.FR] -29.0% (Casino's restructuring proposal).

- Energy: ENGIE [ENGI.FR] +2.5% (non-recurring charge).

- Financials: Serco [SRP.UK] +10.0% (reports prelim H1).

- Healthcare: Ipsen [IPN.FR] +3.0% (confirms positive outcome of FDA Advisory Committee on investigational palovarotene for fibrodysplasia ossificans progressiva), Evotec [EVT.DE] -0.5% (received €2M milestone payment for first patient dosed in Phase I study of Bayer kidney disease programme).

- Industrials: Renault [RNO.FR] +6.0% (raised FY23 op margin due to quality of sales mix).

- Technology: De La Rue [DLAR.UK] +9.5% (reports FY23), Adyen [ADYEN.NL] -2.0% (analyst action - cut to Equal Weight at Barclays).

Speakers

- ECB's de Cos (Spain) noted that the European banking sector was resilient.

- Fed Chair Powell text release in Europe noted that a strong majority of Fed policymakers expected two or more rate hikes by year end. Would take time for full effects of monetary restraint to be realized, especially on inflation. Economy faced headwinds from tighter credit conditions and the extent of March bank-turmoil effect on credit was uncertain. Must not grow complacent about financial system resilience, reluctant to say the crisis is over.

- Sweden Central bank Policy Statement noted that it would do what was needed and that new information would be decisive in the design of monetary policy going forward. Announced it would increases pace of bond sales (QT) from SEK3.5B/month to SEK5.0B/month from Sept 2023. Riksbank not planning to sell its holding of non-govt bonds. Considering hedging part of FX Reserves. Stated that a weak SEK currency (krona) was also contributing to keeping inflation up, there was a risk that the pass-through of SEK (krona) to price increases is larger in the current situation of high inflation.

- Sweden Central Bank (Riksbank) Gov Thedeen post rate decision press conference noted that CPIF might be moderating slower than forecasts.

- Bank for International Settlements (BIS) Carstens stated that central banks were still far from victory on inflation and would need to keep policy tight.

- Poland Central Bank's (NBP) Member Maslowska noted that a rate cut might be possible in Q4.

- South Korea Finance Ministry confirmed an agreement on $10B bilateral currency swap deal with Japan **Note: move resumes one that elapsed back in 2015).

- Japan Fin Min Suzuki reiterated stance that was watching FX market with sense of urgency. Reiterated that one-sided and unstable FX moves were not desirable. Not ruling out options. Was able to have meaningful talks with South Korea and added that was likely that swap line would not be used for a while.

- China Defense Ministry's Xiaogang expressed concerned about US, Japan and Philippines security talks.

- China State-owned banks (SOEs) said to be spotted selling USD for Yuan in offshore FX markets around 7.25 level (**Note: Speculative reports suggest that 7.25 may be a floor in prices for the PBOC in the near-term).

Currencies/fixed income

- USD began the session on firm footing after Fed Chair Powell signaled interest rates might remain higher for longer.

- Focus on EU inflation data and recent ECB speak. German State reading saw inflation tick higher from month-ago levels while Spanish Preliminary Jun reading saw inflation is back under 2%, below the ECB target level. EUR/USD clawed its way back above the 1.09 level in the session.

- USD/JPY was in focus as the yen currency continued to weaken. Pair tested above 144.50 in the session. The recent ECB forum saw the continued divergence in BOJ policy compared to other G4 members. Japanese official continue to not that they are watching FX markets with urgency in its verbal intervention phase. Dealers noted that 145 was a potential ‘line-in-the-sand’ for the next phase of intervention.

Economic data

- (NL) Netherlands Jun Producer Confidence: 1.0 v 2.1 prior.

- (FI) Finland May House Price Index M/M: -0.8% v 0.2% prior; Y/Y: -7.4% v -6.6% prior.

- (DE) Germany Jun CPI North Rhine Westphalia M/M: +0.3% v -0.2% prior; Y/Y: 6.2% v 5.7% prior.

- (FI) Finland Apr Final Trade Balance: €0.3B v €0.4B prelim.

- (SE) Sweden May Retail Sales M/M: 0.3% v 1.1% prior; Y/Y: -5.4% v -7.1% prior.

- (ES) Spain Jun Preliminary CPI M/M: 0.6% v 0.3%e; Y/Y: 1.9% v 1.7%e; CPI Core Y/Y: 5.9% v 5.5%e.

- (ES) Spain Jun Preliminary CPI EU-Harmonized M/M: 0.6% v 0.4%e; Y/Y: 1.6% v 1.5%e.

- (SE) Sweden June Consumer Confidence: 71.7 v 70.3 prior; Manufacturing Confidence: 102.3 v 102.4 prior; Economic Tendency Survey: 90.3 v 89.3 prior.

- (SE) Sweden Central Bank (Riksbank) raised Repo Rate by 25bps to 3.75% (as expected); increased QT by SEK1.5B to SEK5.0B/month.

- (TW) Taiwan May Monitoring Indicator: 12 v 11 prior.

- (DE) Germany Jun CPI Hesse M/M: 0.2% v 0.0% prior; Y/Y: 6.1% v 5.9% prior.

- (DE) Germany Jun CPI Bavaria M/M: +0.2% v -0.1% prior; Y/Y: 6.2% v 6.1% prior.

- (DE) Germany Jun CPI Brandenburg M/M: 0.3% v 0.1% prior; Y/Y: 6.7% v 6.3% prior.

- (DE) Germany Jun CPI Baden Wuerttemberg M/M: 0.3% v 0.1% prior; Y/Y: 6.9% v 6.6% prior.

- (ZA) South Africa Q2 BER Consumer Confidence: -25 v -23 prior.

- (UK) May Net Consumer Credit: £1.1B v £1.5Be; Net Lending: -£0.1B v -£0.5Be.

- (UK) May Mortgage Approvals:50.5 K v 49.7Ke.

- (UK) May M4 Money Supply M/M: 0.2% v 0.1% prior; Y/Y: 0.0% v 0.3% prior; M4 (ex-IOFCs) 3-month Annualized: -1.9% v -1.9% prior.

- (PT) Portugal Jun Consumer Confidence: -26.8 v -29.8 prior; Economic Climate Indicator: 1.8 v 1.6 prior.

- (EU) Euro Zone Jun Economic Confidence: 95.3 v 95.8e; Industrial Confidence: -7.2 v -5.6e; Services Confidence: 5.7 v 5.1e; Consumer Confidence (final): -16.1 v -16.1 advance.

- (DE) Germany June CPI Saxony M/M: +0.3% v -0.3% prior; Y/Y: 6.8% v 6.5% prior.

Fixed income issuance

- (DK) Denmark sold total DKK2.90B in 3-month and 6-month Bills.

Looking ahead

- (BE) Belgium Jun CPI M/M: No est v 0.4% prior; Y/Y: No est v 5.2% prior.

- 05:25 (EU) Daily ECB Liquidity Stats.

- 05:30 (ZA) South Africa May PPI M/M: No est v 0.0% prior; Y/Y: 8.0%e v 8.6% prior.

- 05:30 (HU) Hungary Debt Agency (AKK) to sell bonds.

- 06:00 (PT) Portugal May Retail Sales M/M: No est v -1.4% prior; Y/Y: No est v 2.4% prior.

- 06:00 (IE) Ireland Jun Preliminary CPI EU-Harmonized Y/Y: No est v 5.4% prior.

- 06:00 (US) Fed's Bostic on US Economic Outlook.

- 06:00 (RO) Romania to sell RON700M in 8.75% Oct 2028 Bonds.

- 06:45 (US) Daily Libor Fixing.

- 07:00 (CA) Canada Jun CFIB Business Barometer: No est v 56.4 prior.

- 07:00 (BR) Brazil Central Bank (BCB) Quarterly Inflation Report.

- 07:00 (BR) Brazil Jun FGV Inflation IGPM M/M: -1.7%e v -1.8% prior; Y/Y: -6.6%e v -4.5% prior.

- 08:00 (DE) Germany Jun Preliminary CPI M/M: +0.2%e v -0.1% prior; Y/Y: 6.3%e v 6.1% prior.

- 08:00 (DE) Germany Jun Preliminary CPI EU Harmonized M/M: +0.4%e v -0.2% prior; Y/Y: 6.8%e v 6.3% prior.

- 08:00 (UK) Daily Baltic Dry Bulk Index.

- 08:30 (US) Q1 Final GDP Annualized (3rd reading) Q/Q: 1.4%e v 1.3% prelim; Personal Consumption: 3.8%e v 3.8% prelim.

- 08:30 (US) Q1 Final GDP Price Index (3rd reading): 4.2%e v 4.2% prelim; Core PCE Q/Q: 5.0%e v 5.0% prelim.

- 08:30 (US) Initial Jobless Claims: 265Ke v 264K prior; Continuing Claims: 1.77Me v 1.759M prior.

- 08:30 (US) Weekly USDA Net Export Sales.

- 09:00 (RU) Russia Gold and Forex Reserve w/e Jun 23rd: No est v $587.5B prior.

- 09:00 (CL) Chile May Unemployment Rate: No est v 8.7% prior.

- 10:00 (US) May Pending Home Sales M/M: -1.0%e v 0.0% prior; Y/Y: No est v -22.6% prior.

- 10:30 (US) Weekly EIA Natural Gas Inventories.

- 11:30 (US) Treasury to sell 4-Week and 8-Week Bills.

- 12:00 (CA) Canada to sell 30-year Bonds.

- 12:30 (UK) BOE's Tenreyro (dissenter).

- 15:00 (AR) Argentina Q1 Current Account Balance: -$4.4Be v +$1.7B prior.

- (BR) Brazil May Total Formal Job Creation: No est v +180.0K prior.

- (AR) Argentina Jun Consumer Confidence: No est v 38.3 prior.

- 18:00 (NZ) New Zealand ANZ Jun Consumer Confidence: No est v 79.2 prior.

- 19:00 (KR) South Korea May Industrial Production M/M: -0.9%e v -1.2% prior; Y/Y: -8.6%e v -8.9% prior; Cyclical Leading Index: No est v -0.2 prior.

- 19:01 (UK) Jun Lloyds Business Barometer: No est v 28 prior.

- 19:30 (JP) Japan May Jobless Rate: 2.6%e v 2.6% prior; Job-To-Applicant Ratio: 1.32e v 1.32 prior.

- 19:30 (JP) Japan Jun Tokyo CPI Y/Y: 3.4%e v 3.2% prior; CPI (ex-fresh food) Y/Y: 3.5%e v 3.1% prior (revised from 3.2%)r; CPI (ex-fresh food/energy) Y/Y: 4.0%e v 3.9% prior.

- 19:50 (JP) Japan May Preliminary Industrial Production M/M: -1.0%e v +0.7% prior; Y/Y: +4.3%e v -0.7% prior.

- 21:10 (JP) BOJ Outright Bond Purchase Operation for 3~5 Years, 5~10 Years, 10~25Years and 25-Years~ maturities.

- 21:30 (AU) Australia May Private Sector Credit M/M: 0.4%e v 0.6% prior; Y/Y: No est v 6.6% prior.

- 21:30 (CN) China Jun Manufacturing PMI (Govt Official): 49.0e v 48.8 prior; Non-manufacturing PMI: 53.3e v 54.5 prior; Composite PMI: No est v 52.9 prior.

- 22:00 (SG) Singapore May M2 Money Supply Y/Y: No est v 1.9% prior; M1 Money Supply Y/Y: No est v -13.5% prior.

- 23:30 (JP) Japan to sell 3-Month Bills.