UKRAINE: EP-EU Pauses Aid Over Anti-Corruption Agency Row
Business and economics-focused Ukrainian outlet Ekonomichna Pravda reports that the EU has reduced its aid payments to Ukraine because of Kyiv's failure to hit its agreed milestones with regards to anti-corruption efforts. In the short term, it has also paused all aid due to President Volodymyr Zelenskyy's (now swiftly reversed) plans to strip two anti-corruption agencies of their powers. The EP confirms that "EU representatives informed the Svyrydenko government through diplomatic channels that they were suspending all financial assistance to Ukraine", and that according to four gov't sources, "Everything has been put on hold until the situation is corrected," On 31 July, the Verkhovna Rada (parliament) is set to swiftly vote through legislation reversing the initial laws that de-fanged the anti corruption agencies.
- The Zelesnkyy gov'ts failure to hit its Q125 milestones has already seen a reduction in the latest tranche payment from the EU, from EUR4.5bln to EUR3bln. EP reports that the Q225 targets could be even further behind, with a potential hit of EUR2-3bln. Should these milestones be met subsequently, the funding can be restored in future tranches.
- The whole episode has served to fundamentally shake the confidence of many Ukrainians in the probity of the Zelenskyy administration (already suffering from escalating war fatigue). Ukraine's other international partners are likely to become more stringent in their demands for proof of reforms before handing over funds. EP also reports the gov't may find it more difficult to get measures through parliament with the caucus of Zelenskyy's 'Servant of the People' party divided over the anti-corruption drive.
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US FISCAL: Available "Extraordinary" Measures To Ward Off X-Date Pick Up
Treasury reported Friday that as of Jun 25 it had $130B in remaining "extraordinary" measures (of a total $378B available) to ward off an "x-date" of running out of resources before defaulting. That's the highest in 2 weeks.
- Combined with $334B cash as of Jun 25 (after a bit of a buildup after the mid-June tax deadline), that's a total of roughly $465B in total resources available.
- We noted earlier this week that Treasury told Congress that it was required to extend its debt issuance suspension period from Jun 27 to Jul 24, in effect prolonging the use of extraordinary measures while we await a resolution to the debt limit impasse, probably through the fiscal legislation currently going through Congress.
- Realistically, fiscal dynamics so far this year point to potential for Treasury to get into September without running out of cash + extraordinary measures. That seems to be the broad market expectation.
US DATA: Cleveland, Dallas Fed PCE Medians Show Progress But Still Above-Target
The Cleveland and Dallas Fed's median PCE metrics showed a notable drop in May. All indices suggest PCE inflation running above 2%, and higher than the actual core and headline PCE measures, but pressures appear to have cooled from a pickup in the early months of the year.
- The Cleveland Fed's median PCE measure came in at 0.22% M/M, a 10-month low after April's 15-month high 0.31%. This left median PCE at 3.01% on a Y/Y basis, down from 3.06% prior for a the joint-lowest (with Feb) since September 2021.
- The Dallas Fed's annualized median rate fell to 2.01%, from 2.65% prior for a 10-month low. The 6-month annualized rate edged lower to 2.74% (2.76% prior), a 4-month low, with the Y/Y rate ticking down to 2.55% from 2.56%, echoing the Cleveland Fed for the lowest reading since September 2021.
USDCAD TECHS: Pivot Resistance Remains Intact
- RES 4: 1.4111 High Apr 4
- RES 3: 1.4016 High May 12 and 13 and a key resistance
- RES 2: 1.3920 High May 21
- RES 1: 1.2710/3803 20- and 50-day EMA values
- PRICE: 1.3658 @ 16:23 BST Jun 27
- SUP 1: 1.3618 Low Jun 26
- SUP 2: 1.3540 Low Jun 16 and the bear trigger
- SUP 3: 1.3503 1.618 proj of the Feb 3 - 14 - Mar 4 price swing
- SUP 4: 1.3473 Low Oct 2 2024
USDCAD has pulled back from its recent highs. The primary downtrend remains intact and short-term gains appear to have been corrective. Key support and the bear trigger has been defined at 1.3540, the Jun 16 low. Clearance of this price point would resume the downtrend. Any reversal higher would instead signal scope for a stronger retracement. Pivot resistance to monitor is at the 50-day EMA, at 1.3803.
