No take-up at BoJ’s latest JGB purchase operation as Kuroda repeats new yen mantra
Markets relatively calm today after a turbulent past week. Last week’s record bond market interventions by the BoJ ahead of Friday’s policy announcements have restored stability to the JGB market, with no take up at today’s unlimited 10Y bond purchase operation and the yen oscillating close to ¥135/$, currently little changed from Friday’s close, as Kuroda reiterated that sudden forex market moves are undesirable and will continue to watch closely developments.

OATs underperform after Macron loses parliamentary majority
OATs underperform (10Y spreads over Bunds up a couple of bps so far) but euro strengthens modestly against the USD after Macron’s loss of national assembly majority in yesterday’s second-round elections – winning 245 of 577 seats in the chamber – raising significant doubts about his ability to deliver his reform agenda. It remains to be seen whether Macron’s Ensemble group will seek some kind of coalition agreement with the right-wing (former establishment) Republicans to deliver some kind of stability.

Most Asian stock markets lower as global recession fears persist after Fed hawkish shift
A mixed day for Asian stocks, however, with the Topix closing down 0.9%, and Korean and Taiwanese markets significantly weaker still, as global growth concerns continue to weigh after last week’s hawkish shift from the Fed. But China and Hong Kong bucking the negative trend as China’s banks left prime lending rates unchanged following last week’s decision by the PBoC to leave its medium-term lending facility rate unchanged. And US stock futures are up. USTs not trading due to Juneteenth holiday.

Looking ahead: Lagarde and BoE hawks to speak today, Powell on Wednesday, while the week’s data-flow includes flash PMIs and UK and Japanese inflation

• In the euro area, ECB President Lagarde speaks to the European Parliament later today, with the Governing Council’s signal on rate hikes as well as its tentative plans for an anti-fragmentation tool likely to be discussed. This week’s euro area data focus will be economic sentiment surveys, which include the flash PMIs for June on Thursday. With services still benefitting from economic reopening, but high inflation and supply pressures weighing more generally, the euro area composite PMI is forecast to fall a little more than ½pt to close to 54, which would be the lowest level in six months albeit one still consistent with economic expansion. But Wednesday’s preliminary Commission consumer confidence indicator is expected to report minimal improvement for a second successive month, and thus remain close to the series low recorded during the onset of the pandemic in April 2020 and way below the pre-pandemic level. In with expectations, this morning’s German PPI inflation figures for May confirmed another substantive increase in prices at the factory gate, albeit of 1.6%M/M from 2.6%M/M the prior month, so the annual rate edged up just 0.1ppt to a new high of 33.6%Y/Y.
• In the UK, two of the three BoE hawks – Catherine Mann and Jonathon Haskel – will speak publicly this afternoon and no doubt restate the case for bigger rate hikes than the 25bps increase in Bank Rate delivered last week. After a quiet start, with no top-tier releases today, the data highlights in the UK will be May inflation data (Wednesday), the preliminary PMIs for June (Thursday) and retail sales data for May (Friday). Most notably, we expect the headline CPI rate to edge higher in May, to 9.2%Y/Y, the highest since the series began in 1988. The increase will be driven by further pressures on the prices of food and petrol, while we expect the core rate to ease slightly from 6.2%Y/Y in April.
• In Japan, the main focus this week will be Friday’s CPI inflation release, which is expected to show that headline inflation moved sideways in May at 2.5%Y/Y, the highest since 2014 but still way below levels in most other developed economies, with the BoJ’s forecast measure of core CPI (excluding fresh foods) also expected to be unchanged at 2.1%Y/Y. With the pressure still principally reflecting cost-push inflation, the internationally comparable measure of core inflation (excluding food and energy) is likely to have remained extremely subdued at just 0.1%Y/Y. The flash PMIs (Thursday), meanwhile, are expected to point to a further improvement in services activity in June as the economy continues to normalise following the latest pandemic wave, but that manufacturing conditions remain challenging – indeed, while the Cabinet Office’s monthly economic report today maintained its overall assessment that the economy is showing signs of picking up, it revised down its view on production reflecting ongoing supply constraints due to the war in Ukraine and Covid restrictions in China.
• In the US, Fed Chair Jay Powell will give his monetary policy testimony to Congress on Wednesday and Thursday – expect a repeat of last week’s message that he’s “strongly committed to bringing inflation back down”, is “moving expeditiously to doing so”, the next rate hike will likely be of 50 75bps, and that the FOMC will push rates firmly above neutral by year-end and higher still next year. Data-wise, a quieter week in the US kicks off tomorrow with the Chicago Fed National Activity index and existing home sales, with new home sales figures and the final University of Michigan survey for June coming at the end of the week.