MNI US OPEN: Bonds And USD Underpinned By Risk-Off Tone

EUROZONE: Tightening EZ Labour Market Underlines ECB Concerns

Eurozone unemployment fell to a record low 6.6% in May, falling 0.1 pp from April's 6.7%. This is down from 8.1% seen in May 2021. Youth unemployment across the region saw another substantial decrease, down 0.7pp to 13.1%.

Continued improvement in the Eurozone unemployment rate implies increased wage pressures, potentially adding pressure to second round inflation effects, further complicating the ECB's hiking cycle which is set to commence in July.

With the German labour market registering a 0.3pp increase in their June unemployment rate as a result of accounting for the influx of registered Ukrainian refugees, upcoming labour reports could show increasing unemployment rates despite having remained otherwise stable, depending how stats agencies handle the influx.

GERMANY: June Unemployment Rises On Ukrainian Refugee Influx

GERMANY JUNE UE RATE (SA) 5.3%; MAY 5.0%

GERMANY JUNE UE NET CHANGE (SA) +133K; MAY -5Kr

• German unemployment saw a 0.3pp uptick to 5.3% in June. The rise in employment reflects the influx of Ukrainian refugees, who have been accounted for in the June labour statistics.
• This led to a net employment change of +133,000, following -5,000 seen in May. The German Labour Office noted that the labour market remained otherwise stable in June.
• At the end of May 966,000 Ukrainian nationals were registered, 811,000 more than before the onset of the war. Of the registered Ukrainian refugees, around 75% are between 15-65.
• The tight labour market conditions will likely welcome the stark increase in employable persons currently being processed by German job centres, however, the struggling manufacturing industry remains hampered by supply disruptions and is unlikely to offer the extent of new employment opportunities in previous months.

Unemployment in Germany rises nationally:

French Inflation Sees No Relief at +5.8%

FRANCE JUNE FLASH CPI +0.7% M/M, +5.8% Y/Y; MAY +5.2% Y/Y

FRANCE JUNE FLASH HICP +0.8% M/M, +6.5% Y/Y; MAY +5.8% Y/Y

• French inflation continued to climb in June, up 0.6pp on the headline CPI print at +5.8% y/y. This is a 0.1pp beat of forecast expectations, reaching the highest annual rate since September 1985.
• The harmonised print saw a larger 0.7pp jump as forecasted. The acceleration in energy and food prices were once again the key upwards drivers, energy increasing 33.1% y/y (up from 27.8%) and food by 5.7% y/y (up from 4.3% in May). Manufacturing price growth saw the only slowing upwards pressure.
• With Eurozone inflation prints beginning to diverge, following the German downside surprise and Spanish upside beat seen yesterday, the ECB will be focused on the aggregate Euro area print due Friday.

MNI: FRANCE MAY CONSUMER SPENDING +0.7% M/M, -3.4% Y/Y

FIXED INCOME: Yields fall across the board

• Another wide trading session for EGBs and Bund, but very choppy with 20 ticks swings at a time in Bund (and 172 ticks range).
• Govies have extended gains, pushing Yields lower.
• The French CPI, was inline, but didn't beat the estimates, which helps underpinned Bonds.
• German 2yr tested lowest level since the 9th June, with most of the action centred in the shorter part of the Curve 2yr and 3 Months Euribor.
• Schatz future is off the session, Yield off the low.
• Next support in 2yr is seen at 0.65%, reference 109.075, would equate to 109.185.
• Peripherals are wider this morning, as Bund outperforms its peers.
• Italy is in the lead so far today, by 5.7bps at 191.9bps.
• Gilt is taking its cue from the European price action, but is somewhat lagging Germany, pushing the Gilt/Bund spread 5.8bps wider.
• US Treasuries have followed suit, and trade in the green, but volumes are fairly subdued, with 340k lots traded at the time of typing.
• Looking ahead, Out of the US, PCE deflator and MNI Chicago PMI are the notable release, but Europe are already turning their attention to the EU CPI release tomorrow.
• Also today, includes OPEC meeting.

FOREX: USD/JPY Fading Alongside Equities

• USD/JPY has faded off the cycle highs posted yesterday at 137.00, but still holds comfortably above yesterday's lows. Nonetheless JPY is the strongest currency across G10, moving in sympathy with fading equity markets. This puts the e-mini S&P on track to test first support at 3757.8 - the 61.8% Fib retracement for the late June rally.
• Elsewhere, the SEK trades weaker, with EUR/SEK toward the top end of the daily range following the Riksbank rate decision. There were mixed messages in the release, with the bank hiking 50bps (potentially disappointing markets that had seen a decent chance of a 75bps move) and pointing to an elevated rate path across 2023 - this puts the repo rate path north of 2% by mid-2023.
• The USD Index is inching higher, mirroring the general risk-off theme so far present in markets Thursday, with 105.229 the next upside level ahead of June's cycle high of 105.788.
• Alongside the weekly jobless claims data, personal income/spending data is due as well as Monthly Canadian GDP. The MNI Chicago PMI follows, expected to show a drop to 58.0 from 60.3.

EQUITIES: S&P Futs Below 3,800 Again As Global Stocks Struggle

• Asian markets closed weaker: Japan's NIKKEI closed down 411.56 pts or -1.54% at 26393.04 and the TOPIX ended 22.75 pts lower or -1.2% at 1870.82. China's SHANGHAI closed up 37.098 pts or +1.1% at 3398.616 and the HANG SENG ended 137.1 pts lower or -0.62% at 21859.79.
• European equities are down sharply in a broad risk-off move (cyclicals leading the way lower, with tech and consumer discretionary stocks underperforming): the German Dax down 254.93 pts or -1.96% at 12723.14, FTSE 100 down 122.84 pts or -1.68% at 7174.75, CAC 40 down 121.27 pts or -2.01% at 5885.88 and Euro Stoxx 50 down 65.39 pts or -1.86% at 3442.74.
• U.S. futures are also pointing lower, with the Dow Jones mini down 260 pts or -0.84% at 30739, S&P 500 mini down 42 pts or -1.1% at 3779.25, NASDAQ mini down 163 pts or -1.39% at 11528.

COMMODITIES: Renewed Growth Concerns Sends Copper Lower Again

• WTI Crude up $0.18 or +0.16% at $109.51
• Natural Gas up $0.01 or +0.11% at $6.509
• Gold spot down $1.91 or -0.11% at $1816.37
• Copper down $4.5 or -1.19% at $374.25
• Silver down $0.01 or -0.07% at $20.803
• Platinum down $3.69 or -0.4% at $916.98