UK wage data adds to BOE inflation woes

EU mid-market update: Central Banks policy moves in focus; UK wage data adds to BOE inflation woes; US CPI due out in session.

Notes/observations

- China PBOC cut 7-day Reverse Repo Rate by 10bps to 1.90%, following weeks of speculation, the first cut since Aug 2022. Reports later followed that China is considering broad stimulus with rate cuts and property support to boost growth.

- Strong UK job and wage readings gave BOE a lot to think about, with stagnating growth dynamics, this fresh resilient labor data likely to force BOE to hike at the June meeting next week, but the terminal rate remains a question, in an environment where most other Central Banks are pivoting to a pause. The better-than-expected Apr weekly earnings and unemployment rate lifted rate expectations and in turn Gilt Yields, with 2-year hitting highs not seen since 2008.

- Eyes firmly on US May CPI at 08:30 ET (13:30 GMT), with the recent US equity market rally seen to have priced in an optimistic reading and in turn a dovish Fed decision tomorrow (June 14th). CME futures indicate market participants see a 75% chance of a pause/skip vs 25% of a 25bps hike.

- Asia closed higher with Nikkei225 outperforming at +1.8%. EU indices are +0.1-0.5%. US futures are +0.1-0.6%. Gold +0.3%, DXY -0.4%; Commodity: Brent +1.3%, WTI +1.1%, TTF -8.5%; Crypto: BTC +0.9%, ETH +0.4%.

Asia

- China PBoC cut the 7-Day Reverse Repo Rate by 10bps to 1.90% [first cut since Aug 15, 2022]; Move viewed as a precursor to Medium-term Lending Facility (MLF) announcement on Thursday.

- Japan Q2 BSI Large All Industry Q/Q: +2.7% v -3.0 prior; Large Manufacturing Q/Q: -0.4% v -10.5 prior.

- Australia June Westpac Consumer Confidence: 79.2 v 79.0 prior.

- Australia May NAB Business Confidence: -4 v 0 prior.

Europe

- BOE’s Mann noted that monetary policy was not good at fine tuning rates, should focus on inflation. Services price inflation was a concern for achieving 2% CPI target. Wage increases of 4% would be challenge to returning CPI to 2%. Very significant concern on sticky core inflation.

- Incomes Data Research (IDR) said the median pay settlement awarded by major British employers had increased to 5.6% in the three months to April, the highest in records dating back to 2005.

Speakers/fixed income/FX/commodities/erratum

Equities

Indices [Stoxx600 +0.28% at 462.04, FTSE +0.21% at 7,586.38, DAX +0.30% at 16,146.35, CAC-40 +0.42% at 7,280.90, IBEX-35 -0.31% at 9,315.84, FTSE MIB +0.13% at 27,447.00, SMI +0.07% at 11,309.00, S&P 500 Futures +0.27%].

Market Focal Points/Key Themes: European indices open generally higher and stayed in the green through the early part of the session; better performing sectors include technology and materials; telecom and real estate among lagging sectors; Roodmicrotec to be acquired by Microtest; focus on release of US CPI figures later in the day; no major earnings expected in the upcoming Americas session.

Equities

- Consumer discretionary: LVMH [MC.FR] +1.5% (China upcoming stimulus speculation), Ashtead Group [AHT.UK] -0.5% (Q4 results), CTS Eventim [EVD.DE] -1.5% (analyst action - cut to Hold at Kepler).

- Consumer staples: Pernod Ricard [RI.FR] +1.0% (Canadian unit Corby Spirit and Wine Limited acquires 90% stake in Ace Beverage Group at EV C$165M).

- Financials: Bellway [BWY.UK] -2.5% (trading update: on track to deliver full year volume output of around 11,000 home), Admiral Group [ADM.UK] -6.5% (analyst action - cut to Sell at CitiGroup).

- Industrials: Airbus [AIR.FR] +1.0% (analyst action - initiated with Overweight at Morgan Stanley), Duerr [DUE.DE] +4.5% (acquires Rome Holdco for EV €440-480M), Hexagon [HEXAB.SE] -1.0% (collaboration with Nvidia to transform industrial digital twin solution), Verallia [VRLA.FR] -4.5% (analyst action - cut to Hold at Berenberg).

- Technology: Roodmicrotec [ROO.DE] +28% (to be acquired).

- Materials: Hensoldt [HAGG.DE] -1.0% (analyst action - initiated at Underweight at Morgan Stanley).

Speakers

- German ZEW Economists commented that the current recession was generally not considered particularly alarming.

- Belarus President Lukashenko noted that Belarus would not hesitate to use nuclear weapons in case of aggression against it.

- Bank of Korea (BOK) May Minutes had a member note that the policy rate was in-line with growth and inflation forecasts. A member noted that it could not rule out hikes until CPI stabilized. A member noted that external-internal rate gap impact on FX was seen as limited.

- China govt said to consider a ‘broad stimulus with rate cut and property support. Could discuss a draft proposal on Fri, Jun 16th.

- China State Planner (NDRC) said to promote steady reduction in financing costs of market entities.

Currencies/fixed income

- USD was slightly softer as market participants remained cautious ahead of key US inflation data due later in the session. FOMC also begins two-day policy meeting. Dealers noted that a continued cooling in CPI data would provide some space for the Fed to pause in its current tightening cycle.

- EUR/USD drifting towards above the 1.08 neighborhood as markets expected ECB to deliver another 25bps rate hike on Thursday.

- GBP was aided by continued hawkish comments from BOE member Mann. Further strength was magnified by larger-than-expected acceleration in UK private sector pay growth. Markets now saw little to prevent the BOE MPC from lifting rates in both June and August. GBP/USD at 1.2565 by mid-session.

- BOJ is due to announce a monetary policy decision on Friday with expectations it would maintain its ultra-dovish stance and yield curve control (YCC) settings.

- China’s yuan weakens after the central bank cuts a key short-term rate.

Economic data

- (UK) May Jobless Claims Change: -13.6K v +23.4K prior; Claimant Count Rate: 3.9% v 3.9% prior.

- (UK) Apr Average Weekly Earnings 3M/Y/Y: 6.5% v 6.1%e; Weekly Earnings (ex-bonus) 3M/Y/Y: 7.2% v 6.9%e.

- (UK) Apr ILO Unemployment Rate: 3.8% v 4.0%e; Employment Change: 3M/3M: +250K v +158Ke.

- (DE) Germany May Final CPI M/M: -0.1% v -0.1% prelim; Y/Y: 6.1% v 6.1% prelim.

- (DE) Germany May Final CPI EU Harmonized M/M: -0.2% v -0.2% prelim; Y/Y: 6.3% v 6.3% prelim.

- (NO) Norway Apr Overall GDP M/M: -0.3% v +0.3% prior; GDP Mainland M/M: -0.4% v +0.1%e.

- (RO) Romania May CPI M/M: 0.6% v 0.4%e; Y/Y: 10.6% v 10.2%e.

- (ES) Spain May Final CPI M/M: -0.1% v -0.1% prelim; Y/Y: 3.2% v 3.2% prelim.

- (ES) Spain May CPI EU Harmonized M/M: -0.1% v -0.2% prelim; Y/Y: 2.9% v 2.9% prelim.

- (ES) Spain May CPI Core M/M: 0.2% v 1.0% prior; Y/Y: 6.1% v 6.1% prelim.

- (TR) Turkey Apr Retail Sales Y/Y: 27.5% v 28.8% prior.

- (IT) Italy Q1 Unemployment Rate: 8.0% v 7.9% prior.

- (CZ) Czech Apr Current Account Balance (CZK): 16.7B v 17.5Be.

- (CN) China May New Yuan Loans (CNY): 1.360T v 1.550Te.

- (CN) China May Aggregate Financing (CNY): 1.560T v 1.900Te.

- (CN) China May M2 Money Supply Y/Y: 11.6% v 12.0%e; M1 Money Supply Y/Y: % v 5.2%; M0 Money Supply Y/Y: % v 10.7% prior.

- (DE) Germany June ZEW Current Situation Survey: -56.5 v -40.2e; Expectations Survey: -8.5 v -13.5e.

- (EU) Euro Zone June ZEW Expectations Survey: -10.0 v -9.4 prior.

Fixed income issuance

- (DE) Germany opened its book to sell EUR-denominated 30-year green bond via syndicate; guidance seen +0bps (flat) to 2053.

- (ID) Indonesia sold total IDR15.0T vs. IDR15.0T target in bills and bonds.

- (NL) Netherlands Debt Agency (DSTA) sold €2.03B vs. €1.5-2.5B indicated range in 2.5% July 2033 DSL Bonds; Avg Yield: 2.710%.

- (ES) Spain Debt Agency (Tesoro) sold total €2.07B vs. €1.5-2.5B indicated rangein 3-month and 9-month bills.

- (UK) DMO sold £3.5B in 3.25% Jan 2033 Gilts; Avg Yield: 4.351% v 3.849% prior; bid-to-cover: 2.33x v 2.81x prior; Tail: 1.0bps v 0.2bps prior.

- (IT) Italy Debt Agency (Tesoro) sold total €7.5B vs. €6.25-7.5B indicated range in 3-year, 7-year and 30-year BTP Bonds.

- Sold €2.75B vs. €2.25-2.75B indicated range in 3.80% Apr 2026 BTP; Avg Yield: 3.46% v 3.45% prior; bid-to-cover: 1.55 v 1.48x prior.

- Sold €3.25B vs. €2.75-3.25B indicated range in 3.70% Jun 2030 BTP; Avg Yield: 3.75% v 3.94% prior; Bid-to-cover: 1.36x v 1.39x prior.

- Sold €1.5B vs. €1.25-1.5B indicated range in 4.50% Oct 2053 BTP bond; Avg Yield: 4.54%; Bid-to-cover: 1.53x.

Looking ahead

- (DE) Germany Apr Current Account Balance: No est v €32.4B prior.

- (CO) Colombia May Consumer Confidence: No est v -28.8 prior.

- 05:15 (CH) Switzerland to sell 3-month Bills.

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

- 05:30 (ZA) South Africa Apr Total Mining Production M/M: -1.2%e v +6.5% prior; Y/Y: +1.5%e v -2.6% prior; Gold Production Y/Y: No est v 21.6% prior; Platinum Production Y/Y: No est v -9.1% prior.

- 05:30 (DE) Germany to sell €5.0B in new Oct 2028 BOBL.

- 05:30 (HU) Hungary Debt Agency (AKK) to sell 3-Month Bills.

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

- 05:30 (ZA) South Africa to sell combined ZAR3.9B in 2032, 2035 and 2048 bonds.

- 06:00 (US) May NFIB Small Business Optimism Index: 88.4e v 89.0 prior.

- 06:00 (IL) Israel May Trade Balance: No est v -$2.5B prior.

- 06:00 (FI) Finland to sell €1.5B in 2033 and 2036 RFGB Bonds.

- 06:45 (US) Daily Libor Fixing.

- 07:00 (RU) Russia announcement on upcoming OFZ bond issuance (held on Wed).

- OPEC Monthly Oil Report (MOMR).

- 08:00 (PL) Poland Apr Current Account Balance: €1.6Be v €1.6B prior; Trade Balance: €1.4Be v €0.6B prior; Exports: €27.5Be v €30.0B prior; Imports: €26.0Be v €29.4B prior.

- 08:30 (US) May CPI M/M: 0.2%e v 0.4% prior; Y/Y: 4.1%e v 4.9% prior.

- 08:30 (US) May CPI (ex-food/energy) M/M: 0.4%e v 0.4% prior; Y/Y: 5.2%e v 5.5% prior.

- 08:30 (US) May CPI Index NSA: 304.061e v 303.363 prior; CPI Core (seasonally adj) : 307.580e v 306.489 prior.

- 08:30 (US) May Real Avg Hourly Earning Y/Y: No est v -0.6% prior (revised from -0.5%); Avg Weekly Earnings Y/Y: No est v -1.2% prior (revised from -1.1%).

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

- 10:00 (UK) BOE Gov Bailey testifies in House of Lords.

- 11:30 (US) Treasury to sell 52-Week Bills.

- 13:00 (US) Treasury to sell 30-Year Bond Reopening.

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

- 17:00 (KR) South Korea May Import Price Index M/M: No est v 0.7% prior; Y/Y: No est v -5.8% prior.

- 17:00 (KR) South Korea May Export Price Index M/M: No est v 0.1% prior; Y/Y: No est v -7.5% prior.

- 18:45 (NZ) New Zealand May Food Prices M/M: No est v 0.5% prior.

- 18:45 (NZ) New Zealand Q1 Current Account (NZ$): -6.9Be v -9.5B prior; YTD Current Account to GDP Ratio: -9.0%e v -8.9% prior.

- 19:00 (KR) South Korea May Unemployment Rate: 2.7%e v 2.6% prior.

- 20:00 (NZ) New Zealand May Food Prices M/M: No est v 0.5% prior.

- 22:35 (CN) China to sell 2-year and 5-year Upsized Bond.

- 23:00 (KR) South Korea Apr M2 Money Supply M/M: No est v -0.2% prior; “L” Money Supply M/M: No est v 0.4% prior.