{x} | Trading.live

[Quick Facts]

1. European natural gas futures soar.

2. ECB raises rates by 25 basis points.

3. BOJ interest rate decision outlook.

4. Fed Raphael Bostic made trades in the blackout period before May 2022 FOMC meeting.

5. Strong U.S. retail sales spending will support economic growth.

6. Fed's reverse repo facility falls below $2 trillion.

[News Details]

European natural gas futures soar

The Dutch government plans to permanently shut down the Groningen gas field in October, people familiar with the matter said. The area has been prone to earthquakes for many years and large numbers of houses have been damaged. An official decision on the field will be taken during a cabinet meeting later this month, said a spokesperson for the Dutch State Secretary for Mining. The Groningen field has been an important source of natural gas for much of Western Europe and a pillar of Dutch public finance since production commenced in 1963. The province has suffered hundreds of earthquakes since the 1980s. European gas prices soared on the news, with benchmark futures surging 24% on Thursday to their highest level since early April and heading for a third straight day of gains.

ECB raises rates by 25 basis points

At its policy meeting for June yesterday, the European Central Bank raised interest rates by 25 basis points as expected. It again expected inflation to remain high.

Past rate hikes are being strongly transmitted to the financing environment and are gradually having an impact on the overall economy. Borrowing costs have risen sharply and loan growth is slowing. The tight financing environment is one of the key reasons why inflation is expected to fall further toward the target and the tight financing environment is expected to increasingly dampen demand.

The ECB reiterated that future decisions by the Governing Council will ensure that the policy rate reaches a sufficiently restrictive level which can timely bring inflation down to 2%. And it will maintain the policy rate at the above level for a sufficiently long period of time. The ECB also stressed that the Governing Council will continue to follow a data-based approach in determining the appropriate level and duration of restrictive interest rates. The interest rate decision will continue to be based on an assessment of the inflation outlook, based on emerging economic and financial data, underlying inflation developments, and the strength of monetary policy transmission.

BOJ interest rate decision outlook

Despite stronger-than-expected inflation, the Bank of Japan is widely expected to maintain its short-term interest rate target of minus 0.1%, as well as the yield curve control (YCC) policy that sets a 0% ceiling on 10-year bond yields. The BOJ will focus on supporting the fragile economic recovery amid the sharp slowdown in global economic growth.

The BOJ is also likely to remain committed to "patiently" maintaining large-scale stimulus measures to ensure that Japan's inflation rate keeps reaching the 2% target while wages rise.

With companies offering the largest pay hikes in 30 years, the BOJ may hint that the long era of wage stagnation may be over.

Kazuo Ueda has repeatedly ruled out a near-term adjustment to the YCC, arguing that recent cost-driven inflation will fall back below the BOJ's target later this year. If the central bank's inflation forecast proves wrong, it will "act quickly" and point to signs that corporate pricing is beginning to change.

Fed Raphael Bostic made trades in the blackout period before May 2022 FOMC meeting

The Fed's Raphael Bostic made trades in the blackout period before the May 2022 FOMC meeting, which reveals more violations of the Fed's trading rules. Bostic is now under investigation. A fund manager representing Bostic traded shares in 19 exchange-traded funds on May 2, 2022, two days before the Fed announced its interest rate decision, according to Bostic's financial statement released on Thursday. But Bostic was not a member of the vote at the time. In March and April 2020, Bostic also traded illegally. He explained at the time that it was an investment decision made by a third-party financial adviser within a managed account. Bostic used the same explanation in the statement disclosed on Thursday.

Strong U.S. retail sales spending will support economic growth

U.S. retail sales unexpectedly rose in May, led by auto spending, which may help support the economy this quarter. Despite higher inflation and interest rates causing consumers to become more price-sensitive, spending remained resilient as wages rose strongly due to a tight labor market. There are still some of the savings accumulated during the COVID-19 pandemic to be released. Consumer spending, which accounts for more than two-thirds of U.S. economic activity, grew at the fastest pace in nearly two years in the first quarter, offsetting the drag on GDP growth from a sharp slowdown in stocks. The U.S. economy grew at an annualized rate of 1.3% last quarter. The Atlanta Fed now expects U.S. GDP to grow 2.2% in the second quarter.

Fed reverse repo facility falls below $2 trillion

A total of 103 participating institutions placed a total of $1.992 trillion in the Fed's Overnight Reverse Repo Facility (ON RRP) on Thursday, June 15, ET, with the total size falling below $2 trillion for the first time since June 2 of last year.

At this point, the ON RRP has fallen by $562 billion, or 22%, from the record high of $2.554 trillion on Dec. 30 last year, and $11.7 billion, or 5.5%, lower than the previous day, Wednesday.

The U.S. Treasury, which had been looking for ways to "cut costs" earlier in order to avoid hitting the debt ceiling, had to borrow freely. Last Wednesday, the Treasury said its cash balance had reached the lowest level since 2017 one week before and will return to normal levels by September. The goal, U.S. Treasury officials said at the time, is to get the TGA account's cash balance to $600 billion.

In the best-case scenario, money funds will be the main funder of the current round of U.S. debt issuance. Both money funds and the Fed's ON RRP were previously seen as shock absorbers. But the government needs to offer higher yields on Treasury bonds in order to make money funds to "take over" it. The ON RRP's annualized yield last week was around 5.05%. If investors expect the Fed to continue tightening money, they may keep their cash at the Fed instead of buying short-term Treasuries.

[Focus of the Day]

UTC+8 11:00 The Bank of Japan announced its interest rate decision

UTC+8 14:30 Bank of Japan Governor Kazuo Ueda held a monetary policy press conference

UTC+8 16:30 The Bank of England releases its survey of inflation expectations

UTC+8 17:00 Eurozone HICP (May)

UTC+8 19:45 Fed Governor Waller speaks

UTC+8 21:00 Richmond Fed President Barkin speaks on inflation

UTC+8 22:00 U.S. UMich Consumer Confidence Index Prelim (Jun)