Markets
EMU June inflation data brought no big surprise anymore in the wake the of the releases from Germany and other EMU member states earlier this week/today. The story in the meantime is well-known. Headline inflation declined further from 6.1% to 5.5% mainly driven by lower energy prices. At the same time, the core measure (excluding energy, food alcohol and tobacco) reaccelerated from 5.3% to 5.4%. Food price inflation remains elevated (11.7% from 12.5%). Services prices continue trending ever higher (5.4% from 5.0%). The CPI release had little direct impact on European bond markets. In a technical reaction, yields even temporarily declined a few basis points. In a broader perspective, persistent core/services inflation leaves the ECB no choice but to hike rates further in July with September also a live meeting. Similar story from the US May PCE deflators. The headline slowed to 0.1% M/M and 3.8% Y/Y (0.4% M/M, 4.3% Y/Y in April). The core deflator printed at 0.3% M/M and 4.6% Y/Y (from 4.7%). The indicators were close to expectations. May Personal income at 0.4% was marginally stronger than expected but spending disappointed slightly at 0.1% M/M. After yesterday’s strong post-claims jump in yields, today’s data provided no strong enough driver to really extend the uptrend. US yields currently change less than 2 bps (2-y + 1 bp/30-y -1.5 bp) ceding less than 2 bps across the curve. The 10-y yield (3.83%) attacked the 3.86% resistance (top end May) but at last for now fails to clear this hurdle. German yields are rising 3-2 bps. The German 2-y is testing recent top near 3.22%. The decline in the headline inflation for now apparently is enough to give comfort to equity investors. The Euro Stoxx 50 adds 1.0%+, again nearing the Mid May top (4413). US indices also open higher (S&P + 0.9%, Nasdaq +1.25%)  Oil ($74.75 p/b) is returning higher in the $70 -79 consolidation pattern.
On FX markets, yesterday’s post-jobless claims USD rally is largely undone. DXY drops back below the 103 area from an open near 103.33. The euro also restores the balance. EUR/USD tested the 1.0945 support but the test was rejected with the pair returning to the 1.09+ area. USD/JPY eases slightly to 144.45 after testing the 145 barrier in Asia this morning as traders ponder the changes for interventions from the Japanese Ministry of finance. EUR/GBP is drifting back below the 0.86 handle as UK short-term yields (2-y +7.5 bps testing the 5.32% top) continue pushing higher. The risk-on sentiment hardly supports the likes of the Norwegian (EUR/NOK 11.70) or the Swedish krone (EUR/SEK 11.79).
News & Views
Polish inflation flatlined for a second month straight in June, data from Statistics Poland showed. The 0% m/m reading brought the yearly figure from 13% to a lower-than-expected 11.5%. Food (-0.3%), energy (-0.3%) and fuel (-0.9%) all fell on a monthly basis. Additional details aren’t available before the publication of the final figure July 14. Core inflation numbers are due for release July 17 but early analyst estimates range between 10.7-11.1%, down from 11.5% in May. KBC Economics expects an outcome of 10.5%. The Polish zloty barely budged on today’s data. EUR/PLN did hit an intraday high around 4.46 before paring gains and even trading lower for the day at 4.438 currently.
The Chinese currency is on track for its third monthly decline straight, making the current quarter the second worst since the country dropped the dollar peg in 2005. USD/CNY (7.26) today again gains with the pair closing in on the November 2022 highs – in turn the strongest level since 2007. At the heart of the matter lie investor concerns over the Chinese economy. Performance has underwhelmed in recent months following a boost early this year after China ditched its strict zero-Covid policy. Domestic spending has faded with debt-laden and wary consumers trying to keep their finances in check. Foreign demand, meanwhile, has also eased due to the ongoing global monetary tightening effort. The opposite is happening in China with the central bank in a gradual easing mode to support the economy. This growing monetary divergence is weighing heavily on the yuan. In growing evidence of the PBOC becoming uncomfortable with the weak currency, it fixed the exchange rate several times stronger than expected in recent days. Regulators also surveyed exporters, importers and banks about money flows and hedging demand and collected views on the yuan and trading sentiment, Bloomberg reported citing people familiar. The PBOC today also released an announcement, vowing to keep the yuan basically stable at a reasonable and balanced level.
