ECB chief Lagarde also confirmed that it’s July rate-hike plan was proceeding

Notes/Observations

-Risk appetite gained traction as it fed off the news that China halved the quarantine time for international travelers. Beijing and Shanghai declared zero Covid cases for the first time in months. Shanghai Disneyland set to reopen on June 30th.

-Global macro revolved around the G7 and NATO meetings as a comments from officials announce up to $5B for global food security as leaders work on a plan to export the grain out of Ukraine. Officials also advised on a push to ban imports of Russian gold.

-China Foreign Min Zhao preempted the NATO discussions and warned NATO not to destabilize Asia, heightening ongoing geopolitical tensions.

-In Europe, ECB comments from both Kazaks and Lagarde confirmed plans to hike 25bps in July. Kazaks reiterated that frontloading with 50bps in July is also reasonable.

-A swath of economic data continued to disappoint as Nordic countries Sweden and Denmark showed declining retail sales y/y. France and Germany both missed in consumer confidence readings.

-In general Asia closed 0.2-0.9% higher as bond yields were mixed. EU indices start 0.8-1.5% higher with bond yields higher. US Futures point just in the green. Elsewhere Gold +0.1%, BTC -1.5%, ETH -0.4%, DXY -0.1%, Brent +1.6%, WTI +1.5%.

-Looking ahead, awaiting statements from NATO officials and ECB members Lane, Elderson, Panetta, also BOE's Cunliffe.

- Easing of some Chinese pandemic restrictions aiding risk appetite (China to cut quarantine time in half for international traveler from 21days to 10 days).

- Focus on ECB annual conference in Sintra; NATO Summit in Spain.

- Plethora of EU inflation data in coming days (Germany on Wed, France on Thurs).

Asia

- China PBOC Open Market Operation (OMO) registered its 3rd straight injection and largest cash addition into the financial system in nearly three months to meet month-end liquidity demands.

- China State Planner (NDRC) Vice Sec General Ou stated that country was facing new challenges in stabilizing jobs and prices due to coronavirus and Ukraine war. Reiterated govt stance that would not resort to flood-like stimulus. – To roll out tools in its policy reserve in a timely way to cope with challenges.

Ukraine conflict

- Russia Dep Chair of Security Council Medvedev (former Pres): Any NATO encroachment on Crimea could lead to WWIII.

- G7 members to examine ways of curbing energy costs including possibility of putting temporary price caps on oil and gas imports.

Europe

- UK Northern Ireland protocol Bill passed second reading in Commons (vote: 295 votes to 221) and progressed to the committee stage.

- EU's Sefcovic stated that UK's move on the Northern Ireland protocol meant 'constant uncertainty'; Called on UK to return to the negotiating table.

- Citi/Yougov 12-month inflation expectations: 6.1% v 6.1% prior; 5-10 Year inflation expectations: 4.0% v 4.2% prior.

Speakers/fixed income/FX/commodities/erratum

Equities

Indices [Stoxx600 +0.70% at 417.98, FTSE +1.05% at 7,334.29, DAX +0.87% at 13,300.25, CAC-40 +1.37% at 6,129.96, IBEX-35 +1.40% at 8,357.96, FTSE MIB +1.33% at 22,221.00, SMI -0.03% at 10,903.80, S&P 500 Futures +0.59%].

Market focal points/key themes

Equities

- Consumer discretionary: Adidas [ADS.DE] +0.5% (Nike results).

- Industrial: Kongsberg Gruppen [KOG.NO] +2% (US confirms defense system supply to Ukraine).

- Technology: Wise [WISE.UK] -5% (earnings), WanDisco [WAND.UK] +11% (large order).

Speakers

- ECB chief Lagarde reiterated stance that General Council planned to hike rates by 25bps at July's meeting as inflation in region was undesirably high. Reiterated stance that also plan to raise the key interest rates again in September; a larger increment would be appropriate if the medium-term inflation outlook persisted or deteriorated.

- ECB said to be considering pairing a new anti-fragmentation tool with auctions where banks could park cash for a more favorable interest rate. Process to likely drain cash from the banking system to offset any bond purchases made to cap borrowing costs from high debt countries. Would see bond purchases sterilized at weekly liquidity operations. ECB could sell bonds in the core to fund purchases in the periphery to neutralize the impact. Not been decided yet if the ECB will make all the details public to give it maximum discretion when intervening in the market.

- ECB's Kazaks (Latvia, hawk) stated that frontloading rate hikes with 50bps in July was reasonable; His base case for rate hikes was 25bps in July and 50bps in Sept and stress that ECB must nip inflation situation in the bud. Fragmentation risk can't impede monetary policy. Already had reinvestment flexibility iand could come up with other fragmentation tools if necessary.

- China to cut quarantine times for international travelers. NATO should stop spreading provocative words about China. Their new view of China follows an old Cold War mentality (**Note: NATO was expected to label China a "systematic challenge" in its 10-year plan).

- China Foreign Ministry spokesman Zhao Lijian stated that NATO should not try to destabilize Asia.

- Moody's affirmed Australia sovereign rating at Aaa, outlook stable.

- US Official stated that G7 to commit up to $5B for global food security. To ask ministers with 'urgently' consulting with third world countries to develop a price cap around oil. G7 to issue a collective statement acknowledging the harms of China’s non-competitive behavior.

Currencies/Fixed income

- Risk appetite found some legroom in the session after China announced some easing to its pandemic restrictions..

- EUR/USD probed the 1.06 neighborhood with focus on the plethora of EU inflation data in coming days (Germany on Wed, France on Thurs). ECB's Kazaks stated that he favored frontloading rate hikes with a 50bps in increase at the July meeting being reasonable. ECB chief Lagarde also confirmed that it’s July rate-hike plan was proceeding.

- GBP/USD at 1.2285 by mid-session and USD/JPY pair at 135.70 (near 24-year highs).

- Bond yields were again high as concerns bout inflation simmered.

Economic data

- (DE) Germany July GFK Consumer Confidence: -27.4 v -27.3e (record low).

- (SE) Sweden May Trade Balance (SEK): -1.9B v -3.2B prior.

- (SE) Sweden May Retail Sales M/M: -0.6% v +0.4% prior; Y/Y: -2.3% v +2.4% prior.

- (DK) Denmark May Retail Sales M/M: -1.1% v +1.1% prior; Y/Y: -7.0% v +1.2% prior.

- (FR) France Jun Consumer Confidence: 82 v 84e.

- (AT) Austria Jun Manufacturing PMI: 51.2 v 56.6 prior (24th straight expansion).

- (IT) Italy Apr Industrial Sales M/M: 2.7% v 2.5% prior; Y/Y: 22.0% v 21.6% prior.

Fixed income issuance

- (ID) Indonesia sold total IDR7.8T vs. IDR9.0T target in Islamic bills and bonds (sukuk).

- (UK) DMO sold £1.0B in 0.125% Aug 2031 inflation-linked Gilts (UKei) Real Yield: -1.335% v -2.829% prior; bid-to-cover: 2.77x v 2.30x prior.

Looking ahead

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

- 05:30 (ZA) South Africa Q1 Non-Farm Payrolls Q/Q: No est v 0.6% prior; Y/Y: No est v 1.6% prior.

- 05:30 (NL) ECB’s Elderson (Netherlands, SSM).

- 05:30 (HU) Hungary Debt Agency (AKK) to sell 3-Month Bills.

- 05:30 (DE) Germany to sell €4.0B in 0.00% Oct 2027 BOBL.

- 05:30 (EU) ECB allotment in 7-Day Main Refinancing Tender (MRO).

- 05:30 (ZA) South Africa to sell combined ZAR3.9B in 2032, 2037 and 2044 bonds.

- 06:00 (IE) Ireland May Retail Sales Volume M/M: No est v 3.8% prior; Y/Y: No est v 6.1% prior.

- 06:45 (US) Daily Libor Fixing.

- 07:00 (MX) Mexico May Unemployment Rate NSA (unadj): 3.1%e v 3.0% prior.

- 07:00 (UK) BOE Cunliffe.

- 07:00 (IT) ECB’s Panetti (Italy).

- 08:00 (HU) Hungary Central Bank (MNB) Interest Rate Decision: Expected to raise Base Rate by 50bps to 6.40%.

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

- 08:30 (US) May Advance Goods Trade Balance: -$105.0Be v -$106.7B prior (revised from -$105.9B).

- 08:30 (US) May Preliminary Wholesale Inventories M/M: 2.2%e v 2.2% prior; Retail Inventories M/M: 1.6%e v 0.7% prior.

- 08:30 (CL) Chile Central Bank Economists Survey.

- 08:55 (US) Weekly Redbook LFL Sales data.

- 09:00 (US) Apr FHFA House Price Index M/M: 1.6%e v 1.5% prior.

- 09:00 (US) Apr S&P/Case-Shiller House Price Index (20-city) M/M: 1.95%e v 2.42% prior; Y/Y: 21.15%e v 21.17% prior; House Price Index (overall) Y/Y: No est v 20.55% prior.

- 09:00 (EU) Weekly ECB Forex Reserves.

- 09:00 (HU) Hungary Central Bank Gov post rate decision press conference.

- 09:00 (EU) ECB weekly QE bond buying update.

- 09:20 (EU) NATO Summit.

- 10:00 (US) Jun Consumer Confidence: 100.0e v 106.4 prior.

- 10:00 (US) Jun Richmond Fed Manufacturing Index: -5e v -9 prior.

- 12:30 (US) Fed’s Daly.

- 13:00 (US) Treasury to sell 7-Year Notes.

- 15:00 (AR) Argentina Q1 Current Account: No est v $0.4B prior.

- 16:30 (US) Weekly API Oil Inventories.

- 17:00 (KR) South Korea Jun Consumer Confidence: No est v 102.6 prior.

- 19:01 (UK) Jun BRC Shop Price Index Y/Y: No est v 2.8% prior.

- 19:50 (JP) Japan May Retail Sales M/M: 1.0%e v 1.0% prior (revised from 0.8%); Y/Y: 4.0%e v 3.1% prior (revised from 2.9%);; Dept. Store, Supermarket Sales Y/Y: 4.9%e v 4.0% prior.

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

- 21:30 (AU) Australia May Retail Sales M/M: 0.4%e v 0.9% prior.

- 23:00 (TH) Thailand to sell THB6.0B in 2072 Bonds.