Market movers today
- We expect Swedish inflation to continue to fall in June, with CPIF and CPIF excl. energy expected to print at 1.6% and 1.0%, respectively.
- The European Commission will unveil proposals for a legislative framework to support its climate ambition to reach net-zero by 2050. Measures will likely include a revamp of the Emissions Trading Scheme (ETS), tougher emissions standards for cars, a carbon tax on aviation, and a carbon border adjustment mechanism (CBAM) on imports.
- Fed Chair Powell will deliver his semi-annual monetary policy report to Congress. New policy signals are unlikely, with a QE tapering decision not expected until the autumn, but it will be interesting to hear how Fed assesses the state of the labour market and recent inflation surprises.
- Bank of Canada will deliberate whether another reduction in QE purchases is warranted.
The 60 second overview
US inflation surprised on the upside with 0.9% mom for both headline and core in June. That leaves headline inflation at 5.4% and core inflation at 4.5%. Used car prices continued to increase and now contributes 1.2 percentage points to the headline. The Mainheim used cars index indicates that we have seen the peak in used cars CPI yoy inflation.
New Zealand: This morning the Reserve Bank of New Zealand announced a surprising halt to its pandemic bond purchase programme leading to a surge in kiwi dollar as a rate hike now moves closer.
FI: Yesterday’s market attention was focused on the EU deal as well as the US CPI figures. Despite the stronger than expected US inflation figure, the immediate 1-2bp sell-off quickly faded leading to a significant flattening of the curves as markets realising much of the inflation push seems transitory.
FX: Despite the steepening of yield curves post yesterday’s US CPI release value assets generally underperformed peers. This was also evident in FX markets where ZAR, MXN, PLN, HUF and Scandies were the session’s underperformers. In the other end of the spectre the broad USD gained. EUR/USD is now back below the 1.18 support level.
Credit: Credit indices were stable on Tuesday amidst a fairly mixed equity market. iTraxx Xover grinded a mere 0.5bp tighter (closed at 232.2bp) and iTraxx Main was completely flat (closed at 46.6bp, same as Monday). HY cash bonds widened slightly (+1.4bp) IG cash bonds were marginally tighter (-0.6bp).