US stocks gained and yields climbed as markets digested US CPI data ahead of the FOMC - Newsquawk Asia-Pac Market Open

• US stocks were firmer after the latest US CPI data including softer-than-expected headline inflation and in-line core figures all but confirmed an unchanged Fed rate for Wednesday, but with upside capped as front-end yields climbed further and broke to new post-SVB peaks with WSJ's Timiraos warning that the Fed could ramp its Dot Plot.
• USD softened after the US CPI data which showed headline inflation cooled by more than expected to support expectations for the Fed to refrain from raising rates on Wednesday although core measures were in line with estimates and the overall level remained elevated, while WSJ's Timiraos noted the data did little to change the very near-term outlook and officials could use their SEPs to signal another rate rise is now the base case. Nonetheless, the dollar is off worse levels with some support from the upside in yields heading into the FOMC.
• Looking ahead, highlights include New Zealand Current Account, South Korean Unemployment Change, US PPI & FOMC.

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US TRADE

• US stocks were firmer after the latest US CPI data including softer-than-expected headline inflation and in-line core figures all but confirmed an unchanged Fed rate for Wednesday, but with upside capped as front-end yields climbed further and broke to new post-SVB peaks with WSJ's Timiraos warning that the Fed could ramp its Dot Plot.
• SPX +0.69% at 4,369, NDX +0.79% at 14,900, DJIA +0.43% at 34,212, RUT +1.23% at 1,896.
• Click here for a detailed summary.

NOTABLE HEADLINES

• WSJ's Timiraos tweeted the Fed is expected to hold rates steady on Wednesday and the May CPI report did little to change the very near-term outlook, while officials could use quarterly projections to signal another rate rise is now the base case.
• US President Biden said the inflation data is good news for working families and there is more work to do.
• US Treasury Secretary Yellen said the US banking system is still well capitalised and said they will be careful to watch for impacts and market disruption as they build their balance. Yellen also stated they should expect a slow decline in the dollar as the reserve currency and it is important for the dollar to be the world's reserve currency.
• White House Economic Adviser Ramamurti said macroeconomic trends are reducing US inflation overall.
• US Treasury increased its 4- and 8-week bills to USD 65bln and 55bln, respectively, from 60bln and 50bln for June 15th and maintained 17-week bills unchanged at USD 46bln for June 14th, which will settle on June 20th.

DATA RECAP

• US CPI MM SA (May) 0.1% vs Exp. 0.2% (Prev. 0.4%)
• US CPI YY NSA (May) 4.0% vs Exp. 4.1% (Prev. 4.9%)
• US Core CPI MM SA (May) 0.4% vs Exp. 0.4% (Prev. 0.4%)
• US Core CPI YY NSA (May) 5.3% vs Exp. 5.3% (Prev. 5.5%)
• US Cleveland Fed CPI (May) 0.4% (Prev. 0.4%)

FIXED INCOME

• US Treasuries bear-flattened as yields rose to post-SVB peaks after stubborn CPI kept a higher Dot Plot in play for Wednesday.

FX

• USD softened after the US CPI data which showed headline inflation cooled by more than expected to support expectations for the Fed to refrain from raising rates on Wednesday although core measures were in line with estimates and the overall level remained elevated, while WSJ's Timiraos noted the data did little to change the very near-term outlook and officials could use their SEPs to signal another rate rise is now the base case. Nonetheless, the dollar is off worse levels with some support from the upside in yields heading into the FOMC.
• EUR briefly climbed above 1.0800 against the dollar after the US CPI data before fading some of the gains.
• GBP outperformed in the aftermath of strong jobs data and firmer average earnings, while there several comments from BoE officials and technicians also noted that GBP/USD broke through some key resistance levels.
• JPY weakened against the dollar and USD/JPY climbed back above the 140.00 level as US yields rose.

COMMODITIES

• Crude recovered the majority of Monday’s losses after the PBoC lowered short-term lending rates for the first time in 10 months and reports that China is considering measures to boost the economy, while there were also comments from Goldman Sachs's Currie that they have not changed their long-term supercycle thesis on oil.
• US Energy Inventory Data (bbls): Crude +1.0mln (exp. -0.5mln), Gasoline +2.1mln (exp. +0.3mln), Distillate +1.4mln (exp. +1.2mln), Cushing +1.5mln.
• US DoE said it is continuing to seek opportunities for more purchases and is to buy roughly 12mln bbls of oil in 2023 to boost reserves in which the total includes barrels already announced for August and September, according to Bloomberg.
• OPEC MOMR (Jun) stated demand forecasts were unchanged M/M with 2023 world oil demand growth broadly unchanged from last month’s assessment at 2.3mln BPD, while OPEC May production decreased with output from Saudi, UAE, and Kuwait declining.
• Iraq May oil production +17k BPD to 3.955mln and was 265k BPD below quota including voluntary cuts.
• Barclays said it expects non-OPEC+ supply growth to slow significantly over the coming quarters and a lot of incremental weakness in demand is likely already in price. Barclays sees US output growing 700k BPD Y/Y in Q4 2023 and 300k BPD Y/Y in Q4 2024, while it added that OPEC+ will likely remain proactive with the primary goal of avoiding a sustained surplus.
• Goldman Sachs's Currie said the bank has not changed its long-term supercycle thesis on oil, via CNBC.
• Iran and Venezuela have signed cooperation deals in oil and petrochemicals.

GEOPOLITICAL

• Russian President Putin said the goals of the special military operation in Ukraine will not change in general terms and said Ukraine's counteroffensive is large-scale. Putin also stated that additional mobilisation is not required for now and that Russia has different plans depending on the situation, while they will use weapons with depleted uranium in response, if necessary.
• Russian President Putin signed the document cancelling the treaty on cooperation with Ukraine in the Sea of Azov and the Kerch Strait, according to Al Jazeera. It was also reported that President Putin said they are considering withdrawing from the grain deal.
• Russian Defence Ministry said their forces have seized German Leopard tanks, according to RIA.
• Russian official said nuclear safety at the Zaporizhzhia nuclear plant will be fully secured, according to TASS.
• Belarusian President Lukashenko said Belarus will not hesitate to use nuclear weapons in the case of aggression against it, while he also commented that Belarus will receive Russian tactical nuclear weapons in several days, according to Belta and TASS.
• NATO Secretary General Stoltenberg said Ukraine is making progress in its counter-offensive.
• US President Biden's administration is expected to approve depleted-uranium tank rounds for Ukraine, according to WSJ sources.
• US Treasury Secretary Yellen said the US has examined options on Russian sovereign assets.
• US CIA warned the Ukrainian government not to attack the Nord Stream gas pipelines last summer after it obtained detailed information about a Ukrainian plot to destroy a main energy connection between Russia and Europe, according to WSJ citing sources.
• ECB's Enria is putting pressure on banks to reduce exposure to Russia and exit the market if possible.
• Israeli PM Netanyahu said the Biden administration has held indirect talks with Iran on a “mini agreement” or “an understanding” related to Iran's nuclear program, according to Axios citing sources.
• US State Department said it is completely false that there is an interim nuclear deal with Iran.

ASIA-PAC

NOTABLE APAC HEADLINES

• PBoC lowered rates for its Standing Lending Facility with the Overnight rate cut by 10bps to 2.75%, 7-day rate cut by 10bps to 2.90% and 1-month rate cut by 10bps to 3.25%, effective from June 13th.
• China's state planner issued a notice on lowering costs this year and is to exempt and reduce VAT for small businesses until year-end. NDRC said China will steadily lower loan interest rates and introduce targeted tax and fee reduction policies in science and tech, while it will guide financial institutions to raise medium and long-term loan issuances for the manufacturing industry.
• China is said to be weighing broad stimulus with property support and rate cuts in which plans include at least a dozen measures to support domestic demand and the property sector, while interest rate reductions are also being mulled and the State Council may discuss policies as soon as Friday but may not be announced or implemented then, according to Bloomberg sources.
• Japanese PM Kishida said reports that the government is delaying the decision on funding sources for child policies are not accurate and said they will aim to fund child policies without added burden on taxpayers.
• RBI Governor Das said the cumulative impact of monetary policy actions of the last year is still unfolding and yet to materialise, while the disinflation process is likely to be slow and protracted with convergence to the inflation target to be achieved in the medium-term. Das clarified that the pause in policies was not a pivot and was not a definitive change in policy direction and noted that they cannot be oblivious to growth concerns.

DATA RECAP

• Chinese New Yuan Loans (CNY)(May) 1360.0B vs Exp. 1600.0B (Prev. 718.8B)
• Chinese Aggregate Financing (CNY)(May) 1560.0B vs Exp. 2000.0B (Prev. 1220.0B)
• Chinese M2 Money Supply YY (May) 11.6% vs Exp. 12.1% (Prev. 12.4%)

EU/UK

NOTABLE HEADLINES

• BoE Governor Bailey said the latest jobs data showed a very tight labour market and labour supply is recovering very slowly, while he added that labour hoarding is going on because of the tight market and firms are reluctant to make redundancies.
• BoE's Dhingra said there is no doubt that inflation, whilst beginning to ease off its peak last year, is still far too high relative to the 2% target and lags in monetary policy transmission imply that there is little we can do to affect inflation in the immediate future, therefore focus should be on the medium term. Furthermore, Dhingra said there are reasons to suspect that policy transmission will be slower than in previous cycles.
• BoE's Greene (appointee) said the UK labour market is surprisingly tight and indicators are not evolving as one might expect given significant monetary policy tightening.

DATA RECAP

• UK Employment Change (Apr) 250k vs. Exp. 162k (Prev. 182k)
• UK ILO Unemployment Rate (Apr) 3.8% vs Exp. 4.0% (Prev. 3.9%)
• UK Average Earnings (Ex-Bonus) (Apr) 7.2% vs Exp. 6.9% (Prev. 6.7%, Rev. 6.8%)
• EU ZEW Survey Expectations (Jun) -10 (Prev. -9.4)
• German ZEW Economic Sentiment (Jun) -8.5 (Prev. -10.7)
• German ZEW Current Conditions (Jun) -56.5 (Prev. -34.8)