• APAC stocks were mostly lower following the post-Independence Day hangover in the US owing to recent weak global data releases and a rising yield environment.
• The FOMC Minutes provided little to deviate from the current view of future rate increases - almost all participants judged it appropriate or acceptable to leave the target rate unchanged at the June meeting.
• Fed's Williams (voter) said he is not content with where inflation is right now, and that a June rate pause was the right move, but future hikes are still in play.
• DXY held on to the prior day’s gains owing to the upside in yields and after the FOMC Minutes, USD/JPY pulled back from its recent advances, and Antipodeans reversed early gains.
• Looking ahead, highlights include German Industrial Orders, EZ Retail Sales, US ADP, US S&P Services PMI, US ISM Services PMI, US EIA Stocks, Speeches from Fed's Logan, UAE Energy Minister, supply from Spain and France.

US TRADE

EQUITIES

• US stocks traded lower on return from the Independence Day closure with underperformance in the real economy-levered Russell 2000 as participants digested weak global macro data in the form of soft China and European PMIs, while sentiment was also dampened amid the upside in yields and after the FOMC Minutes provided very little to deviate from the current view of further rate increases.
• SPX -0.2% at 4,447, NDX -0.03% at 15,204, DJI -0.38% at 34,288, RUT -1.26% at 1,872.
• Click here for a detailed summary.

FOMC MINUTES

• FOMC Minutes stated that almost all judged it appropriate or acceptable to leave the target rate unchanged and most of the participants observed that leaving the target range unchanged would allow more time to assess the economy's progress toward the Committee's goals of maximum employment and price stability. All participants continued to anticipate that maintaining a restrictive stance on monetary policy would be appropriate to achieve the Committee's objectives and many also noted that after rapidly tightening the stance of monetary policy last year, the Committee had slowed the pace of tightening and that a further moderation in the pace of policy firming was appropriate in order to provide additional time to observe the effects of cumulative tightening and assess their implications for policy. Furthermore, some participants indicated that they favoured raising the target range by 25bps at this meeting or that they could have supported such a proposal, while participants agreed that their policy decisions at every meeting would continue to be based on the totality of incoming information and its implications for the economic outlook as well as the balance of risks.

NOTABLE HEADLINES

• Fed's Williams (voter) said he is not content with where inflation is right now and that fighting inflation remains the Fed's main job, while he sees progress on inflation but noted price pressures are still too high. Williams also noted a data-dependent approach when it comes to future Fed actions and thinks that they still have more work to do on rates. Furthermore, he said real rates are projected to be restrictive for some time and the June rate pause was the right move but future hikes are still in play.

APAC TRADE

EQUITIES

• APAC stocks were mostly lower following the post-Independence Day hangover in the US owing to recent weak global data releases, a rising yield environment and after the FOMC Minutes provided little to deviate from the current view of future rate increases.
• ASX 200 traded lower as underperformance in the mining and materials-related industries spearheaded the declines seen in nearly all sectors and with risk appetite also sapped by a rise in Aussie yields.
• Nikkei 225 was pressured at the open with selling exacerbated after slipping beneath the 33,000 level.
• Hang Seng and Shanghai Comp declined with acute selling in Hong Kong-listed Chinese banks after China’s largest lenders cut rates for corporate US dollar deposits amid efforts to support the yuan and with banks said to have stopped buying bonds issued in the Shanghai free trade zone after heightened regulatory scrutiny, while losses in the mainland were stemmed ahead of US Treasury Secretary Yellen’s arrival in Beijing for meetings with senior officials.
• US equity futures retreated alongside the selling pressure in most key Asia-Pac markets.
• European equity futures are indicative of a lower open with the Euro Stoxx 50 -0.5% after the cash market closed down by 0.9% yesterday.

FX

• DXY held on to the prior day’s gains owing to the upside in yields and after the FOMC Minutes provided little in the way of fresh insight but noted some policymakers would have been happy to accept a 25bps hike in June. There were also comments from Fed's Williams that he is not content with where inflation is right now and thinks that they still have more work to do on rates, while he added that the June rate pause was the right move, but future hikes are still in play.
• EUR/USD was lacklustre after succumbing to the firmer dollar and recent failure to sustain the 1.0900 status.
• GBP/USD remained indecisive with price action choppy albeit within a thin range around the 1.2700 level.
• USD/JPY pulled back from its yield-driven advances as the Japanese currency benefitted from its haven status.
• Antipodeans reversed early gains as the risk appetite in some of the key regional bourses further soured.
• PBoC set USD/CNY mid-point at 7.2098 vs exp. 7.2510 (prev. 7.1968)

FIXED INCOME

• 10yr UST futures remained subdued after yesterday’s pronounced bear-steepening heading into the key June employment data and after the FOMC Minutes did little to shift the narrative of incoming rate increases.
• Bund futures marginally extended on the prior day’s lows after slumping beneath the 133.00 level.
• 10yr JGB futures were pressured after a weaker 30yr bond auction and amid corporate supply with SoftBank Corp pricing a JPY 120bln offering.

COMMODITIES

• Crude futures traded rangebound as tailwinds from recent Saudi jawboning and a larger-than-expected draw in private sector crude inventories were offset by the mostly downbeat overnight risk sentiment.
• US Energy Inventory Data (bbls): Crude -4.4mln (exp. -1.8mln), Cushing +0.3mln, Gasoline +1.6mln (exp. -1.1mln), Distillate +0.6mln (exp. +0.5mln)
• OPEC energy and oil ministers met on the sidelines of the 8th OPEC Seminar and reviewed market conditions, while they agreed to continue consultation with their non-OPEC counterparts in continued efforts to support a stable and balanced oil market, according to a statement.
• OPEC Secretary General said OPEC is in discussions with Azerbaijan, Malaysia, Brunei, and Mexico to join the group, while OPEC invited Azerbaijan to join the organisation, although Azerbaijan's Energy Minister said the country is currently not considering joining OPEC after an invite from the cartel, according to Interfax.
• Kuwait's minister denied that Kuwait is requesting an OPEC+ quota increase and said the country's oil output capacity will be 3.2m BPD by the end of 2024.
• Spot gold was uneventful with price action contained as the dollar held on to its gains post-FOMC Minutes.
• Copper futures declined as the risk appetite in Asia deteriorated throughout the session.
• Chile's Codelco estimated copper production loss of about 7k tons due to recent rains and it is seen ending 2023 with production at the low end of the estimated 1.35mln-1.42mln tons range but noted that production will start recovering next year. Furthermore, it was reported that Chile Codelco copper output in May fell 22.4% Y/Y to 110.9k tonnes and Escondida copper mine production fell 21.5% to 83.9k tonnes, while Collahuasi copper mine production fell 11.8% to 43.2k tonnes, according to Reuters.

CRYPTO

• Bitcoin traded rangebound and weathered the risk-off mood seen across most Asia-Pac stocks.

NOTABLE ASIA-PAC HEADLINES

• Chinese banks stopped buying bonds issued in the Shanghai free trade zone after heightened regulatory scrutiny.
• US Commerce Department firmly opposes export controls announced by China on gallium and germanium, while the US will engage with allies and partners to address the export controls announced by China.

DATA RECAP

• Australian Trade Balance (AUD)(May) 11.8B vs. Exp. 10.5B (Prev. 11.2B)
• Australian Exports MM (May) 4.0% (Prev. -5.0%)
• Australian Imports MM (May) 2.0% (Prev. 2.0%)

GEOPOLITICS

• Ukrainian President Zelensky said he wanted the counteroffensive to happen much earlier and he told US and European leaders that Ukraine needed the weapons for that, while he also noted that difficulties on the battlefield slowed the pace of the counteroffensive, according to a CNN interview.
• US Air Force said 3 Russian fighter jets harassed drones during a mission against ISIS which forced the US to perform evasive manoeuvres, according to AJA Breaking.
• White House National Security Council said the US will respond to Iranian aggression with allies in the Middle East after the tanker incident, while Iran denied reports that it tried to seize oil tankers.
• Swedish PM Kristersson said after meeting with US President Biden that Biden expressed very strong support for Sweden's NATO accession and they both agreed the NATO Summit in Vilnius is a natural time for Swedish NATO accession, according to Reuters.
• US Secretary of State Blinken stressed the importance of NATO unity in a call with the Turkish Foreign Minister and encouraged Turkey's support for Sweden to join the NATO alliance now.

EU/UK

NOTABLE HEADLINES

• ECB narrowed the selection for the successor of chief bank supervisor Enria to two candidates Buch and Delgado, according to Handelsblatt.
• SNB's Maechler said the SNB still sees inflation as being very high and doesn't rule out further rate increases, according to Le Temps.