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Trade, Trump, Tweet – And Repeat

Market movers today

In Sweden, Prospera’s inflation expectations survey is due out. We expect inflation expectations have fallen further, as actual inflation has come down, too. The Riksbank’s Floden is also speaking this morning.

In the euro area, we have a lot of ECB speeches this morning, most notably ECB President Draghi at 10:15 CEST. If he or others want to correct last week’s market reaction to the June ECB meeting there will be ample opportunities today.

In the US, we expect CPI core rose +0.2% m/m in May, implying an unchanged core inflation rate of 2.1% y/y, in line with expectations. Subdued underlying inflation pressure is one reason why we expect the Fed to ease monetary policy slightly in H2 19.

In the UK, the House of Commons will vote on a proposal to give MPs control of parliamentary business on 25 June as a way to block the new prime minister, to simply let the UK crash out of the EU without a deal. It would require some Conservative rebels to vote with the opposition and it may fail this time, but shows the MPs will not let the prime minister take full control of the Brexit process, see full story .

This morning, we published our monthly euro area macro monitor, where we argue risks are increasing but our baseline persists.

Selected market news

In an otherwise somewhat uneventful session, it was bit of deja vu for markets yesterday as a few Trump tweets and a Washington Post interview fuelled concerns over political pressure on the Fed and trade woes anew. The US President first tweeted that the US is put at a ‘big disadvantage’ as US rates are kept too high while others are devaluing their currencies, explicitly mentioning the EUR and CNY. Separately, Trump said that he is currently ‘holding up’ the deal between the US and China on trade, accusing China of reneging on previously agreed terms. The battle lines are now clearly drawn ahead of the G-20 meeting in Osaka on 28-29 June, but recent messages from central banks suggest Trump may get his way quite soon when it comes to policy rates and the USD.

Currency war – again? Europe does not have much ammunition to take part in that (cf ECB last week), but a good indicator of whether the Chinese authorities are directly using their currency in a trade deal context is USD/CNY. The cross rose above 6.93 early this week, closing in on the crucial 7.00 level, but has held firm around the 6.91 level after being guided lower by the People’s Bank of China fixing on Tuesday morning. Separately, Chinese CPI growth rose to a 15M high at 2.7% y/y in May. Equities were mixed in the US session but predominantly lower in Asia, with the Hang Seng Index down 1.6% at the time of writing. Brent crude oil was stable just above the USD61/bbl level. US PPI data was broadly in line with expectations and the US 10Y Treasury yield declined just a tad to 2.13%. The USD remained on a weak footing; EUR/USD was steady around the 1.13 mark.

Danske Bank
Danske Bankhttp://www.danskebank.com/danskeresearch
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