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BoJ board member Seiji Adachi has signaled that the central bank could raise interest rate earlier if depreciation of Yen accelerates or persists.

In his speech today, Adachi emphasized the need to avoid premature rate increases. However, he also warned that an excessive focus on downside risks could lead to an inflation spike, necessitating sharp monetary tightening later on.

Adachi highlighted the importance to "gradually adjust" monetary support based on economic, price, and financial developments, as long as underlying inflation trends toward 2% target.

He projected that consumer inflation will re-accelerate from summer through autumn due to rising import costs and sustained wage gains. However, if Yen's decline accelerates or persists, "consumer inflation could rebound sooner than expected".

"If this happens at a time when there is a higher chance of inflation durably and stably exceeding 2%, we may need to push forward the timing of an interest rate hike," Adachi noted.

New Zealand's ANZ Business Confidence index dropped from 14.9 to 11.2 in May, signaling a decline in business sentiment. Outlook for own activity also decreased from 14.3 to 11.8.

Cost expectations saw a reduction 76.7 to 72.6, the lowest since February 2021. Wage expectations ticked down slightly from 75.5 to 75.4. Profit expectations fell sharply, from -9.8 to -15.3, and pricing intentions decreased from 46.9 to 41.6, the lowest level since December 2020. Inflation expectations edged down from 3.76% to 3.59%.

According to ANZ, "This month's Business Outlook survey makes for grim reading, but it also provides confirmation that inflation pressures are waning."

They indicated that significant progress in reducing non-tradable inflation is anticipated, which, barring any unforeseen inflationary spikes, should restore RBNZ's confidence. This would potentially allow for future rate cuts, signaling a cautiously optimistic outlook on inflation control and economic stability.

Full ANZ business confidence release here.

Australia monthly CPI rose form 3.5% yoy to 3.6% yoy in April, exceeding the expectation of 3.4%. This marks the second consecutive month of rising inflation. CPI excluding volatile items and holiday travel remained steady at 4.1% yoy, while the trimmed mean CPI also edged up from 4.0% yoy to 4.1% yoy.

Significant price increases were observed in several categories: Housing saw a 4.9% rise, Food and non-alcoholic beverages increased by 3.8%, Alcohol and tobacco prices surged by 6.5%, and Transport costs went up by 4.2%.

Full Australia monthly CPI release here.

Australia Westpac Leading Index improved slightly in April, rising from -0.08% to -0.01%. Westpac noted that the index is once again indicating some stabilization in growth momentum. However, the improvement in growth is expected to be modest.

Westpac forecasts GDP to grow at an annual pace of 1.9% in the second half of the year, up from 1.3% in the first half. Despite this uptick, the growth rate remains below Australia's trend, which is estimated to be around 2.5% per year with some moderation in population growth.

Full Australia Westpac leading index release.

In an event in London overnight, Minneapolis Fed President Neel Kashkari stated that the likelihood of raising interest rates again is "quite low," although he emphasized, "I don't want to take anything off the table."

Kashkari pointed out that "wage growth is still quite robust relative to ultimately what we think would be consistent with the 2% inflation target," suggesting that the labor market remains strong. He emphasized the need for a careful assessment of the downward pressure being placed on demand before making any further policy decisions.

When discussing his input for the upcoming dot plot, Kashkari expressed the importance of having comprehensive data before drawing any conclusions. However, he assured that "it certainly won't be more than two cuts" this year, as he had projected in the last dot plot.

Key Highlights

• Ethereum started a fresh rally toward the $4,000 zone after ETH ETFs were approved by the SEC.
• ETH price is facing resistance near $3,950 on the 4-hour chart.
• Bitcoin price corrected gains from the $72,000 resistance.
• Oil prices recovered and climbed above the $79.20 resistance.

Ethereum Technical Analysis

Ethereum started a fresh surge after the SEC approved ETH ETFs. ETH price outperformed Bitcoin and climbed above the $3,650 resistance zone.

Looking at the 4-hour chart, the price even settled above the $3,700 level, the 100 simple moving average (red, 4-hour), and the 200 simple moving average (green, 4-hour). However, it is facing resistance near the $3,950 level.

The next major resistance is near the $4,000 level. A daily close above the $4,000 resistance zone could start another steady increase. In the stated case, the price may perhaps rise toward the $4,200 level. The next stop for the bulls may perhaps be near the $4,500 level.

If not, the price might start a downside correction and test the $3,720 support level. The next major support is near $3,650, below which the price could slide toward $3,520. Any more losses might call for a move toward the $3,240 level and the 200 simple moving average (green, 4-hour).

Looking at Bitcoin, the bears seem to be active above the $70,000 level and they are aiming for a fresh drop toward the $65,500 level.

Economic Releases

• Fed's Williams speech.
• Fed's Beige Book.

• WTI crude oil reversed from key support level 76.70
• Likely to rise to resistance level 81.10

WTI crude oil recently reversed up from the support zone located between the key support level 76.70, which has been reversing the price from February.

The support level 76.70 was strengthened by the lower daily Bollinger Band and by the 61.8% Fibonacci correction of the upward impulse from February.

Given the bullish divergence on the daily Stochastic, WTI crude oil can be expected to rise further to the next resistance level 81.10.

The GBPJPY cross continues to trend higher and establishing above 200 mark (Monday’s close above this level was the first since Aug 2008).

Bulls cracked barrier at 200.50 (Apr 29 spike high), with sustained break here to open way for further acceleration.

Sterling remains supported by strong divergence between the interest rates of BoE and BoJ, as well as fading hopes for June rate cut after the latest data showed fresh rise in UK consumer prices.

Politics also contribute to pound’s positive stance, as Britain is focusing on July 4 general election.

Technical picture on daily chart is firmly bullish, but with growing signals of fatigue on strongly overbought conditions and diverging 14-d momentum indicator.

Although the price is still in unobstructed uptrend, some corrective action should be anticipated in coming sessions.

Broken 200 level reverts to initial support, followed by rising 10DMA (198.71) and 20DMA (196.45) which should contain pullback for a healthy correction, before larger bulls regain traction.

Res: 201.00; 202.66; 204.00; 206.15
Sup: 200.00; 198.71; 197.42; 196.45

Markets

With US and UK markets closed for a holiday yesterday, markets still showed some Monday-like slow trading dynamics today. German yields are changing less than 2 bps across the curve. Inflation expectations in the ECB April consumer survey declined slightly further (2.9% from 3.0% 1-year, 2.4% from 2.5% 3-year). Still this wasn’t really able to trigger any meaningful follow-through price action on yesterday’s tentatively soft comments from ECB’s Villeroy and Lane. Today, ECB’s Holzmann, a hawkish member within the MPC, indicated he supports a rate cut at next week’s meeting. He won’t automatically support moves afterward, but sees 2 rate cuts this year with a maximum of three. Given his usually hawkish bias, his assessment is pretty much in line with current market pricing. ECB’s Knot (also from the hawkish side) did strike a similar moderate tone as he expects policy rates to gradually become less restrictive as the medium term outlook on inflation improves. ECB Executive Board member Isabel Schnabel in a speech in Tokyo looked backward on the period of CB asset purchases (QE). She advocated that QE primarily should be used in times of crisis/financial turmoil. Outside this periods of elevated stress she advocated caution on using the instrument of asset purchases as long-term costs could outweigh benefits. In this respect, especially in a bank-based economy (as is the EMU) other measures such as long-term refinancing operations, might offer a better risk-reward balance.

In technical trading US yields are changing between -4.0 bps (2-y) and +1.0 bp (30-y). Consumer confidence of the conference board will still be published after concluding this report. Equities show a mixed picture The EuroStoxx 50 opened stronger but momentum dwindled (currently -0.6%). The Nasdaq at the open still touched an all-time record, but also struggles to extend gains.

Low volatility in bonds and equity markets is keeping the dollar in the defensive. EUR/USD came close to the 1.0895 ST top, but a real test/break didn’t occur (currently 1.0875). DXY eases to 104.4 (from 104.57). USD/JPY is blocked in an extremely tight range just below the 157 big figure. EUR/GBP continues testing the 0.85/0.8492 support area, but for now no clean break occurred. UK data were mixed today with BRC shop prices slowing further disinflation (0.6% Y/Y in May from 0.8%), but stronger than expected CBI retail sales published later today (cf infra).

News & Views

The Confederation of British Industry’s (CBI) monthly retail sales balance recovered from -44 in April to +8 in May (best since December 2022). The indicator compares sales versus a year ago. The dismal April figure could have been an outlier (February: -7; March +2) linked to timing of Easter and bad weather. The highest number of retailers felt sales being normal for the time of year in eight months. Retailers expect the volume of sales to moderately fall in June (-4) though we must add that they expected them to fall -19 this month. CBI’s lead economist believes that falling inflation and continuing real wage growth will contribute to a healthier consumer outlook, in turn supporting the retail sector further. Results from a separate quarterly survey on sales of UK retailers pointed to the slowest pace of selling price inflation since August 2020 (below long-run average).

The Hungarian Debt Management Agency (AKK) announced modalities of a new retail bond, the Hungarian Government Security Plus (MAP Plusz). The retail note pays an annualized interest rate of 6.73% over its 5-yr term via a yearly step-up coupon starting at 6.25% and gradually rising to 7.25%. MAP Plusz will be redeemable at par value once a year during a 5-day period following the interest payment. AKK experimented with this product before, launching a similar one in 2019. At the peak of its success (turn 2021-2022), there was more than HUF 6300bn outstanding. It lost its appeal as inflation accelerated but HUF 740bn is still invested and will soon mature. ÁKK's target regarding the retail government securities market remains unchanged at obtaining a net portfolio growth worth 2% of GDP in 2024. Another retail bond, the One Year Hungarian Government Security (1MAP) which currently has a 6% annual interest rate, will be phased out.

Graphs

EUR/USD nearing 1.0895 ST resistance on persistent low market volatility overall.

Nasdaq opens at new (minor) all-time record.

Brent oil bottoms on geopolitical uncertainty as markets look forward to this weekend’s OPEC+ meeting.

US 2-y yield running into resistance ahead of 5.0% psychological barrier.