Contributors Fundamental Analysis Quiet Start to a Week Where Inflation Will Be in Focus

Quiet Start to a Week Where Inflation Will Be in Focus

In focus today

The week kicks off with a very light schedule.

We receive the Germany Ifo indicator for May at 10.00 CET. The past two months have seen an increase in the assessment of the business situation, and it will be interesting to see if this continued in May.

The US is out today for Memorial Day, and the UK is out for the Spring bank holiday. Trading resumes Tuesday in both markets.

Elsewise, ECB’s Schnabel, SNB’s Jordan, Fed’s Mester and Bowman, and BoJ’s Himino (all voting members of their central banks) will participate in a panel discussion in Tokyo on monetary policy tomorrow morning (06.55 CET).

For the remainder of the week, we will especially be looking out for consumer confidence, GDP and PCE inflation data out of the US, unemployment, and CPI numbers out of the euro area, as well as PMIs out of China and Tokyo CPI out of Japan.

Economic and market news

What happened over night

In Asia, Chinese premier met with colleagues from Japan and South Korea for the first time in four years in three-way talks. Chinese premier Li Qiang heralded the meeting a new start to their relationship, as Japanese media reported the three nations might restart free-trade negotiations that had been on hold since 2019.

In China, industrial profits came out showing monthly growth again in April at 4% up from the -3.5% slide seen in March. The growth for the first four months of the year stood at 4.3% y/y.

Asian equity markets are trading in the green this morning, and oil is up slightly with Brent trading at around USD 82.3/bbl this morning.

What happened Friday and over the weekend

In Japan, inflation declined further as CPI excluding fresh food stood at 2.2% in April down from 2.6% in March. The declining inflation constitutes an obstacle to the Bank of Japan (BoJ) to hike rates further, albeit we are still waiting to see the solid spring wage increases take effect. Regained purchasing power and stronger private spending is what the BoJ is hoping for to pull the economy back into growth mode.

In the US, University of Michigan surveys of consumer expectations of inflation 1 and 5 years ahead showed downwards revisions to the initial releases of both April and May numbers. For May the final figures stood at 3.3% and 3.0% respectively for the 1 and 5 years ahead expectations. Yields were more or less flat by the end of Friday’s session, whereas equity markets ended in the green with especially the Nasdaq and S&P500 rising, gaining 1.1% and 0.7% respectively.

In the euro area, we revised our expectations for the ECB policy rate path following a stronger economic start to the year coupled with sticky inflation. We removed our expectation for a September cut, yet still expect a cut during next week’s meeting. The following one is projected to follow in December, see more in ECB preview – A political rate cut in June, and no cut in September, 24 May.

In the world of shipping, the cost of shipping containers continues to climb as complications in the Red Sea persist, the Financial Times reported. Prices have soared as businesses have begun preparing for the festive season earlier than usual in an attempt to avoid issues related to the disruption of supply chains caused by the attacks in the Red Sea by the Houthis in Yemen. Latest price data from last week show short-term contracts on routes from the Far East to North Europe and the US West Coast costing USD 4,677 and USD 4,760. Both indices are thus within striking distance of their peaks from earlier in the year when western nations led by the US and UK first began attacks on the Houthis, and shipping companies started swithdrawing from the Red Sea in response to the increased threat level.

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