• Maintaining an active monetary policy, with very favourable financing conditions for companies
• ECB must nevertheless closely monitor debt developments, including business and household debt
• Out of the question to implement a "transfer union" in Eurozone

MNI Indicators’ report revealed on Friday that business activity in Chicago contracted this month.

The MNI Chicago Business Barometer, also known as Chicago purchasing manager's index (PMI) came in at 49.7 in June, down from an unrevised 54.2 in May. Economists had forecast the index to decrease to 53.1. This marked the first contraction in Chicago's activity since January 2017.

A reading above 50 indicates improving conditions, while a reading below this level shows worsening of the situation.

According to the report, Demand eased for the fourth time this year, while Production indicator hit a three-year low and Order Backlogs remained in contraction for the second consecutive month. At the same time, Inventories were on a rise, and Factory gate prices picked up for the second consecutive month.

The final reading for the June Reuters/Michigan index of consumer sentiment came in at 98.2 compared to a preliminary reading of 97.9 and the May final reading of 100.

Economists had forecast the index to be revised upwardly to 98.0.

According to the report, the index of the current economic conditions rose to 111.9 from May’s final reading of 110.0.

Meanwhile, the index of consumer expectations decreased to 89.3 from May’s final reading of 93.5.

The report notes that June's small overall decline was entirely due to households with incomes in the top third of the distribution, who more frequently mentioned the negative impact of tariffs, cited by 45%, up from 30% last month.

Josh Nye, the senior economist at Royal Bank of Canada (RBC), notes that Canada's GDP rose 0.3% in April, showing further easing in some of the key headwinds that weighed on the country's economy in the last two quarters - namely a slowdown in the energy sector and housing.

• “In fact, the mining, oil and gas industry saw one of its strongest monthly increases in recent years as output ramped up alongside higher production limits in Alberta.
• The increase in April GDP, coming on the heels of a 0.5% gain in March, leaves Q2 growth tracking north of 2% (vs. 0.3% annualized in Q4/18-Q1/19). This return to above-trend growth is happening somewhat sooner than the BoC thought—they’ll likely revise up their Q2 forecast (last at 1.3%) on July 10.
• The key question is whether rising trade tensions and a softer global outlook will result in downward revisions to domestic growth over the second half of the year.”

U.S. stock-index futures rose slightly on Friday, as investors remained cautious ahead of a crucial meeting between Presidents Trump and Xi, while digesting the latest release of inflation data that could feed into the Fed’s decision on interest rates next month.

Global Stocks:

(company / ticker / price / change ($/%) / volume)

Statistics Canada announced on Friday that the country’s gross domestic product (GDP) grew 0.3 percent m-o-m in April, following an unrevised 0.5 m-o-m advance in March.

That was below economists’ forecast for a gain of 0.1 percent m-o-m.

According to the report, goods-producing industries rose 0.4 percent m-o-m, while services-producing industries went up 0.2 percent m-o-m. The 20 industrial sectors were nearly evenly split between gains and losses. Mining, quarrying and oil and gas extraction climbed 4.5 percent m-o-m in April, while wholesale trade sector increased 1.4 percent m-o-m and the construction sector rose 0.2 percent m-o-m. At the same time, the manufacturing sector fell 0.8 percent m-o-m in April, recording the largest monthly decline since August 2017, while retail trade and transportation and warehousing edged down 0.1 percent m-o-m each.

Procter & Gamble (PG) upgraded to Buy from Neutral at Goldman; target raised to $125

The Commerce Department reported on Friday that consumer spending in the U.S. rose 0.4 percent m-o-m in May, following a revised 0.6 percent m-o-m gain in April (originally a 0.3 percent m-o-m increase). Economists had forecast the reading to show a 0.4 percent m-o-m growth.

Meanwhile, consumer income climbed 0.5 percent m-o-m in May, the same pace as in the previous month. Economists had forecast a 0.3 percent m-o-m advance.

The May increase in personal income primarily reflected increases in personal interest income, wages and salaries, and government social benefits to persons, the report said.

The personal consumption expenditures (PCE) price index, excluding the volatile categories of food and energy, which is the Fed's preferred inflation measure, rose 0.2 percent m-o-m in May, following a 0.2 percent m-o-m advance in the prior month. Economists had projected the index would increase 0.2 percent m-o-m.

In the 12 months through May, the core PCE increased 1.6 percent, the same pace as in the 12 months through April. Economists had forecast a gain of 1.6 percent y-o-y.

Analysts at TD Securities say that they have revised their forecast for Canada’s industry-level GDP and now look for a 0.3% m/m increase for April, slightly above the market consensus for 0.2%.

• “The goods-producing sector should provide the main driver, underpinned by a further recovery in crude oil production and strong residential construction. Meanwhile, the 0.5% handoff from March should leave Q2 GDP tracking well above BoC estimates from April.
• The Bank of Canada's Summer Business Outlook Survey (BOS) will be published shortly afterward at 10:30 ET. The BOS should offer a more cautious tone due to increased trade tensions which will weigh on the balance of opinion around business investment and future sales.”

• UK will know pretty soon if Brexit deal possible
• No general election before UK has left EU

Jennifer Jacobs, White House reporter for Bloomberg, tweeted: "Top trade negotiators from US and China met today ahead of much-anticipated summit between Trump and Xi tomorrow, per @nwadhams and @sdonnan.

China’s top trade negotiator Liu He and US Trade Rep Bob Lighthizer gathered at Imperial Hotel. Treasury Sec Steve Mnuchin also there."

NIKE (NKE) reported Q4 FY 2019 earnings of $0.62 per share (versus $0.69 in Q4 FY 2018), missing analysts’ consensus of $0.66.

The company’s quarterly revenues amounted to $10.184 bln (+4.0% y/y), generally in line with analysts’ consensus estimate of $10.154 bln.

The company also said it expected Q1 FY 2020 revenue growth to be in-line to slightly above Q4 reported revenue growth.

NKE fell to $83.39 (-0.32%) in pre-market trading.

TD Securities' analysts are expecting the U.S. personal spending to have advanced at a strong 0.5% m/m pace in May, up from 0.3% in April (which may be revised to the upside).

• "We don’t discard a stronger print at 0.6% if the rebound on durable goods spending is stronger than we currently anticipate. Moreover, we forecast income to rise 0.3% m/m, a tad slower than in the prior month.
• We also expect core PCE inflation to advance 0.2% m/m and to stabilize at 1.6% y/y in May. Headline inflation should also rise 0.2% m/m and remain steady at 1.5% y/y.
• The final release of UMich's consumer survey for June and the Chicago PMI should also garner attention on Friday.”

• Tehran’s steps over 2015 nuclear deal depend on the EU’s practical measures

Krishen Rangasamy, an analyst at National Bank of Canada (NBC), believes that Canada's economy is now back in the saddle after a rough couple of quarters.

• “While Q2 GDP results are not yet available, monthly reports to date point to a sharp rebound for growth in that quarter to around 2.5% annualized. Trade, whose drag on Q1 growth was the biggest in two years, seems to have turned into a contributor courtesy of surging exports and declining imports, the latter not surprising after the prior quarter’s inventory build.
• Housing sales and starts suggest residential investment may also have stabilized after five consecutive quarterly declines. The rebound in oil production, after Q1’s mandated cut, is also helping.
• Report from the Canadian Federation of Independent Business adds to mounting evidence of an economic upturn. The CFIB’s Business Barometer index for June jumped to 61.5, the highest since last summer, helped in part by oil-producing provinces.
• Whether or not Canada’s momentum can carry into the second half of 2019 will depend on the ability of the global economy (and hence oil prices) to weather any escalation of the U.S.-China trade war. For now, we are keeping unchanged our 2019 GDP growth forecast of 1.4% for Canada.”

Bert Colijn, a Senior Eurozone Economist at ING, notes that Eurozone's core inflation bounced back after the weak May reading, but this does not seem to be the start of faster price growth.

• "Headline inflation remained stable at 1.2% in June, with base effects from energy prices starting to dampen the inflation rate more significantly. Even though oil prices have increased over the past few weeks as the conflict in the Middle East has cast doubts oversupply, the 12-month effect will remain quite negative for some time to come.
• More interesting have been developments in core inflation. It has been bouncing around on Easter timing effects and the recovery from 0.8 to 1.1% should more realistically reflect the current underlying inflation environment. Even though wage growth continues to increase at a steady pace, reflecting the improved labour market environment, businesses continue to be reluctant to price through those higher costs to the consumer.
• The inflation outlook, therefore, remains sluggish. With energy base effects pushing down the outlook for the coming months, headline inflation will continue to face downward pressures. On top of that, businesses have indicated softer expectations for selling prices on the back of economic uncertainty. The improved core inflation figure will therefore be easily brushed aside in the discussions about fresh ECB action: it’s coming."

Roughly a decade after the global financial crisis, central banks around the world may not have much left in their toolkit to boost the economy, according to the head of the Organisation for Economic Co-operation and Development.

Angel Gurria, OECD Secretary-General, made that comment as major central banks such as the U.S. Fed and the ECB recently signaled their readiness to cut interest rates.

Gurria told that the world “would be much worse off today” without central banks working to stimulate economic activity in the past decade. However, central banks “have run out of ammunition,” he said.

“Interest rates are at zero practically everywhere, or very close. And now we know interest rates are going to remain low for longer, that is as much as the central banks can do,” he said.

He added that it’s time fiscal policies play a bigger part in boosting economic activity. That means countries that can afford to spend more without jeopardizing their finances should do so, he explained.

According to Danske Bank analysts, the latest euro area macro data signals suggest that investors should brace themselves for more negative economic surprises in coming weeks.

“We expect GDP growth in Q2 to fall back to 0.2% q/q, as exports and investments are prone for a correction, while PMIs should be in for another round of declines in Q3. This should support the ECB's narrative that further stimulus is warranted. We do not think the euro area is heading for recession any time soon; however, it may be a good time for investors to take a closer look at the data and ask whether a rude awakening is looming in the coming weeks and months, once real economic data starts to turn the corner.”

The eurozone's annual rate of inflation stayed well below the European Central Bank's target in June, ratcheting up the pressure on policy makers to provide more stimulus in an effort to prop up a faltering economy.

According to a flash estimate from Eurostat, the statistical office of the European Union, euro area annual inflation is expected to be 1.2% in June 2019, stable compared to May.

Looking at the main components of euro area inflation, ‘food, alcohol & tobacco’, ‘energy’ and ‘services’ are expected to have an annual rate of 1.6% in June. The annual rate of ‘non-energy industrial goods’ is expected to be 0.2%.

According to the report from Office for National Statistics, UK gross domestic product (GDP) in volume terms was estimated to have increased by 0.5% in Quarter 1 (Jan to Mar) 2019, unrevised from the first estimate for this quarter.

When compared with the same quarter a year ago, UK GDP increased by 1.8% to Quarter 1 (Jan to Mar) 2019; up from 1.4% in the year to Quarter 4 (Oct to Dec) 2018.

The services sector provided the largest contribution to growth in the output approach to measuring GDP, while production also contributed positively, due largely to growth of 1.9% in manufacturing output. Household expenditure, government consumption and investment contributed positively to GDP growth in Quarter 1 2019, while net trade contributed negatively.

Nominal GDP increased by 0.9% in Quarter 1 2019, revised down from the first estimate of 1.0%, in part reflecting weaker than expected wages and salaries data.

China's foreign ministry said on Friday it hopes the United States will meet China halfway and ensure their meeting is a success, when asked about talks between the Chinese and U.S. presidents on the sidelines of a G20 summit in Osaka, Japan.

Ministry spokesman Geng Shuang made the comments at a daily news briefing in Beijing.

U.S President Donald Trump's decision on whether to impose new tariffs on a $300 billion list of nearly all remaining Chinese imports will depend on the outcome of the Saturday meeting with China's President Xi Jinping, White House economic adviser Larry Kudlow said on Thursday.

Danske Bank analysts suggest that the talk of the town continues to be the G20 meeting starting today, with the highlight being the 90-minute lunch meeting tomorrow between Trump and Xi.

“It’s a high-stake and much-awaited meeting and the outcome will give an indication of how risk will fare in the near future. Yesterday, the WSJ reported that China will insist on the US lifting the Huawei ban as part of a trade truce. Further, the report suggested that China could be ready to put restrictions on rare earth exports to the US unless the ban is lifted. That would be a way to retaliate against the US for the attack on Chinese tech. China has not yet retaliated but may have chosen to wait for the G20 to see if Xi could get Trump to lift the ban first.”

According to analysts at TD Securities, after dipping back into contraction territory in April, the manufacturing PMI of China is likely to edge higher in May though it may be a stretch to expect a move back above 50.

“We expect the PMI to rise to 49.8 in June from 49.4 previously, supported by hopes of progress on US-China trade talks at the G20 meeting, while any improvement will be dampened by the economic damage from current tariffs and slowing activity. Improved liquidity will have helped sentiment. Manufacturing sentiment has become more correlated with equity market performance and the 5% rise in Chinese equities this month (CSI) also points to a higher PMI.”

Barclays Research discusses GBP outlook and adopts a structural bearish bias, expecting the pair's to trade lower towards 1.25 by year-end and at 1.22 by Q1 of 2020.

"We are turning increasingly more bearish on the GBP because Brexit-induced political and business uncertainty is likely to cap any upside for the pound. EURGBP will likely further appreciate over the coming quarter as markets re-assess the risks associated with a no-deal Brexit. While we still envision a deal by year-end, our conviction is generally low. The domestic economy is already slowing, as is the previously resilient UK labour market, a view already shared by some MPC members. Moreover, the weak global backdrop is unlikely to provide much support to the pound either and is making the MPC’s current stance hard to justify," Barclays notes. Risks to our GBP forecasts skew to the downside and can materialize either from a realisation of a no-deal Brexit or further delays in the process, with associated increased uncertainty related to an early election or second referendum," Barclays adds.

KOF Economic Research Agency said the economic barometer remains almost unchanged in June compared to the previous month. It now stands at 93.6 points, 0.2 points lower than in May (revised from 94.4 to 93.8 points). Economists had expected an increase to 94.9. The falling trend seen since the beginning of the year is now leveling off. The economic outlook for Switzerland will remain subdued by mid-2019.

The almost unchanged level of the KOF economic barometer in June is mainly due to the balancing tendencies in foreign demand, the manufacturing industry (manufacturing and construction) and private consumption. While indicators of foreign demand show a positive trend, the indicators in manufacturing and private consumption, bundled in almost equal strength, point in the opposite direction. There is also a slight weakening in the banking and insurance industry.

The negative development in the manufacturing sector is mainly attributable to indicators on the situation of primary products and order backlogs. The assessment of the competitive situation, the employment situation and the export prospects remains unchanged.

Within the manufacturing sector, there is a mixed but mostly slightly gloomy picture. Indicators in the metal sector as well as in mechanical and automotive engineering point in a positive direction, while indicators from the chemical industry, the electrical industry and food and beverage manufacturers indicate a negative trend.

According to the provisional estimate from Insee, over a year, the Consumer Price Index (CPI) should accelerate in June 2019 after a slowdown in May (+1.2% after +0.9% in May and +1.3% in April). This rise in inflation over a year should result from a stronger increase in services and food prices and a drop a little less marked in those of manufactured goods. This increase should be slightly offset by a lesser dynamism in energy prices.

Over one month, consumer prices should grow barely more than in May (+0.2% after +0.1%). Services prices should rebound in the wake of those in transport and the prices of communication services should rise sharply. Food prices should slow down. Those of energy should fell back, due to a drop in petroleum product prices, partly offset by an increase in electricity fees. The prices of manufactured goods and tobacco should be stable.

Year on year, the Harmonised Index of Consumer Prices should gather pace (+1.4% after +1.1% in May). Over one month, it should rise by 0.3%, after +0.1% in the previous month.

Asia's crude oil imports from Iran fell in May to the lowest in at least five years after China and India wound down purchases amid U.S. sanctions, while Japan and South Korea halted imports, data from government and trade sources showed on Friday.

Total imports from Asia's top four buyers came to 386,021 barrels per day (bpd) of crude from Iran in May, down 78.5% from a year ago to the lowest monthly level since 2014.

According to Karen Jones, analyst at Commerzbank, EUR/USD is consolidating below the 1.1416 55 week moving average and are seeing a small near term retracement into the 1.1345/00 band ahead of further gains.

“Above 1.1416 we look for a test of the 1.1570 2019 high. Beyond this we target 1.1815/54 (highs from June and September 2018). Initial support lies at 1.1348 the 7th June high ahead of 1.1176 the 7th March high. We regard recent lows at 1.1110/06 as an interim turning point and continue to view the market as based longer term and we target 1.1990 (measurement higher from the wedge).”

According to the report from Federal Statistical Office (Destatis), the index of import prices decreased by 0.2% in May 2019 compared to the corresponding month of the preceding year. In April 2019 and in March 2019 the annual rates of change were +1.4% and +1.7%, respectively. From April 2019 to May 2019 the index slightly fell by 0.1%.

The index of import prices, excluding crude oil and mineral oil products, decreased in May 2019 by 0.3% compared to May 2018 and in comparison with April 2019 it fell by 0.2%.

The index of export prices increased by 0.7% in May 2019 compared to the corresponding month of the preceding year. In April 2019 and in March 2019 the annual rates of change were +1.3%, each. From April 2019 to May 2019 the index slightly fell by 0.1%.

• but global economy showing signs of stabilising, expected to turn up gradually from later this year to next year

• tensions over trade and geopolitical risks are increasing

• G20 responsible for taking necessary steps to respond to downside risks, wants to share resolve to use all policy tools to achieve growth

• Trade restriction measures don't benefit any country, any trade steps should be in line with WTO rules

• Deeply concerned about situation surrounding global trade, g20 must deliver a strong message to support free, fair, indiscriminate trade system

• Want to discuss today measures to further enhance momentum towards WTO reform

• Japan will promote improvement of multilateral trade system and economic cooperation negotiations as a flag-bearer of free trade

EUR/USD

Resistance levels (open interest**, contracts)

$1.1487 (3517)

$1.1465 (3878)

$1.1447 (4422)

Price at time of writing this review: $1.1362

Support levels (open interest**, contracts):

$1.1296 (2765)

$1.1248 (2774)

$1.1199 (3093)

Comments:

- Overall open interest on the CALL options and PUT options with the expiration date July, 5 is 71518 contracts (according to data from June, 27) with the maximum number of contracts with strike price $1,1300 (4422);

GBP/USD

Resistance levels (open interest**, contracts)

$1.2814 (1177)

$1.2777 (738)

$1.2749 (341)

Price at time of writing this review: $1.2669

Support levels (open interest**, contracts):

$1.2626 (1664)

$1.2587 (1407)

$1.2544 (2043)

Comments:

- Overall open interest on the CALL options with the expiration date July, 5 is 17118 contracts, with the maximum number of contracts with strike price $1,2950 (2699);

- Overall open interest on the PUT options with the expiration date July, 5 is 15956 contracts, with the maximum number of contracts with strike price $1,2500 (2200);

- The ratio of PUT/CALL was 0.93 versus 0.93 from the previous trading day according to data from June, 27

* - The Chicago Mercantile Exchange bulletin (CME) is used for the calculation.

** - Open interest takes into account the total number of option contracts that are open at the moment.