Focus on UK politics, FOMC minutes

Notes/Observations

- Europe opens higher ahead of FOMC mins later. Markets are attempting to outpace Central Banks by potentially starting to price in a lower interest rate environment as growth stocks took a tailwind for the first time in a while yesterday.

- UK PM Johnson fights for political survival; Focus on UK Fin Min resignation alongside others as PM leadership in serious doubt. GBP/USD remains stable while FTSE100 rallies.

- OPEC Sec Gen Barkindo passed away. Both Brent and WTI steadily climbed since the announcement. Psychological $100 level is receiving activity as price hovers nearby.

- Asia closed lower with Hang Seng underperforming at -1.6%. EU indices higher at +0.0-1.0%, bond yields mainly lower, with exception for UK10YR. US futures are flat. Safe haven: Gold 0.0%, DXY 0.0%; Commodity: Brent +1.1%, WTI +0.6%, Copper -0.7%, UK Nat Gas -10.5%; Speculative: BTC +1.5%, ETH +0.5%.

Asia

- BOJ Quarterly Survey: 87.1% of households now expect increase in prices in 1-year vs 84.3% in March survey.

- China covid situation: Shanghai has 9 of 16 districts conducting mass testing, City of Xi’an imposed temporary 7 day control measures.

Europe

- Chancellor Sunak tenders his resignation from UK Cabinet; Nadhim Zahawi named new Chancellor of the Exchequer.

- Rebel candidates in the 1922 Committee elections reportedly plan to advocate for change to party rules that would allow second no-confidence vote for PM Johnson.

- BOE’s Tenreyro (dove): Tackling inflation early would have hurt jobs. Would expect the QE unwind to have no material effect on UK economy; Our experience so far supports that.

Energy

- Norway oil and gas worker strike ended with workers to return to job as soon as possible. Government had imposed forced settlement, ending the strike.

Speakers/fixed income/FX/commodities/erratum

Equities

Indices [Stoxx600 +1.33% at 406.00, FTSE +1.16% at 7,106.80, DAX +1.03% at 12,528.54, CAC-40 +1.04% at 5,855.35, IBEX-35 +0.01% at 7,960.50, FTSE MIB +0.42% at 20,793.00, SMI +1.01% at 10,810.73, S&P 500 Futures -0.33%].

Market Focal Points/Key Themes: European indices open higher across the board, but later slipped a bit following reports China to introduce vaccine requirements; all sectors trading in the green in the early part of the session; leading sectors include consumer discretionary and materials; lagging sectors include utilities and telecom; Amazon partners with Grubhub; no major earnings expected in the upcoming US session.

Equities

- Consumer discretionary: Just Eat Takeaway.com [JET.UK] +17% (partnership with Amazon), Bang & Olufsen [BO.DK] +3% (earnings).

- Energy: Parkmead Group [PMG.UK] +21% (trading update), Uniper [UN01.DE] -7% (German govt may acquire stake).

- Healthcare: Roche [ROG.CH] +2% (FDA priority review).

- Industrials: Alstom [ALO.FR] +3% (large order).

- Technology: IDEX Biometrics [IDEX.NO] -2% (CFO departs).

Speakers

- ECB's Wunsch (Belgium, hawk): ECB should be as unlimited as possible on fragmentation.

- BOE’s Pill (chief economist) reiterated stance that aim was to return inflation to 2% target; Current situation was very unsatisfactory. MPC members were not unanimous on short term rate outlooks. Must ensure the current elevated level of headline inflation did not become embedded. Willing to act faster on tightening if needed; new data to drive decision on tightening.

- BOE's Cunliffe stated that would act to make sure inflation shock does not become embedded.

- PM Johnson's allies reportedly looking for signs of coordinated plot to oust him. PM said to be bracing for more potential resignations from his cabinet on Wednesday morning.

- Japan PM Kishida said to be considering a cabinet reshuffle.

- Malaysia Central Bank Policy Statement noted that the rate hike followed positive growth prospects. Current stance remained accommodative and supportive of economic growth. Adjustments to policy to be done on a measured and gradual basis. MPC to continue assessing evolving conditions and their implications to the overall outlook on growth and inflation. Maintained 2022 CPI forecast between 2.2-3.2%.

- Beijing official stated that would require vaccination for entering public venues from July 11th; Would resume direct international commercial flights in an orderly way.

- OPEC Sec Gen Barkindo said to have passed away.

Currencies/Fixed income

- USD continued to be the main beneficiary of risk aversion flows due to fears over weaker global economic growth. Upcoming release of FOMC Minutes likely to confirm the Fed’s "hawkish" stance.

- GBP/USD staying below the 1.20 level on UK political concerns as PM Johnson's allies said to be looking for signs of coordinated plot to oust him after two key ministers resigned on Tuesday (Health Sec Javid and Chancellor of the Exchequer Sunak) in protest of PM’s leadership.

- EUR/USD continued to hit fresh 20-year lows to test below 1.0230 level in the session. Dealers pondered whether the deterioration in growth prospects was enough to curtail tightening cycles.

- USD/JPY saw the yen receive some safe-haven flows to approach the 135 level early in the session.

Economic data

- (DE) Germany May Factory Orders M/M: +0.1% v -0.5%e; Y/Y: -3.1% v -5.0%e.

- (SE) Sweden May GDP Indicator M/M: 0.7% v 0.2%e; Y/Y: 4.5% v 3.3% prior.

- (SE) Sweden May Private Sector Production M/M: 0.8% v 1.2% prior; Y/Y: 6.0% v 5.3% prior.

- (SE) Sweden May Industrial Orders M/M: -5.5% v -3.9% prior; Y/Y: -7.5% v +7.6% prior.

- (SE) Sweden May Industry Production Value Y/Y: +0.2% v -0.3% prior; Service Production Value Y/Y: 7.9% v 8.4% prior.

- (SE) Sweden May Household Consumption M/M: 0.7% v 0.4% prior; Y/Y: 5.2% v 8.8% prior.

- (FI) Finland May Preliminary Trade Balance: -€1.2B v -€0.9B prior.

- (ES) Spain May Industrial Production M/M: -0.2% v -0.5%e; Y/Y: 3.8% v 3.3%e; Industrial Output NSA (unadj) Y/Y: +6.5% v -0.6% prior.

- (AT) Austria Jun Wholesale Price Index M/M: 2.5% v 1.0% prior; Y/Y: 26.5% v 25.1% prior.

- (HU) Hungary May Retail Sales Y/Y: 11.1% v 11.0%e.

- (HU) Hungary May Industrial Production M/M: +1.4% v -0.5%e; Y/Y: 3.4% v 1.7%e.

- (MY) Malaysia Central Bank (BNM) raised Overnight Policy Rate by 25bps to 2.25% (as expected).

- (DE) Germany May Construction PMI: 45.9 v 45.4 prior.

- (TW) Taiwan Jun CPI Y/Y: 3.6% v 3.6%e; CPI Core Y/Y: 2.8% v 2.8%e; WPI Y/Y: 16.5% v 17.0% prior.

- (UK) Jun Construction PMI: 52.6 v 55.0e (17th month of expansion).

- (EU) Euro Zone May Retail Sales M/M: 02% v 0.4%e; Y/Y: +0.3% v -0.2%e.

- (GR) Greece Apr Retail Sales Value YoY: 10.0% v 12.3% prior; Retail Sales Volume YoY: 18.8% v 20.2% prior.

Fixed income issuance

- (IN) India sold total INR210B vs. INR210B indicated in 3-month, 6-month and 12-month bills.

- (DK) Denmark sold total DKK4.36B in 2024 and 2031 DGB Bonds.

- (NO) Norway sold NOK2.0B vs. NOK2.0B indicated in 1.75% Feb 2027 bonds; Avg Yield: 2.74% v 1.36% prior; Bid-to-cover: 3.40x v 2.33x prior.

- (SE) Sweden sold SEK10.0B vs. SEK10.0B indicated in 3-month Bills; Avg Yield: 0.6755% v 0.5224% prior; Bid-to-cover: 2.09x v 1.38x prior.

Looking ahead

- (RU) Russia Jun Light Vehicle Car Sales Y/Y: No est v -83.5% prior.

- (UR) Ukraine Jun Official Reserve Assets: No est v $25.1B prior.

- (RO) Romania Central Bank (NBR) Interest Rate Decision: Expected to raise Interest Rates by 75bps to 4.50%.

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

- 05:30 (DE) Germany to sell €6.0B in new 1.7% Aug 2032 Bunds.

- 05:30 (GR) Greece Debt Agency (PDMA) to sell €625M in 13-week Bills.

- 05:30 (ZA) South Africa announces details of next bond auction (held on Tuesdays).

- 06:00 (IE) Ireland Jun Unemployment Rate: No est v 4.7% prior.

- 06:00 (EU) EU Commission to sell combined €2.5B in 3-month and 6-month bills.

- 06:45 (US) Daily Libor Fixing.

- 07:00 (US) MBA Mortgage Applications w/e July 1st: No est v 0.7% prior.

- 07:00 (MX) Mexico Apr Gross Fixed Investment: 7.2%e v 5.9% prior.

- 07:00 (UK) Weekly PM Question time in House.

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

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

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

- 09:00 (UK) BOE’s Cunliffe.

- 09:45 (US) Jun Final S&P/Markit Services PMI: 51.6e v 51.6 prelim; PMI Composite: 51.2e v 51.2 prelim.

- 10:00 (US) Jun ISM Services Index: 54.0e v 55.9 prior.

- 10:00 (US) May JOLTS Job Openings: 10.900Me v 11.400M prior; Quits rate No est v 2.9% prior.

- 11:00 (CO) Colombia May Exports: $4.8Be v $5.4B prior.

- 14:00 (US) FOMC Jun Meeting Minutes.

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

- 19:00 (KR) South Korea May Current Account Balance: No est v -$79.3B prior; Balance of Goods (BOP): No est v $2.9B prior.

- 21:00 (PH) Philippines May Unemployment Rate: No est v 5.7% prior.

- 21:30 (AU) Australia May Trade Balance (A$): $10.7Be v 10.5B prior; Exports M/M: +2%e v 1% prior; Imports M/M: +3%e v -1% prior.

- 22:00 (JP) Japan Jun Tokyo Avg Office Vacancies: No est v 6.4% prior.

- 22:00 (SL) Sri Lanka Central Bank (CBSL) Interest Rate Decision: Expected to leave Key Rates unchanged.

- 23:00 (ID) Indonesia Jun Foreign Exchange Reserves: No est v $135.6B prior.

- 23:30 (JP) Japan to sell 6-Month Bills.

- 23:35 (JP) Japan to sell 30-Year JGB Bonds.