US stocks declined for the third consecutive day amid a slew of Fed rhetoric and hot UK CPI data - Newsquawk Asia-Pac Market Open

• US stocks declined for the third consecutive day with the Nasdaq leading the losses in what many cited as pre-emptive month-/quarter-end flows providing a pullback in the absence of major catalysts, while markets also digested a slew of Fed rhetoric and hotter-than-expected UK CPI data which showed core inflation rose at its fastest pace since 1992.
• USD was on the back foot and DXY approached the 102.00 level to the downside which some attributed to month/quarter-end positioning and despite the slew of Fed rhetoric which mostly continued to point to more work needed to bring inflation down, although there were later comments from Bostic that rates should stay where they are for the rest of the year and does not see a rate cut for most of 2024.
• Looking ahead, highlights include New Zealand Trade Data & Credit Card Spending, Speech from BoJ's Noguchi, 5yr JGB Auction, Holiday Closures in Mainland China, Hong Kong & Taiwan.

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LOOKING AHEAD

• Highlights include New Zealand Trade Data & Credit Card Spending, Speech from BoJ's Noguchi, 5yr JGB Auction, Holiday Closures in Mainland China, Hong Kong & Taiwan.

US TRADE

• US stocks declined for the third consecutive day with the Nasdaq leading the losses in what many cited as pre-emptive month-/quarter-end flows providing a pullback in the absence of major catalysts, while markets also digested a slew of Fed rhetoric and hotter-than-expected UK CPI data which showed core inflation rose at its fastest pace since 1992.
• SPX -0.52% at 4,365, NDX -1.35% at 14,867, DJIA -0.30% at 33,951, RUT -0.20% at 1,863.
• Click here for a detailed summary.

NOTABLE HEADLINES

• Fed Chair Powell reiterated that the process of getting inflation back down to 2% has a long way to go and that nearly all FOMC participants expect it will be appropriate to raise interest rates somewhat further by year-end. Powell said they are seeing some effects of monetary tightening but it will take time for the full effects of monetary restraint to be realised, especially on inflation. He also noted it makes sense to move rates higher at a more moderate pace and they are now moderating that pace, while he said it is hard to know what rate level will achieve the Fed's goals.
• Fed Chair Powell said the economy is very strong with a very strong labour market driving the economy and that inflation is moving down gradually. Powell also stated that while hiking rates can be painful, it slows demand and they want to get back to a place where inflation is low enough that people don't think about it. Furthermore, he said they have quite a ways to go but are making progress regarding the journey to price stability and when asked about the two hikes pencilled into the dot plot, he responded "That's a pretty good guess of what will happen".
• Fed Vice Chair nominee Jefferson (voter) said recent bank troubles represent downside economic risk and he is watching commercial real estate (CRE) for risks. Jefferson noted they are monitoring banks' liquidity and provision for rate risk, while he added that banking regulations should be tied to the complexity of the bank.
• Fed's Cook (voter) said the Fed is not there yet on getting inflation back to the target and there is a risk economic growth could slow, while Cook added that bank regulation should be tailored to banks’ complexity and too much bank consolidation is concerning.
• Fed's Goolsbee (voter) said the decision last week was a close call for him, while he is trying to work out if they have done enough and how much more needs to be done. Goolsbee added it is perfectly appropriate to have a reconnaissance mission now and he has not decided on the rate decision in July.
• Fed's Bostic (non-voter) said he wants to give the economy more time to adjust to rate hikes before doing more and said monetary policy has not been restrictive long enough for its effects to be felt, so it is prudent to wait. Bostic also commented in a Yahoo Finance interview that rates should stay where they are for the rest of the year and does not see a rate cut for most of 2024 but also noted that he will have to reconsider the position on rates if the economy does not slow down.
• Fed nominee Kugler said both sides of the Fed mandate are important and pushing inflation down is the Fed's main mission now, while she also said inflation in the US is at "alarming" levels.

FIXED INCOME

• US Treasuries were flat after initial losses from the hot UK CPI data and higher oil prices were unwound after a solid 20yr auction and comments from Fed's Bostic who called for a pause on rates.

FX

• USD was on the back foot and DXY approached the 102.00 level to the downside which some attributed to month/quarter-end positioning and despite the slew of Fed rhetoric which mostly continued to point to more work needed to bring inflation down, although there were later comments from Bostic that rates should stay where they are for the rest of the year and does not see a rate cut for most of 2024.
• EUR strengthened throughout the session and climbed to near the 1.1000 handle against the weaker dollar.
• GBP swung between gains and losses as markets digested hot CPI data and implications for the rate path and the UK economy.
• JPY underperformed in which USD/JPY made another brief foray above the 142.00 level before fading some of the advances.
• BoC Minutes stated they agreed to assess the need for future rate hikes based on data after deciding to increase rates on June 7th and the GC felt Q2 growth was likely to be stronger than forecast in April.
• Czech CNB Repo Rate was kept at 7.0%, as expected, while CNB reiterated it will continue preventing excessive exchange rate fluctuations.

COMMODITIES

• Crude was higher with prices buoyed by the weaker dollar in the absence of any oil-specific catalyst.#
• US Energy Inventory Data (bbls): Crude -1.2mln (exp. +0.3mln), Gasoline +2.9mln (exp. +0.1mln), Distillate -0.3mln (exp. +0.7mln), Cushing +0.1mln.
• Russia's offline primary oil refining capacity for June was revised up by 9% from previous projections to 4.029mln tons, according to Reuters sources.

GEOPOLITICAL

• Russian President Putin said developing Russia’s “triad” of land, air and sea nuclear weapons capabilities guarantees the country’s security and global stability. Putin also stated that the Sarmat complex will soon be deployed for duty, while they are implementing plans to improve Russia's military and will boost the mass production of drones. Furthermore, he commented that Russia is seeing a lull in Ukraine's counteroffensive.
• Russian Defence Ministry said it thwarted an attempt by Kyiv to launch an attack on the Moscow region with drones and all drones were shot down, according to TASS and RIA.
• Russia's Kremlin said there are no grounds to extend the Black Sea Grain Deal because it's not being implemented.
• Iran's top nuclear negotiator met with EU Deputy Secretary-General Mora in Doha.

ASIA-PAC

NOTABLE APAC HEADLINES

• China's Foreign Ministry expressed strong dissatisfaction and firm opposition regarding US President Biden calling Chinese President Xi a dictator.
• China’s Commerce Minister said China is willing to push forward economic and trade ties with France.
• BoJ Governor Ueda said Japan's economy is picking up and is likely to recover moderately, while he reiterated that the BoJ will patiently maintain easy monetary policy.
• Japanese PM Kishida said they are to mobilise all policy steps to ensure wage growth and positive moves are emerging in Japan's economy.

EU/UK

NOTABLE HEADLINES

• UK Chancellor Hunt said he wants to ensure banks are living up to the commitments on mortgages and what more they can do to help.
• ECB's Nagel said he is confident that inflation will return to the target but there is still a way to go until then. Nagel also said they are not seeing a credit crunch and it would be the first order error to give up too early.
• ECB's Schnabel said domestic inflation is driven by profits and wages.
• ECB's Kazimir said a continuation of tightening policy is not certain in September and does not expect inflation to drop soon, while he thinks they would need to have core inflation under control to stop tightening.
• ECB's Rehn will apply for leave of absence from the Central Bank if he becomes a presidential candidate, while the Bank of Finland will appoint Tuomas Valimaki to fill in for Rehn in the ECB council if he is prevented from attending and Deputy Governor Marja Nyakanen will fill in for Rehn while he is on leave due to the presidential campaign.

DATA RECAP

• UK CPI YY (May) 8.7% vs. Exp. 8.4% (Prev. 8.7%)
• UK Core CPI YY (May) 7.1% vs. Exp. 6.8% (Prev. 6.8%)