Mixed action ahead of US CPI, DXY hit a two-month low, JPY leads – Newsquawk Europe Market Open

• APAC stocks traded mixed with the region cautious heading into today’s key US inflation data.
• European equity futures are indicative of a higher open with the Euro Stoxx 50 +0.4% after the cash market closed up by 0.7% yesterday.
• DXY slipped to a fresh two-month low as USD/JPY moved back below 140 and a firmer PBoC CNY fix, NZD is stronger post-RBNZ.
• RBNZ kept the OCR unchanged at 5.50% as expected and agreed that the OCR will need to remain at a restrictive level for the foreseeable future.
• Looking ahead, highlights include US CPI, BoC Policy Announcement, Fed’s Barkin, Kashkari, Bostic & Mester, ECB’s Lane, BoC’s Macklem & Rogers, Supply from Germany, UK & US.

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US TRADE

EQUITIES

• US stocks edged higher in thin, catalyst-light trade as markets awaited Wednesday’s US CPI data and with late upside heading into the close amid a large buy-side imbalance, while the Russell 2k continued to outperform the major indices.
• SPX +0.67% at 4,439, NDX +0.49% at 15,119, DJIA +0.93% at 34,261, RUT +0.96% at 1,913.
• Click here for a detailed summary.

NOTABLE HEADLINES

• Fed Discount Rate Minutes stated 4 regional Fed bank boards sought a 25bps increase and 8 suggested standing pat, while it added that Cleveland, Richmond, St. Louis and Dallas directors sought a hike.

APAC TRADE

EQUITIES

• APAC stocks traded mixed with the region cautious heading into today’s key US inflation data.
• ASX 200 was led by the commodity-related sectors after the recent gains in underlying prices.
• Nikkei 225 underperformed and fell beneath the 32,000 level amid headwinds from a firmer currency in which USD/JPY retreated below 140.00 and following disappointing Machinery Orders data.
• Hang Seng and Shanghai Comp saw mixed fortunes amid cautiousness ahead of key events and despite the stronger-than-expected loans and aggregate financing data from China.
• US equity futures were rangebound near yesterday’s peak after a late ramp-up into the New York close.
• European equity futures are indicative of a higher open with the Euro Stoxx 50 +0.4% after the cash market closed up by 0.7% yesterday.

FX

• DXY remained pressured and declined to a fresh 2-month low ahead of today’s US CPI data as the dollar took a hit across all fronts including a slide in USD/JPY to beneath the 140.00 level and after the PBoC persisted with its streak of firmer reference rate settings.
• EUR/USD benefitted from the subdued dollar and strengthened its footing on the 1.1000 handle.
• GBP/USD extended further north of the 1.2900 level following the recent hot wage impulse.
• USD/JPY continued its recent pullback to below the psychological 140.00 level amid a slight narrowing of yield differentials, despite softer-than-expected PPI data and the surprise contraction in Machinery Orders.
• Antipodeans strengthened amid the recent upside in commodity prices and a firmer CNY, while NZD/USD saw a bout of indecision after the RBNZ kept rates unchanged as expected and refrained from any hawkish surprises, but then continued with the uptrend after the dust settled.
• PBoC set USD/CNY mid-point at 7.1765 vs exp. 7.1935 (prev. 7.1886)

FIXED INCOME

• 10yr UST futures were contained amid a non-committal mood heading into the US inflation data.
• Bund futures lacked firm direction overnight with price action stuck around the 131.00 level
• 10yr JGB futures were pressured with the selling in Tokyo exacerbated as Japanese asset classes tripped through key levels and which some attributed to speculation the BoJ could soon ditch its YCC.

COMMODITIES

• Crude futures were rangebound as bearish private inventory data stalled the recent upward momentum.
• US Energy Inventory Data (bbls): Crude +3.0mln (exp. +0.5mln), Gasoline +1.0mln (exp. -0.7mln), Distillate +2.91mln (exp. -0.3mln), Cushing -2.2mln.
• EIA STEO (July) stated 2023 world oil demand growth forecast was raised by 170k BPD to a 1.76mln BPD Y/Y increase, while the 2024 forecast was cut by 60k BPD to a 1.64mln BPD Y/Y increase.
• Iraqi PM said Iraq is to trade crude oil for Iranian gas to end issues of US approval for payments to Tehran, while Iran has agreed to resume gas exports to Iraq after a stoppage related to delayed payments.
• Gold benefitted from the greenback’s retreat but with gains capped ahead of US CPI data.
• Copper continued to claw back the prior day’s losses amid a weaker dollar.

CRYPTO

• Bitcoin traded rangebound above the USD 30,500 level amid the mixed risk appetite.

NOTABLE ASIA-PAC HEADLINES

• US Secretary of State Blinken told NBC that President Biden and Chinese President Xi are to talk in the months ahead, while it was separately reported that US climate envoy Kerry is to travel to Beijing between July 16th-19th.
• RBNZ kept the OCR unchanged at 5.50% as expected, while the Committee agreed that the OCR will need to remain at a restrictive level for the foreseeable future and that the level of interest rates is constraining spending and inflation pressure as anticipated and required. RBNZ stated that inflation remains too high but is expected to decline within the target range by H2 2024, while it noted that recent data suggests tight monetary conditions are constraining domestic spending as expected.
• RBA Governor Lowe said it is possible some further tightening will be required to return inflation to the target and it remains to be determined whether monetary policy has more work to do, while he announces changes from 2024. RBA Governor Lowe said from 2024, the board will meet 8 times a year instead of 11 times with Board meetings to start on Monday and conclude at the usual time on Tuesday, while the RBA Governor will hold a media conference after every meeting to explain the decision.

DATA RECAP

• Japanese Machinery Orders MM (May) -7.6% vs. Exp. 1.0% (Prev. 5.5%)
• Japanese Machinery Orders YY (May) -8.7% vs. Exp. -0.2% (Prev. -5.9%)
• Japanese Corp Goods Price MM (Jun) -0.2% vs. Exp. 0.1% (Prev. -0.7%)
• Japanese Corp Goods Price YY (Jun) 4.1% vs. Exp. 4.3% (Prev. 5.1%)

GEOPOLITICS

• North Korea fired a ballistic missile which flew 1,000km and was North Korea’s longest-ever missile flight time of 74 minutes, while the missile landed outside Japan’s exclusive economic zone.
• South Korean President Yoon said North Korea will pay the price for its illegal acts and he ordered officials to strengthen extended deterrence through a nuclear consultative group with the US, according to Reuters.
• Japanese Chief Cabinet Secretary Matsuno said North Korea’s missile launch threatens peace and stability in the region, as well as the international community, while he added the latest action was a serious provocation and a grave violation of UN resolutions, according to Reuters.
• Chinese hackers reportedly gained access to US government email accounts, according to NYT.
• UK announced it will deliver more than 70 combat and logistics vehicles to Ukraine, while it added that thousands of additional rounds of Challenger 2 ammunition will also be immediately delivered to Ukraine as part of a package. Furthermore, it will launch a project through NATO to establish a medical rehabilitation centre to support the recovery and return of soldiers to Ukraine, according to Reuters.

EU/UK

NOTABLE HEADLINES

• UK PM Sunak hinted at no tax cuts prior to the next election and admitted by-elections will be challenging, according to Sky News.
• UK Chancellor Hunt ordered ministers to find GBP 2bln of savings for public sector pay increases, according to FT.
• UK postal workers voted in favour of a wage deal with Royal Mail, according to the trade union.