Sintra takes spotlight as ECB comments fall in line

EU mid-market update: Sintra takes spotlight as ECB comments fall in line; French anti-far-right coalition talks in focus; Attention turns to Powell.

Notes/observations

- Copious amount of ECB speak as Sintra conf in Portugal continues. Heard from Lagarde, Centeno, Guindos, Muller, Lane, Wunsch, Simkus and Vasle. Rhetoric remains open minded, with no pre-determined rate path, noting that every meeting is live, and cuts can be expected if inflation trajectory remains.

- US dollar firmed up as futures fall ahead of expected comments from Fed Chair Powell at Sintra.

- French CAC-40 index almost erased all gains made yesterday as traders are watching center-far left coalition talks ahead of 2nd round of French elections this Sunday; Both parties indicated they would try to beat far-right dominance indicated by 1st round's results, but hurdles remain.

- Oil rises with concern about impacts of Hurricane Beryl (Cat 5) and upcoming July 4th demand spike in US.

- Nikkei225 closed above 40K. Yen weakens further, USD/JPY ~161.7, extra focus over next 48 hours for potential intervention as US markets will be closed for second half of Wed and all of Thurs. BOJ/MOF favors lower liquidity in the past for FX intervention.

- Asia closed mixed with Nikkei225 outperforming +1.2%. EU indices are -0.2% to -1.3%. US futures are -0.3% to -0.5%. Gold -0.1%, DXY +0.1%; Commodity: Brent +0.7%, WTI +0.7%; Crypto: BTC -0.5%, ETH -1.2%.

Asia

- South Korea Jun CPI M/M: -0.2% v 0.1%e; Y/Y: 2.4% v 2.6%e (slowest y/y rise since July 2023); CPI Core Y/Y: 2.2% v 2.2%e.

- China banks said to tighten mutual fund product sales to retail clients in order to control risk.

- China Industry Ministry MIIT: Issues guidelines for building standardization system for AI sector.

- China Commerce Min Wang: Hope to start Free Trade Agreement (FTA) talks with Switzerland.

- Reserve Bank of Australia (RBA) Jun Minutes: Economic path consistent with CPI return to target in 2026.

- South Korea: Liquidity during extended FX trading hours was favorable.

- Indonesia said to be preparing ways to protect domestic textile industry, considering trade levy.

- Financial Press Survey: Japan bond market players expect BOJ to reduce monthly JGB buying to ¥4.65T in the first year and to ¥3.55T in the 2nd year.

- Japan Chief Cabinet Sec Hayashi: Rising interest rates could put pressure on govt finances.

- New Zealand signs trade deal with Costa Rica, Iceland, Switzerland - financial press.

Europe

- Croatia PM Plenkovic: Vujcic has a good chance to remain as central bank chief.

- Labour party reportedly considers tightening Whitehall control of the NHS - FT.

- Hungary PM Orban arrives in Kyiv for talks with Ukraine's Zelenskiy - press.

- ECB’s Centeno (Portugal, dove): Every meeting is open for us to make a decision.

- ECB's Muller (Estonia): Can probably cut more if baseline holds.

- ECB's De Guindos (Spain): Reiterates no pre-determined rate path due to uncertainty.

- ECB's Lane (Ireland, chief economist): Natural for markets to reprice around elections; What we are seeing in France looks like orderly repricing to me.

- ECB's Kazaks (Latvia): Market bets of 1-2 cuts consistent with baseline; No reason to use TPI right now.

- ECB’s Wunsch (Netherlands): Barring major negative surprises, ECB has room for second rate cut; Reiterates first 50bps of rate cuts are relatively easy; July an option in theory, in practice must be cautious.

- ECB Chief Lagarde: ECB work not done, must remain vigilant; Soft landing for Eurozone economy not guaranteed - speech text.

- ECB's Simkus (Lithuania): Case for July rate cut has gone; Doesn't see disorderly moves in French bonds.

- ECB’s Vasle (Slovenia): Rates can be cut further if things go as expected; Labor market is important for next steps.

Americas

- US Supreme court partially backs trump's immunity claim; Vote 6-3; Mixed ruling will potentially further delay any federal trial.

- Argentina officials move to strengthen bank support for debt plan - press.

- Brazil Fin Min Haddad: BRL is weak versus the USD, has weakened more than peers.

- NHC update on Hurricane Beryl: Potentially a catastrophic Category 5 Hurricane in the Eastern Caribbean; Now officially the first Cat 5 Hurricane in the Atlantic [**Note: the earliest category 5 hurricane known on record in the Atlantic basin; last time Atlantic Hurricane season saw Cat 5 Hurricane in July was Hurricane Emily on July 16th, 2005].

Global conflict/tensions

- Reportedly NATO is set to establish new Kyiv post for Ukraine - WSJ.

- N. Korea successfully conducted new tactical ballistic missile on Monday, July 1st.

- Cuba's expansion of electronic eavesdropping stations may be linked to China, referencing a report with satellite imagery — WSJ.

- United Nations agency: Russia has been using Kaliningrad, its exclave that borders Poland and Lithuania, as one of its bases to disrupt EU satellite systems.

Energy

- Iran Oil Min Owji: Change in US govt will not affect our oil exports.

- Federal court in Louisiana reportedly lifts Biden pause on new natural gas exports - US press.

Speakers/fixed income/FX/commodities/erratum

Equities

Indices [Stoxx600 -0.44% at 510.80, FTSE -0.13% at 8,155.92 , DAX -0.88% at 18,161.45 , CAC-40 -0.42% at 7,529.12 , IBEX-35 -1.24% at 10,920.00 , FTSE MIB -0.66% at 33,493.00 , SMI -0.86% at 11,949.30, S&P 500 Futures -0.34%].

Market focal points/Key themes: European indices open lower across the board and continued under pressure through the early part of the session; CAC-40 almost erased gains made after 1st round of French elections; general risk aversion with comments from ECB officials in Sintra in focus; energy and technology sectors holding on to the green; sectors leading the way lower include materials and financials; oil & gas subsector supported following rise in crude prices; automotive subsector under pressure with release of June deliveries; Casino sells 66 stores to Auchan and Les Mousquetaires; earnings expected in the upcoming US session include Radius.

Equities

- Consumer Discretionary: HelloFresh [HFG.DE] +15.0% (analyst action), Sodexo [SW.FR] -5.5% (sales).

- Consumer Staples: J Sainsbury [SBRY.UK] -4.0% (trading update).

- Financials: Euronext [ENX.FR] +1.0% (analyst action).

- Information Technology:

- Industrials: Airbus [AIR.FR] -1.5% (deliveries), Michelin [ML.FR] -3.5% (call with analysts).

- Energy: Siemens Energy [ENR.DE] +4.0% (plans hiring).

Speakers

- Japan Outgoing Top FX Diplomat Kanda: We must be aware of potential rating downgrade risk as yields rise.

- ECB’s Vasle (Slovenia): Rates can be cut further if things go as expected; Labor market is important for next steps.

- Fed's Goolsbee (non-voter for 2024): US interest rates are restrictive now; If inflation returns to normal, rates will too; There some warning signs in the job market.

- ECB’s Centeno (Portugal, dove): Every meeting is open for us to make a decision.

- ECB's Muller (Estonia): Can probably cut more if baseline holds.

- ECB's De Guindos (Spain): Reiterates no pre-determined rate path due to uncertainty.

- South Africa Central Bank (SARB) Gov Kganyago: Policy is focused on price stability.

- ECB's Lane (Ireland, chief economist): Natural for markets to reprice around elections; What we are seeing in France looks like orderly repricing to me.

- ECB's Kazaks (Latvia): Market bets of 1-2 cuts consistent with baseline; No reason to use TPI right now.

- Taiwan Central Bank (CBC) Gov Yang Chin-long reiterates will not necessarily follow US Fed in cutting rates.

- ECB’s Wunsch (Netherlands): Barring major negative surprises, ECB has room for second rate cut.

- Japan Fin Min Suzuki: Declines comment on FX levels; closely watching FX moves with vigilance.

- ECB Chief Lagarde: ECB work not done, must remain vigilant; Soft landing for Eurozone economy not guaranteed - speech text.

- ECB’s Wunsch (hawk, Netherlands): Reiterates first 50bps of rate cuts are relatively easy; July an option in theory, in practice must be cautious.

- ECB's Simkus (Lithuania): Case for July rate cut has gone; Doesn't see disorderly moves in French bonds.

- Brazil central bank director Gomes: If fiscal policy is always expansionary that puts a lot of pressure on the FX rate or monetary policy.

Economic data

-(IT) Italy Q1 YTD Budget Deficit to GDP Ratio: 8.8% v 7.2% prior.

-(BE) Belgium May Unemployment Rate: 5.9% v 5.8% prior.

-(EU) Euro Zone May Unemployment Rate: 6.4% v 6.4%e.

-(EU) Euro Zone June Advance Consumer Confidence Y/Y: 2.5% v 2.5%e; CPI Core Y/Y: 2.9% v 2.8%e.

- CPI M/M: 0.2% v 0.2%e.

-(HK) Hong Kong May Retail Sales Value Y/Y: -11.5% v -10.8%e; Retail Sales Volume Y/Y: -12.9% v -11.8%e.

-(IT) Italy Apr Unemployment Rate: 6.8% v 6.9%e.

-(AT) Austria Jun Preliminary CPI M/M: 0.2% v 0.1% prior; Y/Y: 3.0% v 3.4% prior.

-(ES) Spain Jun Net Unemployment Change: -46.8K v -58.7K prior.

-(NL) Netherlands Jun Preliminary CPI Y/Y: 3.2% v 2.7% prior; CPI EU Harmonized M/M: 0.2% v 0.3% prior; Y/Y: 3.4% v 2.7% prior.

-(UK) Jun British Retail Consortium (BRC) Shop Price Index Y/Y: 0.2% v 0.5%e [slowest pace since 2021].

- (IT) Italy June Budget Balance: -€13.4B v -€12.7B prior.

-(IT) Italy Jun New Car Registrations Y/Y: +15.0% v -6.6% prior.

Fixed income issuance

-UK DMO SELLS £4.0B IN 3.75% MAR 2027 GILTS; AVG YIELD: 4.441% V 4.505% PRIOR; BID-TO-COVER: 3.26X V 3.27X PRIOR; TAIL: 0.4BPS V 0.6BPS PRIOR.

- Spain Debt Agency (Tesoro) sells total €5.0B vs. €4.5-5.5B indicated range in 6-month and 12-month bills.

-Philippines sells PHP30B vs. PHP30B indicated in 5-year bonds; Avg Yield: 6.406% v 6.227% prior, bid-to-cover: 2.43x v 3.20x prior.

-Japan sells ¥2.6T vs. ¥2.6T indicated in 10-year JGB bonds; Avg Yield: 1.0930% v 1.0480% prior; Bid-to-cover: 3.23x v 3.66x prior.

Looking ahead

- 05:30 (DE) Germany to sell €1.0B in 2030 and 2050 green bunds.

- 05:30 (HU) Hungary Debt Agency (AKK) to sell 3-month bills.

- 05:30 (BE) Belgium Debt Agency (BDA) to sell €2.2B in 3-month and 6-month bills.

- 05:30 (ZA) South Africa to sell combined ZAR3.75B in 2031, 2040 and 2053 bonds.

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

- 06:00 (PT) Portugal May Industrial Production M/M: No est v -2.5% prior; Y/Y: No est v 5.2% prior.

- 06:30 (EU) ESM to sell €1.1B in 6-month bills.

- 06:30 (EU) ECB’s Schnabel.

- 08:00 (RU) Russia announcement on upcoming OFZ bond issuance (held on Wed).

- 08:00 (MX) Mexico Apr Gross Fixed Investment M/M: 1.0%e v 0.8% prior; Y/Y: 20.4%e v 3.0% prior; Private Consumption Y/Y: 8.2%e v 1.6% prior.

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

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

- 09:00 (SG) Singapore Jun Purchasing Managers Index (PMI): No est v 50.6 prior; Electronics Sector Index: No est v 51.1 prior.

- 09:30 (EU) Fed Chair Powell with ECB chief Lagarde, BOE Gov Bailey, Brazil Central Bank Gov Campos Neto in Sintra.

- 09:30 (CA) Canada Jun Manufacturing PMI: No est v 49.3 prior.

- 10:00 (US) May JOLTS Job Openings: 7.955Me v 8.060M prior.

- 11:00 (DK) Denmark Jun Foreign Reserves (DKK): No est v 637.4B prior.

- 11:00 (CO) Colombia Jun PMI Manufacturing: No est v 49.8 prior.

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

- 17:00 (KR) South Korea Jun Foreign Reserves: No est v $412.8B prior.

- 19:00 (AU) Australia Jun Final PMI Services: No est v 51.0 prelim; PMI Composite: No est v 50.6 prelim.

- 20:01 (IE) Ireland Jun PMI Services: No est v 55.0 prior; PMI Composite: No est v 52.5 prior.

- 20:30 (JP) Japan Jun Final PMI Services: No est v 49.8 prelim; PMI Composite: No est v 50.0 prelim.

- 20:30 (SG) Singapore Jun PMI (whole economy): No est v 54.2 prior.

- 21:00 (NZ) New Zealand Jun ANZ Commodity Price M/M: No est v 1.1% prior.

- 21:30 (AU) Australia May Building Approvals M/M: +1.6%e v -0.3% prior; Private Sector Houses M/M: No est v -1.6% prior.

- 21:30 (AU) Australia May Retail Sales M/M: 0.3%e v 0.1% prior.

- 21:45 (CN) China Jun Caixin PMI Services: 53.4e v 54.0 prior; PMI Composite: No est v 54.1 prior.

- 22:35 (CN) China to sell 3-year bonds.