German Bunds started with some minor outperformance following the release of Italian June inflation data. They kick-off the national series in the run-up to Friday’s EMU publication. EU harmonized CPI slowed as expected from 0.3% M/M to 0.1% M/M with the Y/Y-figure declining slightly more than forecast (8% to 6.7% vs 6.8% expected). The minimal deviation was sufficient to generate a small bid in German Bunds in the run-up to the key panel discussion (ECB Lagarde, Fed Powell, BoE Bailey & BoJ Ueda) at the ECB’s annual forum in Sintra despite bullish risk sentiment on stock markets. Any market references have been cut off at 3:30 pm CET. German yields shed 3 to 4 bps with the belly of the curve outperforming the wings. US yields lose 2 to 3 bps across the curve. Key European gauges added up to 0.8% at the moment ahead of the US opening bell. The impact from a Bloomberg story on peripheral spreads was tiny, if any. In the article, sources close to the matter suggested that hawkish ECB members wanted to accelerate running down the balance sheet by either actively selling bonds from the APP portfolio or by phasing out the reinvestment policy from the Pandemic Emergency Purchase Programme. The single currency is again somewhat weaker than the greenback, changing hands around 1.0925. Sterling underperforms (EUR/GBP at 0.8650 from 0.86) on talks that officials are talking about contingency plans including a temporary nationalization of the country’s biggest water supplier, Thames water. Several ECB members talked on the sidelines of the Sintra forum and we retain the comments from an often dovish vice-president, de Guindos. He stated the obvious by labelling a July rate hike “fait accompli” and added that September is “open”. More ground has to be covered on rates. His economic assessment suggested an inclination to keep hiking. Core inflation could be stickier than thought, labour market dynamics are impressive and de Guindos expects the summer season in Europe to be very good, having an impact on the services sector.
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Norwegian retail sales surprisingly rebounded in May, rising by 1.2% M/M. This marks the biggest monthly rise since November last year. April sales was also upwardly revised from -1.2 M/M to only -0.1% M/M. The rise in sales was relatively broad-based with substantial gains in automotive fuel (+3%), ICT equipment (4.2%) and sales of other household equipment (4.2%). This rise was partially countered by a 2.2% monthly contraction in cultural and other recreation goods. The data suggest, admittedly tentative, signs of resilience of the Norwegian consumer. In its June monetary policy report, the Norges Bank downwardly revised its private consumption forecast for 2023 from -0.5% to -1.6% due to weaker purchasing power. The NB expected a decline in goods consumption while services were still forecasted to show a weak rise. With both underlying and headline inflation at 6.7% signs of consumer resilience support the case for further Norges Bank tightening. In its monetary policy report, the NB indicated that another rate hike in August is likely. The cycle peak policy rate was seen at 4.25% later this year (currently 3.75%). The krone gained temporary post the retail data but gains soon evaporated. At EUR/NOK 11.84, the currency remains weak/weaker than the NB hopes for.
Monetary data published by the ECB showed a further slowdown of money supply and credit as the ECB continues its cycle of monetary tightening. M3 money supply growth slowed from 1.9% Y/Y in April to 1.4% Y/Y in May. Regarding the credit dynamics, the annual growth rate of loans to the private sector decreased to 2.8% in May from 3.3% in April. Among the borrowing sectors, the annual growth rate of adjusted loans to households decreased to 2.1% in May from 2.5% in April, while the annual growth rate of adjusted loans to non-financial corporations decreased to 4% in May from 4.6% in April.