Aurelia Butler

Investing.com — The U.S. administration is getting more creative in finding ways to bring down inflation before the midterm elections. China is easing up on its tech giants, but its service sector remains deep in contraction in May. U.K. Prime Minister Boris Johnson faces a revolt from his own party lawmakers, and oil prices rise after Saudi Arabia indicates the market is going to stay tight in July whatever OPEC+ says or does. Here’s what you need to know in financial markets on Monday, June 6.1. Desperate DemsThe administration of U.S. President Joe Biden is showing itself ever readier to take politically controversial steps to reduce inflation ahead of the midterm elections in November.Commerce Secretary Gina Raimondo told CNN that the administration is looking at removing some of the tariffs on Chinese imports imposed by Donald Trump during his presidency. She said that the move would reduce price pressures for household goods but added that tariffs on steel and aluminum would remain in place.Elsewhere, Reuters reported that the administration is prepared to give Spain’s Repsol (BME:REP) and Italy’s Eni (BIT:ENI) waivers from the sanctions on Venezuela, allowing them to ship Venezuelan crude oil to Europe to alleviate its fuel shortage. That may in turn reduce – if only marginally – European demand for U.S. crude and refined products that is contributing to the squeeze on domestic gasoline prices.2. China relents on Didi, othersChina’s regulators are set to end their probe into the cybersecurity practices of Didi Global (NYSE:DIDI) and two other U.S.-listed Chinese companies, according to The Wall Street Journal. If confirmed, that would be the first tangible relaxation of government pressure on the technology sector in a year.The news came too late to help Chinese stock indices but lifted the offshore yuan by around 0.2% against the dollar. The yuan was also supported by reports that Beijing is preparing to lift its COVID-19 restrictions after a steady decline in cases.China’s services sector has been ravaged by lockdowns in Beijing, Shanghai, and elsewhere in recent months. The Caixin Services purchasing managers index, a bellwether of services activity, remained deeply in contractionary territory in May at 41.4, albeit that was a rebound from a two-year low of 36.2 in April.Didi ADRs, meanwhile, jumped over 50% in premarket but are still more than 80% below their listing price from last year.3. Stocks set to open higher, building on jobs reportU.S. stock markets are set to open higher, extending gains after Friday’s labor market report that suggested ongoing strength in job creation without any further acceleration in wage growth. As such, the report – for once – lacked any fresh evidence for tightening monetary policy faster than already planned. The Conference Board’s employment trends survey adds a coda to that at 10 AM ET.By 6:30 AM ET, Dow Jones futures were up 270 points, or 0.8%, while S&P 500 futures were up 1.0% and Nasdaq 100 futures were up 1.5%.Stocks likely to be in focus include Tesla (NASDAQ:TSLA), after Elon Musk tried to limit the damage done by a report suggesting large-scale layoffs at the electric vehicle maker on Friday.4. Johnson faces no-confidence voteU.K. Prime Minister Boris Johnson is to face a vote of no-confidence from his party’s lawmakers later Monday, after enough backbench Members of Parliament demanded the move.The development comes only a couple of weeks after a damning report into illegal parties at 10 Downing Street that violated the lockdown rules under which the rest of the country was living at the time. The affair has badly dented the Conservatives’ support in opinion polls and contributed to heavy defeats in local elections last month.Sterling was little changed on the news, rising 0.4% against the dollar amid speculation that the Bank of England will have to tighten monetary policy more than it guided for at its last meeting.5. Oil higher as Saudi lifts OSPs for JulyCrude oil prices touched $120 a barrel again as Saudi Arabia, the world’s largest producer, raised official selling prices for its July crude shipments by more than had been expected.The move was taken as a sign that supply remains extremely tight, despite the commitment by the OPEC+ group of producers to quicken the planned pace of output increases from next month. OPEC+ has agreed in principle to lift its output by 632,000 barrels a day from July, but that will depend largely on the ability of Russia’s oil sector to cope with a gradually tightening western sanctions regime.By 6:25 AM ET, U.S. crude prices were up 0.7% at $119.75 a barrel, while Brent prices were up 0.7% at $120.56 a barrel. More

“The U.N. Security Council has never authorised any country to carry out military surveillance in the seas and airspace of other countries in the name of enforcing sanctions,” foreign ministry spokesman Zhao Lijian said at a media briefing.Canadian Prime Minister Justin Trudeau said last week that Canada was an active member of “an important mission” in the North Pacific to ensure that sanctions on North Korea are properly enforced.Chinese aircraft had sometimes forced Canadian planes to divert from their flight paths, Canada’s military said last week.Wu Qian, a defence ministry spokesman, said the Chinese military took reasonable measures to deal with Canada’s actions and have made “solemn representations” via diplomatic channels.China’s defence ministry said in a statement that Canadian military jets have stepped up reconnaissance and “provocations” against China “under the pretext” of implementing U.N. Security Council resolutions, endangering China’s national security. More

BANGKOK (Reuters) – Thailand’s fiscal and monetary policies must continue to align to ensure the economy will recover fully, the finance minister said on Monday.The central bank, however, may consider raising its key interest rate when the economy recovers strongly, Finance Minister Arkhom Termpittayapaisith told a business seminar, in the face of surging inflation.”But for now, fiscal and monetary policies must go together,” he said, as the government tries to support an otherwise slow economic recovery.”The central bank must strike a balance between capital inflows and outflows, and economic matters to ensure that our economy can fully recover,” Arkhom said.The Bank of Thailand (BOT) is expected to leave its policy rate at a record low of 0.5% when it meets on Wednesday, and for the rest of 2022, according to a Reuters poll, despite headline inflation in May hitting a high of nearly 14 years.Southeast Asia’s second-largest economy could grow 3.5% this year, with expected yearly growth of 5% each in the remaining three quarters, he said. Last year’s expansion was 1.5%, among the slowest rates in the region.The government is aiming for export growth of 10% this year which will be a key driver of growth this year, along with government spending and a recovery in tourism, Arkhom said.The finance ministry has maintained its fiscal discipline, with the country’s public debt at 60.58% of GDP at the end of March, which is below the set ceiling, he added. More

The European Central Bank is this week set to strengthen its commitment to prop up vulnerable eurozone countries’ debt markets if they are hit by a sell-off, as policymakers prepare to raise rates for the first time in more than a decade.The bulk of the 25 governing council members are expected to support a proposal to create a new bond-buying programme if needed to counter borrowing costs for member states, such as Italy, spiralling out of control, according to several people involved in the discussions. Even without a new scheme, the ECB already has an additional €200bn to spend on purchasing stressed government debt under its existing bond-buying programme. That €200bn would come from bringing forward reinvestments of maturing assets by up to a year.Italian government debt rallied on Monday morning, pushing the yield on the country’s benchmark 10-year bond down as much as 0.1 percentage points to 3.3 per cent. The gap between Italy’s 10-year borrowing costs and those of Germany, a key measure of perceived financial risk in the euro area, fell from 2.14 percentage points at the end of last week to 2.07 percentage points. The spread rose last week to its highest level since a sell-off in southern European bond markets at the start of the pandemic in 2020.Rate-setters, who meet in Amsterdam on Wednesday and Thursday, are likely to clash over when to stop buying more bonds. Some plan to call for purchases to be halted as soon as Thursday, several weeks ahead of schedule, although they concede that only a minority may support the idea.The bank is under pressure to react to record-high inflation, but has lagged behind its counterparts in the US and UK in tightening monetary policy. Many of the council’s hawks have accepted they will need to provide more support for bond markets to clear the way for being more aggressive in raising rates. Almost all of the council accept that the ultra-loose monetary policy it has pursued for more than a decade needs to end. A rise of at least 25 basis points is all but certain to happen at the ECB’s next policy meeting on July 21. The deposit rate is now minus 0.5 per cent. Citizens in the region are facing a surge in the cost of living, aggravated by Russia’s invasion of Ukraine. Consumer prices in the eurozone rose 8.1 per cent in the year to May — quadruple the ECB’s 2 per cent target and double the previous high since the single currency was launched in 1999 — forcing governments to pay subsidies to cushion the impact of higher energy and food prices on households.However, some are concerned about the market fallout from raising rates and want a firmer commitment to launch a new bond-buying scheme to counter any unwarranted surge in the borrowing costs of heavily indebted countries.ECB president Christine Lagarde said in a blog last month: “If necessary, we can design and deploy new instruments to secure monetary policy transmission as we move along the path of policy normalisation, as we have shown on many occasions in the past.”Several council members said they would support adding similar language to its statement on Thursday, building on a promise made after its meeting in April to maintain flexibility when its price stability target is threatened “under stressed conditions”.The central bank has previously said its continuing €20bn-a-month asset purchase programme would not end until early July and only “some time” after that would it consider raising interest rates.

The policymakers planning to call for an immediate end to additional bond purchases this week believe there is no longer any justification in continuing a policy designed to boost inflation. Others insisted it was more credible to stick to the plan for bond-buying to continue until early July. The ECB declined to comment.Carsten Brzeski, head of macro research at ING, said bringing forward the end of bond purchases by a few weeks would “be a clear hawkish surprise” and could even open the door to the possibility of raising interest rates before its meeting on July 21.The ECB has bought more than €4.9tn of bonds in total, equivalent to more than a third of eurozone gross domestic product, since launching its quantitative easing programme to tackle the dual threat of deflation and a sovereign debt crisis in 2014.Over the past two years, it has bought more than all the extra bonds issued by the eurozone’s 19 governments, giving it vast sway over borrowing costs in the region. The ECB has also been slower to stop buying more bonds than most western central banks. Some, such as the US Federal Reserve, have even started shrinking their balance sheets by not reinvesting the proceeds from maturing bonds.Additional reporting by Adam Samson More

BENGALURU (Reuters) – Thailand’s central bank will leave interest rates unchanged at their record low for the rest of the year to support economic recovery, but there are growing calls for an earlier rate rise amid inflationary risks, a Reuters poll found. Driven by higher food and energy prices, inflation in Thailand rose to 4.65% in April and was expected to stay over 5% in the coming months, well above the Bank of Thailand’s (BOT) target range of 1% to 3%.Despite those price pressures, economists forecast the central bank will keep policy accomodative to support growth until the end of 2022.Following a drop in COVID-19 cases and eased restrictions, Thailand’s economy expanded a seasonally adjusted 1.1% in the March quarter from the previous three months, beating an expected 0.9% increase in a separate Reuters poll.But China’s zero-COVID policy and low tourist arrivals still pose a challenge to the recovery.All 20 economists in the May 30-June 3 poll predicted the central bank will hold its one-day repurchase rate at 0.50% at its June 8 meeting and keep it there for the remainder of the year.”While our baseline view is for the Bank of Thailand (BOT) to remain on hold in 2022, we see rising risks of policymakers shifting hawkish and normalising monetary policy in 2H22, amid upside inflation pressures,” said Chua Han Teng, economist at DBS.”By ‘hawkish shift’, we mean specifically the scenario where BOT explicitly shifts its focus away from economic support and towards taming inflation or keeping up with global rate hikes and signals that rate hikes would be imminent in 2H22.”EARLIER MOVE While the median forecasts from the poll showed the first rate hike will come only in the first quarter of 2023 – unchanged from the April poll – some economists expected an earlier move from the BOT.Over a third, or seven of 20 respondents, pencilled in at least one 25 basis point rate hike to come by Q4 2022, including two who expected it to come as early as next quarter. In the April poll, only two economists expected a quarter point hike in 2022.”We think the BOT will turn increasingly less dovish given the backdrop of rising domestic inflation and an accelerating global rate-hiking trend,” noted Krystal Tan, economist at ANZ. “A sustained recovery would give the BOT scope to start shifting its focus towards anchoring domestic inflation expectations in the coming months and gradually withdraw pandemic-era stimulus.”Though forecast medians showed interest rates reaching their pre-pandemic levels of 0.75% in Q1 2023, predictions ranged from 0.50% to 1.50%, suggesting uncertainity around policy direction.While six of 17 saw rates at 0.75% by end-March, four said 1.00% or higher. The remaining seven forecast rates to stay at 0.50%.Expectations for a subsequent 25 basis point rate hike were brought forward to Q2 2023 from Q3 2023 in the last poll, taking the rate to 1.00%, where it was expected to remain until the end of next year. More

SYDNEY (Reuters) – Asian shares made a muted start on Monday as caution gripped ahead of a critical reading on U.S. inflation, while the euro gained on the yen amid wagers the European Central Bank will take a major step toward policy tightening this week.Oil prices jumped in early trade after Saudi Arabia raised prices sharply for its crude sales in July, an indicator of how tight supply is even after OPEC+ agreed to accelerate its output increases over the next two months.MSCI’s broadest index of Asia-Pacific shares outside Japan dipped 0.1%, while Japan’s Nikkei eased 0.3%. S&P 500 futures and Nasdaq futures both edged up 0.1%.Markets will be on tenterhooks for the U.S. consumer price report on Friday, especially after EU inflation shocked many with a record high last week.Forecasts are for a steep rise of 0.7% in May, though the annual pace is seen holding at 8.3% while core inflation is seen slowing a little to 5.9%. A high number would only add to expectations of aggressive tightening by the Federal Reserve with markets already priced for half-point hikes in June and July and almost 200 basis points by the end of the year.Some analysts thought Friday’s upbeat payrolls report suggested the Fed was on track for a soft landing.”May’s numbers came in about as good as the Fed could expect,” said Jonathan Millar, an economist at Barclays (LON:BARC).”It’s a good sign that the Fed’s plans to cool the labour market are playing out favourably so far, with solid gains in employment continuing to generate steady income gains that will help allay recession worries, for the time being.”NOT SO NEGATIVEThe European Central Bank meets on Thursday and President Christine Lagarde is considered certain to confirm an end to bond buying this month and a first rate hike in July, though the jury is out on whether that will be 25 or 50 basis points.Money markets are priced for 125 bps of hikes by year-end, and 100 bps as soon as October.”Recent communication by ECB officials have looked to 25bp increases at July and September to exit negative rates by the end of Q3, though with some members preferring to leave the door to larger 50bp hikes open,” said analyst at NAB. “Lagarde’s post-meeting press conference will be closely watched.”The prospect of rates turning positive this year has helped the euro steady at $1.0722, some way from its recent trough of $1.0348, though it has struggled to clear resistance around $1.0786.The euro also made a seven-year peak on the yen at 140.35, after climbing 2.9% last week, while the dollar was up at 130.84 yen having also gained 2.9% last week.Against a basket of currencies, the dollar stood at 102.110 after firming 0.4% last week.In commodity markets, gold was stuck at $1,852 an ounce having held to a tight range for the past couple of weeks. [GOL/]Oil prices got an added lift after Saudi Arabia set higher price for shipments to Asia, while investors are wagering supply increases panned by OPEC will not be enough to meet demand especially as China is easing its lockdowns. [O/R]”Perhaps only a third to half of what OPEC+ has promised will come online over the next two months,” said Vivek Dhar, a mining and energy analyst at CBA.”While that increase is sorely needed, it falls short of demand growth expectations, especially with EU’s partial ban on Russian oil imports also factored in. We see upside risks to our near term Brent oil price forecast of $US110/bbl.”Indeed, Brent is already well past that adding $1.61 on Monday to reach $121.33 a barrel. U.S. crude rose another $1.56 to $120.43 per barrel. More