Sweden Moves Closer to NATO Membership After a Deal With the Turkish President

Russia-Ukraine Conflict

Summary:

Turkey's President Recep Tayyip Erdogan has agreed to support Sweden's bid to join Nato, the military alliance's chief Jens Stoltenberg says.

Sweden Moves Closer to NATO Membership After a Deal With the Turkish President_1

Sweden's membership of NATO took a big step forward on Monday after Turkey agreed to remove one of the last major roadblocks in return for help in reviving Turkey's own chances of joining the European Union.

At talks in the Lithuanian capital Vilnius, where U.S. President Joe Biden and his NATO counterparts are meeting for a two-day summit starting Tuesday, President Recep Tayyip Erdogan committed to put the Nordic country's accession protocol before Parliament “as soon as possible,” the head of NATO said.

“This is an historic day because we have a clear commitment by Turkey to submit the ratification documents to the Grand National Assembly, and to work also with the assembly to ensure ratification,” NATO Secretary-General Jens Stoltenberg told reporters after a series of high-stakes meetings.

Sweden's NATO accession has been held up by objections from Turkey since last year. The Turkish parliament's ratification of the accession protocol is one of the last steps in the process.

Stoltenberg made the announcement after talks with Erdogan and Swedish Prime Minister Ulf Kristersson on the eve of a NATO summit in Lithuania.

Today we took a very big step on the road toward complete ratification, Kristersson said.

There was no comment from Erdogan on the move, which many saw as linked in part to Turkey's demands on other issues, particularly Erdogan's desire for support for European Union membership from European leaders and for F-16 fighter jets from the United States.

It's unclear when the Nordic country's membership might be approved, but the agreement appears to have taken the issue off the agenda of the summit, which was meant to focus uniquely on the war in Ukraine and Kyiv's own membership aspirations.

In a statement, Biden welcomed the agreement and said he will work with Turkey “on enhancing defense and deterrence in the Euro-Atlantic area. I look forward to welcoming Prime Minister Kristersson and Sweden as our 32nd NATO Ally.”

Biden's reference to enhancing Turkey's defense capability was a nod to Biden's commitment to help Turkey acquire new F-16s, according to a U.S. administration official, who spoke on condition of anonymity because he was not authorized to comment.

The Biden administration has backed Turkey's desire to buy 40 new F-16s as well as modernization kits from the U.S. It's a move some in Congress, most notably Senate Foreign Relations Committee Chairman Bob Menendez, D-N.J, have opposed over Turkey blocking NATO membership for Sweden, its human rights record, its relations with Greece and other concerns.

In Washington, however, Menendez said he was “continuing to have my reservations” on providing the planes to Turkey. If the Biden administration can show that Turkey wouldn't use the F-16s belligerently against other NATO members, particularly its neighbor Greece, “then there may be a way forward,” Menendez told reporters.

In exchange for Turkey's help with NATO, Sweden has agreed to help unblock Turkey's progress towards joining the European Union, which has been on hold since 2018.

Stoltenberg said that Turkey's relationship with the EU was “not an issue for NATO, it's an issue for the European Union.” But he told reporters that “what Sweden agreed today as an EU member was to support actively the efforts to reinvigorate Turkey's EU accession process.”

Earlier Monday, Erdogan had warned that he would block Sweden's attempt to become the 32nd NATO ally unless European members of the military organization “pave the way” for Turkey to join the world's biggest trading bloc.

It was the first time that he had linked the two countries' aspirations in this way.

“Come and open the way for Turkey's membership in the European Union,” Erdogan told reporters before flying to Vilnius. “When you pave the way for Turkey, we'll pave the way for Sweden, as we did for Finland.”

Turkey was blocking Sweden's accession because Erdogan believes that Sweden has been too soft on Kurdish militants and other groups that he considers to be security threats.

On arriving in Vilnius, Erdogan first met with Kristersson, before breaking off for separate talks with European Council President Charles Michel.

Michel tweeted that he and Erdogan had “explored opportunities ahead to bring cooperation back to the forefront and re-energise our relations.” Michel said he has tasked the European Commission to draw up a “report with a view to proceed in strategic and forward-looking manner.”

Turkey first applied to join what is now the EU in 1987, but its membership talks have been at a standstill since 2018 due to democratic backsliding during Erdogan's presidency, concerns about the rule of law and rights abuses, as well as disputes with EU-member Cyprus.

Of the 31 NATO member countries, 22 are also members of the EU, like Sweden.

Stoltenberg and Kristersson said that Sweden would also help Turkey to improve its customs arrangements with the EU, and to try to obtain visa-free travel in Europe for its citizens. Turkey tried to achieve these goals in recent years but failed to meet the trading bloc's standards.

Earlier, Erdogan's office said he told Biden during a telephone call Sunday that Turkey wanted a “clear and strong” message of support for Turkey's EU ambitions from NATO leaders. The White House readout of the Biden-Erdogan call did not mention the issue of Turkish EU membership.

Turkey's delaying tactics have irritated other NATO allies, including the United States. Biden's national security adviser, Jake Sullivan, confirmed Sunday that Biden and Erdogan had discussed Sweden's NATO membership, among other issues, and had agreed to meet in Vilnius for further talks.

Sullivan said the White House is confident Sweden will join the alliance.

“We don't regard this as something that is fundamentally in doubt. This is a matter of timing. The sooner the better,” he said.

Previously non-aligned Sweden and Finland applied for NATO membership last year following Russia's invasion of Ukraine. Finland joined in April following Turkish ratification.

Another key issue at the summit in Vilnius will be how to bring Ukraine closer to NATO without actually joining, and security guarantees Kyiv might need to ensure that Russia doesn't invade again after the war ends. Ukrainian President Volodymyr Zelenskky will join the summit in person on Wednesday.

Stoltenberg said the most important thing was to continue to support Ukraine's efforts to resist the Russian invasion.

“Unless Ukraine prevails, there is no membership issue to discuss at all,” he said.

Source: AP

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Samantha Luan

Fed Closing in on End of Rate Hiking Cycle?_1

The Fed has raised interest rates by 5 percentage points since March 2022 to bring down the highest U.S. inflation in four decades. Fed policymakers opted last month to forego a rate increase to give themselves time to assess the still-developing effects of the previous hikes in borrowing costs, even as most also penciled in at least two more increases by the end of 2023.

"We're likely to need a couple more rate hikes over the course of this year to really bring inflation" sustainably back to the U.S. central bank's 2% goal, San Francisco Fed President Mary Daly said during an event at the Brookings Institution, giving voice to the most common view among her rate-setting peers at the Fed.

But, Daly added, while the risks of doing too little are still greater than those of overdoing it on rate hikes, the two sides are getting into better balance as the Fed nears "the last part" of its hiking cycle.

Daly said she fully supported June's policy decision, along with a go-slower approach that allows for more "extreme" data-dependence. "We may end up doing less because we need to do less; we may end up doing just that; we could end up doing more. The data will tell us."

Fed policymakers are widely expected to deliver a rate hike at their meeting later this month, a move that would bring the policy rate to the 5.25%-5.50% range.

What's less clear is whether they will raise rates again at the September meeting, wait until November, or just stay on hold and let inflation ease over time.

Fed Chair Jerome Powell has said he cannot rule out consecutive rate hikes to deal with stubbornly high inflation, which by the central bank's preferred gauge, the personal consumption expenditures index, has fallen from a peak of 7% last year to 3.8% in May, still nearly twice the Fed's target.

"We still have a bit of work to do," Fed Vice Chair for Supervision Michael Barr said on Monday at a separate event. "I'll just say for myself, I think we're close."

NEAR-TERM INFLATION EXPECTATIONS FALL

A survey released on Monday by the New York Fed on the state of consumer expectations in June showed near-term inflation expectations dropped to their lowest level since April 2021. That could buttress the case that price pressures are weakening, which in turn could take some pressure off the central bank to hike rates again. But the survey also showed a fifth straight month of expected home price gains, suggesting that housing inflation could again become an issue for the Fed at some point.

Atlanta Fed President Raphael Bostic, speaking at yet another event on Monday, repeated his view that the Fed can be "patient" on rates and allow restrictive policy to bring down inflation without further action by the central bank.

But within the Fed there remains a camp that feels just the opposite.

Commenting on last month's policy meeting, Cleveland Fed President Loretta Mester told reporters, "if it was just me alone, I would have moved the rates up, but I understood the rationale for not moving in June," given the importance of matching market expectations.

Mester, who does not have a vote on the Fed's policy-setting committee this year, reaffirmed her view that interest rates will need to rise but was not yet ready to say that should happen at the July 25-26 meeting, as more data on the economy is inbound. Mester also said her outlook for rates is in line with or slightly above the Fed consensus of half a percentage point more of additional tightening before the end of the year.

Mester, however, said higher rates will be needed because "the economy has shown more underlying strength than anticipated earlier this year, and inflation has remained stubbornly high, with progress on core inflation stalling."

Source: REUTERS

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Justin

Central Bank

Economic

Forex

The sticky problem that just won’t go away

Central banks appear to have won the initial fight against skyrocketing prices but the war on inflation isn’t quite over as there is now a new battle – sticky inflation. This couldn’t be more evident in the United States where inflation rose quickly to peak just above 9.0% exactly a year ago and appears to be falling just as fast. However, core inflation, which is a more reliable indicator of what’s happening to price pressures underneath the surface, has remained stubbornly high, declining only marginally this year.

Core CPI stood at 5.3% y/y in May, fractionally lower from 5.7% in December but significantly above the headline rate of 4.0%. The picture is even worse when looking at the alternative core PCE price index, which has been stuck between 4.6% and 4.7% since December.

(Slowly) Going in the right direction

When viewed against an ongoing tight labour market, a flatlining trend in core inflation well above the 2% target is hardly what the Fed was hoping it would have achieved by mid-year, having raised rates by 500 basis points in the course of just 15 months. The June figures are not anticipated to provide much relief either.

US CPI Inflation Expected to Cool Further, But Will It Hurt Dollar?_1

Whilst the headline CPI rate is forecast to have plunged to a more than two-year low of 3.1%, the core rate is expected to have made more gradual progress, slowing to 5.0% in June. On the face of it, there is nothing too alarming about either figure as both are headed in the right direction. However, with the core measures still printing so high above the target, the Fed cannot afford to take its eye off the ball.

It explains why FOMC members have maintained such a strong bias for more tightening even though they decided to keep rates on hold in June. Chair Powell has been defending the move as simply a further downshift in the pace of tightening rather than a pause and although markets are not entirely convinced, they are growing increasingly doubtful about the likelihood of a rate cut in the first half of 2024.

Downside risks for euro/dollar

Moreover, with the US economy still in a somewhat better shape than the Eurozone, which is losing momentum faster, a further steepening of the market-implied rate path for the Fed poses a significant risk for euro/dollar given that more rate increases are currently priced in for the ECB.

A stronger-than-expected CPI report would push up the odds for a 25-bps rate rise in July as well as for an additional hike later in the year. The euro could potentially tumble towards its 38.2% Fibonacci retracement of the January 2021-September 2022 downtrend in the $1.06 region, which lies between the March and May lows.

US CPI Inflation Expected to Cool Further, But Will It Hurt Dollar?_2

However, if the inflation data is on the soft side, particularly if core CPI falls more than expected, the euro could have another attempt at overcoming the $1.1075 resistance before eyeing the 61.8% Fibonacci of $1.1274.

Diverging paths

More broadly though, the dollar’s outlook has become somewhat complicated, not just because of the Fed’s foggy policy outlook, but also because of the varying degrees of divergence with other central banks.

The pound for example is the least likely to suffer should the Fed not disappoint in hiking again as the Bank of England is almost guaranteed to do the same to tackle the UK’s persistent inflation problem. The yen on the other hand is in danger of revisiting the more than three-decade lows from October 2022 as the Bank of Japan has yet to signal its willingness to begin the process of unwinding its massive stimulus.

Source:XM

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Kevin Du

Patrick Pouyanne loves rugby and at 1.91 metres in height would make a good second-row forward. Not just physically imposing, the chief executive of TotalEnergies is more outspoken than his Anglo-Saxon, Arab or Chinese counterparts. He would not have been happy to see protesters from the Just Stop Oil campaign disrupt the Gallagher Premiership rugby union final at Twickenham in May.

But at last week's Opec seminar in Vienna, Mr Pouyanne said the oil industry should set targets to reduce greenhouse gas emissions at the Cop28 climate conference starting in Dubai in November.

"If we can bring something to Cop28 as an oil and gas industry … not only IOCs [international oil companies] but also NOCs [national oil companies] should have some targets," Mr Pouyanne said.

He referred to the need to cut leaks of methane, the main constituent of natural gas, but a powerful global warming gas in its own right. And he advocated targets to reduce oil companies' so-called Scope 1 and Scope 2 emissions by 2030. Scope 1 involves direct emissions from combustion or methane releases in oil companies' own operations; Scope 2 are emissions from electricity or heat purchased from others.

In fact, most major oil corporations already target such reductions. But reporting on them usually comes with the caveat that they do not have goals to eliminate Scope 3 emissions – the greenhouse gases released when their oil and gas produced is eventually used. About 85 per cent of oil and gas emissions would fall into this category; in the case of Shell, as high as 95 per cent.

There are exceptions: BP aims to cut Scope 3 by 20 per cent to 30 per cent by 2030 and to reach net zero on carbon from its upstream production by 2050. Mr Pouyanne's TotalEnergies aims to cut Scope 3 from oil by 40 per cent by 2030. It aims to be net zero by offsetting 100 million tonnes of annual carbon dioxide emissions through various methods by the middle of this century.

Speaking at the same Opec event, Dr Sultan Al Jaber, Minister of Industry and Advanced Technology, chief executive of Adnoc and President-designate of Cop28, said "the phase down of fossil fuels is inevitable, it is in fact essential", but "the speed of the transition will be driven by how quickly we phase up zero-carbon alternatives".

So the big question is: are fossil fuel producers responsible for the emissions of those who use their oil and gas?

European companies face the most pressure. In May 2021, a Dutch court ruled that Shell must reduce the carbon dioxide emissions of its operations and products sold by 45 per cent by 2030, in line with the global reductions implied by 2015 Paris Agreement on climate.

Activist groups proposed a number of resolutions at shareholder meetings of Shell, BP, ExxonMobil and Chevron last year on tightening Scope 3 reductions, which garnered about 20-30 per cent support. Just Stop Oil, which in addition to rugby has interrupted play at Wimbledon, the Lord's cricket Test, the World Snooker Championships and Premier League football, wants the UK government to block all new oil, gas and coal projects.

This is precisely the problem with the attention on Scope 3: it places the responsibility on those extracting the resource, not those using it. Oil companies should certainly reduce their own operational emissions to zero as soon as possible.

But it's very difficult to see how they can be responsible for what their customers do with the product, or alter the fact that people around the word still rely on oil and gas to move around, eat, dress, build, and light, heat and cool their homes. That demand will drop but neither quickly nor smoothly.

To meet goals for Scope 3 reduction, oil companies have various options. They can sell their upstream assets but that just moves the emissions into the hands of others, probably private or state-backed owners with less environmental scrutiny.

They could cease investing in their upstream activities and let them decline naturally as fields deplete. If the Europeans do that, the Americans will take their market – and indeed the share price of European oil companies has significantly trailed their transatlantic competitors. When BP announced in February it would be investing more and cutting hydrocarbon production by less than earlier stated by 2030, its shares jumped.

If all western companies cut output, their market share would be taken by other state corporations, whose vast reserves are more than enough to breach climate goals on their own. Less gas production would mean more coal consumption – someone else's Scope 3.

Finally, if through binding international agreement all companies were to phase out oil and gas output, without consumers' moving rapidly to affordable and abundant alternatives, severe energy shortages would strike and prices would go through the roof. We already had a foretaste of that with record gas prices last year because of Russian actions – and the response was public outrage, massive government subsidies and price caps.

On the other hand, if competitive non-oil alternatives do emerge rapidly, then oil companies that have invested in boosting production will find there is no market. They will have made a bad business decision and will lose financially. Their emissions will then fall naturally.

So, how could petroleum corporations realistically reduce Scope 3? They have to work with their end-consumers to ensure ever-greater efficiency of use and preferentially in non-emitting applications, such as making long-life petrochemicals and plastics, lubricants and hydrogen. Combustion should increasingly be replaced with carbon capture, use and storage (CCUS) – on power plants, industry and, potentially, even in oil-powered ships – trapping carbon dioxide rather than releasing it to the atmosphere.

They can offer services to their customers to co-develop CCUS projects, including reimporting captured carbon dioxide. And they could provide completely decarbonised oil by capturing an equivalent amount of carbon dioxide from the air – which at realistic long-term costs for this process would add some $60 to the cost of a barrel of oil, steep but not absurd.

Companies need to try such approaches to tackle their Scope 3 emissions. Otherwise, they will emerge from the scrum of climate action with a black eye.

Source: The National News

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Devin

Energy

Europe's utilities generated a record 10.4% of electricity from solar sources in June, according to Ember, marking a more than doubling in solar's share of the generation mix since 2018 and a key milestone for the continent's energy transition efforts.

However, the rapid growth in solar supply capacity throughout Europe's electricity grids is already starting to erode producer profitability, as surplus power from solar sites depresses wholesale electricity prices and results in utilities earning shrinking revenues from renewables.

The phenomenon, known as the renewables cannibalization effect, is a result of a feature of Europe's electricity system which both prioritizes clean electricity supplies and sets the price of wholesale electricity off the most expensive source of electricity needed to fulfil system demand at any given time.

Natural gas has been the primary source of electricity in Europe for decades, and so the gas-fired price of electricity generation has historically been the main factor that determined electricity producer prices.

However, since Russia's invasion of Ukraine snarled Europe's gas markets in 2022, Europe's power generators have accelerated the build-out of renewable energy capacity while cutting back on electricity generation from fossil fuels.

This has tipped the balance of the continent's electricity price-setting markets away from natural gas toward solar and wind sources and resulted in cheap-to-produce renewable power having increasing sway over wholesale electricity pricing.

Minority Rules

Wind and solar sites accounted for roughly 19% of total electricity generation over the first half of 2023, which is less than the 24.7% share from natural gas over the same period, data from think tank Ember shows.

However, wind and solar's combined share is up from 14% in 2021, while natural gas's share is down from nearly 26% in 2021.

This combination of increased renewables alongside diminished gas-fired generation has altered the load profile of Europe's electricity markets and allowed utilities to deploy maximum volumes of renewable power while conserving natural gas.

In turn, this has allowed utilities to boost revenues on electricity generation, as they have been able to scrimp on the volumes of high-priced natural gas needed to generate power, while allowing cheap-to-produce renewables to make up for any electricity shortfall.

However, those strong earnings may start to become harder to generate as additional volumes of solar capacity are brought online and compete with all other forms of generation to set wholesale electricity prices.

Capture Rates & Capture Prices

Capture rates and prices are key factors that determine how much a power producer can earn from selling electricity over any given period.

The capture price is a weighted average price during which the generation asset produces electricity.

The capture rate is a measure of the capture price divided by market price available.

In the case of a natural gas plant that only produces power during peak demand periods, the typical capture rate can be 100%, as the plant can despatch maximum volumes to fulfil demand needs at peak prices, and then reduce or stop output when demand declines.

For renewables assets, the capture rate is typically less than 100% and may be substantially lower still for solar assets that only produce electricity when the sun shines and often hit peak output just when demand and prices may be near their lowest during a typical day.

Solar's Setbacks

Solar generation assets can be cheap to install and can nearly generate electricity for free when the sun shines, but they have their downsides when system capacity exceeds system demand.

This problem has been made famous by the California electricity market's "Duck Curve," wherein daily power prices have become shaped like a duck due to the impact that surplus solar generation has on prices during the middle of the day.

Power producers must accommodate increasingly cheap electricity prices when solar output is at its maximum - similar to a duck's down-sloping belly - but then must ramp up output from other sources once the sun sets, producing the duck's neck.

Europe's Surging Solar Sector Set for Cannibalization Risk_1

European solar power producers are not yet faced with anything like the problems seen in California, where solar can account for 40% of total electricity generation.

But as more solar supply capacity gets added to Europe's generation system, solar producers must expect the extra competition from other solar sources to drive electricity prices lower for all electricity generators.

In turn, this will shave each producer's capture rate, which in the case of solar producers in Europe's top solar producer, Germany, may decline from around 94% currently to less than 80% during peak production periods by 2026, and to under 50% during the summer by 2029, according to analysis by Refinitiv.

Europe's Surging Solar Sector Set for Cannibalization Risk_2

Most European utilities are still predominantly focused on trying to replace fossil fuel generation assets with renewables, so may not have dwelt much on the prospect of cannibalization.

But as solar capacity continues to climb at breakneck pace across the continent, utilities looking to secure financing for new generation assets must plan for the impact of cannibalization, or risk losing market share to competitors who do.

Source: Reuters

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Thomas

Economic

The global economy has begun to improve, but the recovery will be weak, according to the OECD’s latest Economic Outlook. The Economic Outlook projects a moderation of global GDP growth from 3.3 percent in 2022 to 2.7 percent in 2023, followed by a pick-up to 2.9 percent in 2024.

Lower energy prices are easing the strain on household budgets, business and consumer sentiment are recovering, albeit from low levels, and the re-opening of China has provided a boost to global activity.

Headline inflation in the OECD is projected to decline from 9.4 percent in 2022 to 6.6 percent in 2023 and 4.3 percent in 2024. The decline in inflation is due to tighter monetary policy taking effect, lower energy and food prices and reduced supply bottlenecks.

GDP growth in the United States is projected to be 1.6 percent in 2023, before slowing to 1.0 percent in 2024 in response to tight monetary and financial conditions. In the euro area, declining headline inflation will help to boost real incomes and contribute to a pick-up in GDP growth from 0.9 percent in 2023 to 1.5 percent in 2024. China is expected to see strong increases in GDP growth in 2023 (with 5.4 percent) and 2024 (with 5.1 percent), due to the lifting of the government’s zero-COVID policy.

“This projected recovery, while almost unchanged from our interim projections in March, maintains the slightly more optimistic outlook that had been predicted and which we are now seeing materialise,” OECD Secretary-General Mathias Cormann said. “Policy makers must get inflation durably down to target and unwind broad fiscal support by better targeting fiscal measures. While continuing to respond to the immediate economic challenges, it remains important to prioritise structural reforms to boost productivity, including by promoting competition, reviving investment, increasing female workforce participation and alleviating supply constraints, while securing the green and digital transformations of our economies.”

The persistence of inflation is another key downside risk. Core inflation is proving sticky, on the back of strong service price increases and higher profits in some sectors. The impact of higher interest rates is increasingly being felt across the economy, and restrictive monetary policy, while necessary, risks further exposing financial vulnerabilities, in particular in countries with high debt.

Against this backdrop, the Outlook lays out a series of policy recommendations, underlining that the need to lower inflation, adjust fiscal policy and promote sustainable growth entails significant challenges for policy makers.

Monetary policy should remain restrictive until there are clear signs that underlying inflationary pressures are durably reduced. Fiscal support, which has played a vital role in helping the global economy through the pandemic and the Ukraine crisis, should be scaled back, becoming more targeted and calibrated toward future needs. Broad energy-related support should be withdrawn as energy prices fall and minimum wages and welfare benefits are being increased to take account of past inflation in many countries.

“Fiscal policy should prioritise productivity-enhancing public investments, including those driving the green transition and boosting labour supply and skills,” OECD Chief Economist Clare Lombardelli said. “Renewed reform efforts to reduce constraints in labour and product markets and to reignite private investment and productivity growth would improve sustainable living standards and strengthen the recovery from the current low growth outlook.”

The Outlook includes a special chapter dedicated to women’s economic empowerment, setting out policy recommendations, including on expanding flexible work arrangements, addressing tax and benefit disincentives and improving access to childcare. It highlights that removing structural barriers and discrimination to realise gender equality, must be a high priority to boost long-term economic well-being and prosperity.

Source: WAM

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Damon

Economic

Last week's bond market storm calmed somewhat on Monday, but the interest rate horizon now relies heavily on evidence of more disinflation given economic activity and the labor market are holding up so well.

With Wednesday's U.S. consumer price report expected to show an almost one percentage point drop in headline inflation to just 3.1% last month, China on Monday chimed with the disinflation chorus - and maybe more than it would like, as deflation there is now a real issue.

Factory gate prices in the world's second biggest economy fell at their fastest annual rate in over seven years in June and there was no annual consumer price inflation at all - a deflationary warning that begs for some policy stimulus that's yet to show.

While that's worrying for China, it should help ease inflationary concerns elsewhere in the world.

Although Friday's June U.S. employment report showed the monthly payroll gain at its lowest in 2-1/2 year, the still-brisk 200,000 jobs gain ensured the unemployment rate fell back to just 3.6% and annual wage growth picked up to 4.4%.

While that data took the edge off the red-hot private-sector jobs readout the previous day, it left a bruised bond market still wary of further Federal Reserve interest rate rises and praying disinflation may stay its hand after one more hike later this month.

Although Treasury bond volatility backed off six-week highs on Friday, its weekly rise was the biggest since the wild swings around the banking stress in March.

Although another quarter-point Fed hike is now baked in for the July 26 meeting, futures markets dialled back expectations for another such move by November and now see less than a 50-50 chance of a second hike this year.

Two-year Treasury yields fell back below 5% on Friday and remained there first thing today. Ten-year yields held above 4%, however, and the 2-to-10 year yield curve steepened to its least inverted level in almost a month.

The tentative stabilisation of the bond market hasn't lifted nervy stocks, however, and the start this week of the second-quarter corporate earnings seasons - expected to show another annual contraction in aggregate S&P500 profits - adds a further risk factor.

Stock futures were in the red again ahead of Monday's open despite gains in Chinese and European bourses. The VIX index of implied equity market volatility remains elevated above 15.

The dollar recovered ground following its payrolls-related swoon on Friday. The offshore Chinese yuan edged lower.

Treasury Secretary Janet Yellen ended her China visit without any significant breakthroughs on thorny trade and industry standoffs between the two economic superpowers. President Joe Biden visited Britain ahead of this week's NATO summit in Vilnius.

British markets - where the UK government bond market selloff last week had been worse than in Treasuries - remained edgy. A bearish note from HSBC on UK real estate weighed on the sector, pushing real estate investment trusts and real estate stocks down 0.4% each.

Finance minister Jeremy Hunt is due to spell out on Monday long-awaited plans to encourage pension funds and other asset managers to invest in high-growth sectors and private equity, the Treasury said on Sunday.

Bank of England chief Andrew Bailey also speaks on Monday.

In South Korea, banking nerves went up a notch as the financial services regulator asked major commercial banks to prepare around $4 billion in financing to support a credit cooperative hit by customer withdrawals.

Events to watch for later on Monday:

* U.S. May consumer credit, June employment trends

* Federal Reserve Vice Chair for supervision Michael Barr, San Francisco Fed President Mary Daly, Cleveland Fed chief Loretta Mester and Atlanta Fed chief Raphael Bostic all speak; Bank of England Governor Andrew Bailey speaks

* U.S. President Joe Biden visits Britain ahead of NATO summit

* U.S. Treasury sells 3-, 6-month bills Bruised Bonds Relying on Disinflation_1