Blinken meets China president in Beijing, Paris air show begins

EU Mid-Market Update: Blinken meets China President in Beijing; Paris Air Show begins; Continued focus on Powell testimony and various rate decisions during the week.

Notes/observations

- Macro attention on geopolitical tensions with US Sec of State Blinken meeting China Pres Xi following his meeting with China’s Wang Yi, which resulted in Yi stating US/China relations are at a low point.

- Paris Airshow week begins with various aircraft orders expected throughout the remainder of the week.

- Heightening focus on UK mortgages as rates continue to climb on higher rate path expectations. Over the weekend, UK Govt refuted rumors of financial assistance to homeowners. UK May inflation on Wed, ahead of BoE rate decision on Thurs, where MPC expected to hike by 25bps, taking bank rate to 4.75%.

- Light news on the corporate front as US markets are closed for Juneteenth national holiday.

- Asia closed lower with Nikkei225 under-performing at -1.0%. EU indices are -0.5% to +0.1%. US futures are mixed. Gold -0.1%, DXY +0.1%; Commodity: Brent -0.2%, WTI -0.3%, TTF -5.8%; Crypto: BTC -0.3%, ETH -0.3%.

Asia

- China State Council meeting on Friday noted that it must adopt more forceful measures to support the domestic economy but did not provide any details on anticipated forthcoming such stimulus.

- Goldman cut its China 2023 GDP growth target from 6.0% to 5.4% and cut the 2024 GDP growth target to from 4.6% 4.5%.

- Nomura cut its China Growth forecasts 2023 from 5.5% to 5.1% and cut 2024 growth outlook from 4.2% to 3.9%.

- US Sec of State Blinken met with Chinese Foreign Min Qin Gang upon arriving in Beijing; Described talks as 'candid', agreed to meet again.

- China Dir Foreign Affairs Commission Wang Yi: US/China relationships are at a low point; China, US must choose between cooperation or conflict; No room to compromise on Taiwan.

Europe

- ECB Chief Lagarde speech at the G30 dinner reiterated her stance that Inflation would likely to remain too high for too long and that the General Council would likely to continue to hike rate at the next meeting in July.

- UK Jun Rightmove House Prices M/M: 0.0% v 1.8% prior; Y/Y: 1.1% v 1.5% prior (**Note: 1st monthly fall in asking prices this year and the first drop seen in the month of June since 2017).

- UK Chancellor of the Exchequer (Fin Min) Hunt ruled out direct support for UK households as mortgage rates continued to rise after concluding that such measures would increase govt borrowing.

- Israel PM Netanyahu announced the resumption of judicial overhaul after talks fall apart. Added that the opposition had not been negotiating in good faith.

Americas

- Treasury released its semi-annual currency report and found that no major US trading partners had manipulated their currencies for an export advantage. Reiterated its call for increased currency transparency from China. The report removed Japan from its monitoring list.

Energy

- Kuwait state-run National Oil Company stated that its current production was over 2.8M bpd and would reach 3M bpd in 2025.

Speakers/fixed income/FX/commodities/erratum

Equities

Indices [Stoxx600 -0.64% at 463.80, FTSE -0.42% at 7,610.60, DAX -0.59% at 16,260.55, CAC-40 -0.63% at 7,341.74, IBEX-35 -0.24% at 9,472.62, FTSE MIB -0.26% at 27,789.00, SMI -0.41% at 11,339.20, S&P 500 Futures -0.05%].

Market Focal Points/Key Themes: European indices open generally lower and drifted further into the red as the session wore on; better performing sectors include financials and telecom; underperforming sectors include materials and health care; reportedly AstraZeneca looking to spin-off China unit; Coca-Cola HBC acquires Finlandia from Brown-Forman; US markets closed for holiday.

Equities

-Consumer discretionary: Beiersdorf [BEI.DE] +1.5% (analyst action - raised to Buy at Societe Generale).

- Consumer staples: Fevertree [FEVR.UK] +1.0% (analyst action - raised to Buy at HSBC).

- Energy: Subsea [SUBC.NO] -3.0% (does not extend its offer for DOF Group ASA following rejection by the board of DOFG on June 16th).

- Financials:

- Healthcare: Sartorius [SRT.DE] -13.0%, Sartorius Stedim Biotech [DIM.FR] -13.0% (cut FY23 outlook - post close), Ultimovacs [ULTIMO.NO] +4.0% (provides 3-year update from phase I study in malignant melanoma).

- Industrials: MTU Aero Engines [MTX.DE] +3.5% (raises FY23 Adj EBIT guidance), Getlink [GET.FR] +3.0% (analyst action - raised to Overweight at Morgan Stanley), Vinci [DG.FR] -4.0% (press report that French govt may increase taxes on toll road firms), BASF [BAS.DE] -2.5% (analyst action), Airbus [AIR.FR] +0.5% (Paris airshow order anticipation).

- Technology: Vitesco Technologies Group [VTSC.DE] +0.5% (large contract).

Speakers

- ECB’s Kazimir (Slovakia) noted that uUpward inflation risks remained substantial; Sept rate hike remained an open option.

- ECB's Simkus (Lithuania): No doubt that rates will be raised again in July. Too early to assess the need for a rate hike at the September meeting and added that ECB was close to the end of the current tightening cycle.

- ECB said to tell banks to brace for harsher stress test results.

- Hungary PM Chief of Staff Gulyas stated that the Govt to impose price cap on certain company power contracts and expected companies to boost their production capacities in exchange. Measure to cost HUF40B extra in the state budget.

- China Foreign Min Wang Yi said to have told US Sec of State Blinken to revoke “illegal” unilateral sanctions on China and end its suppression of the nation’s technology development,

- US State Dept noted that Blinken and Wang Yi had candid and productive talks China Pres Xi was said to noted that Blinken's visit could help stabilize China-US ties. Stressed that China had made its position clear and hoped Blinken would make more positive contributions to stabilizing the relations between the two countries.

Currencies/fixed income

-USD was little changed in quiet trading as the trading week began. Dealers note that Fed Chief Powell's testimony later this week to Congress will be closely watch particularly after the Fed’s ‘hawkish pause last week.

- This week will again have a plethora of rate decisions (12 in all) with SNB, BOE and Turkey in focus (all 3 are expected to hike rates).

- The USD/JPY pair was drifting towards the 142 area following the dovish BOJ stance from its policy decision last week. Japan top currency diplomat Kanda welcomed the US Treasury decision to drop Japan from its monitoring list on the currency front.

Economic data

- (TR) Turkey June Consumer Confidence: 85.1 v 91.1 prior.

- (CH) Swiss weekly Total Sight Deposits (CHF): 510.6B v 509.8B prior; Domestic Sight Deposits: 499.9B v 498.3B prior.

- (HK) Hong Kong May Unemployment Rate: 3.0% v 2.9%e.

Fixed income issuance

- (SK)) Slovakia Debt Agency (Ardal) sold total €327.5M in 2027, 2032, 2035 and 2036 Bonds.

- (NO) Norway sold NOK6.0B vs. NOK6.0B indicated in 6-month bills; Avg Yield: 3.95% v 3.69% prior; bid-to-cover: 1.66x v 1.90x prior.

Looking ahead

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

- 05:30 ((DE) Germany to sell €5.0B in 12-month BuBills.

- 05:30 (NL) Netherlands Debt Agency (DSTA) to sell 3-month and 6-month Bills.

- 05:30 (ZA) South Africa announces details of upcoming I/L bond sale (held on Fridays).

- 06:00 (IL) Israel to sell combined ILSB1.5B in 2026, 2029, 2031, 2032 and 2052 bonds (6 tranches).

- 06:00 (BE) Belgium Debt Agency (BDA) to sell 2027, 2033 and 2054 OLO Bonds.

- 06:45 (US) Daily Libor Fixing.

- 07:00 (IE) ECB's Lane (Ireland, chief economist).

- 07:25 (BR) Brazil Central Bank Weekly Economists Survey.

- 07:40 (DE) ECB's Schnabel (Germany).

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

- 08:30 (CA) Canada May Industrial Product Price M/M: No est v -0.2% prior; Raw Materials Price Index M/M: No est v No est v 2.9% prior.

- 08:00 (IN) India announces details of upcoming bond sale (held on Fridays).

- 09:00 (FR) France Debt Agency (AFT) to sell €4.9-6.5B in 3-month, 6-month and 12-month bills.

- 09:00 (US) Mid-June Manheim wholesale used vehicle prices.

- 09:00 (FR) ECB's Villeroy (France).

- 10:00 (US) June NAHB Housing Market Index: 51e v 50 prior.

- 14:00 (ES) ECB's De Guindos (Spain).

- 17:00 (NZ) New Zealand Q2 Consumer Confidence: No est v 77.7 prior.

- 18:00 (CL) Chile Central Bank (BccH) Interest Rate Decision: Expected to leave Overnight Rate Target unchanged.

- 21:15 (CN) China PBOC Monthly 1-year and 5-year Loan Prime Rate (LPR) Setting. Expected to cut rates by 10bps to 3.55% and 4.20% respectively.

- 21:30 (AU) Reserve Bank of Australia (RBA) June Minutes.

- 21:35 (AU) RBA's Kent.

- 23:30 (AU) RBA's Bullock.