Market movers today
Several interesting inflation figures due out today. First , the euro area will release preliminary inflation for June. Given the German, Italian and Spanish figures (and our estimate that French HICP inflation will have declined by 0.1pp) euro area inflation should be down by 0.14pp from 1.40% y/y in May. Hence, we estimate it will round up to 1.3%. Note that package tours have a very low weight in French HICP, so the upside risk is limited.
Another interesting inflation print today will be the core PCE from the US. Core inflation has surprised on the downside recently and moved lower since February, reversing the upward trend seen in 2016. The print today will give more info on how much of this is driven by transitory factors and what is due to softer underlying price pressure.
Also in the US, the Chicago PMI has been very strong recently and not shown the same decline as in the ISM and some regional surveys. We doubt that Chicago PMI can continue to buck the trend of softer data and look for a decline today.
In the Scandi sphere, focus turns to Norwegian data for retail sales, unemployment and credit growth.
Selected market news
The fear that recent hawkish talk from the Fed, ECB, Bank of Canada (BoC) and the Bank of England (BoE) means that monetaryicy stimulus will be taken away faster than expected has sent bond yields higher and notably EUR and GBP higher in recent days, but overnight the ‘normalisation’ fears finally grabbed equity markets too. Equities have for a while priced in a somewhat more upbeat out look for the global economy than other asset classes, but look a bit fragile in the current environment given recent price momentum. Losses in the European session yesterday have been echoed in the US and Asia; notably, the S&P500 saw the largest fall in more than a month, whereas it was the largest drop in European equities since September last year.
Albeit mainly talk and little action from central banks so far, we are looking at what looks increasingly like markets flying into a new taper tantrum, but one which could be more broad-based than in 2013 when it was mainly fears of Fed tightening. This time round, a series of central banks have joined the call for ‘normalisation’ . While the Sintra policy conference was used by policy makers to deliver hawkish talking, we note that this comes readily after the BIS sent out its annual report discussing, among other things, how the world is ‘inching towards norm alisation’. Notably, Norges Bank has already moved somewhat in this direction and there is a possibility the Riksbank could go in the same direction next week.
On a separate note, the South Korean president is in Washington for a two-day summit with President Trump, which started yesterday. With little material news from the talks so far, this comes at a time when North Korea continues to flex its military muscles and as the US administration is accusing another neighbour of North Korea’s, China, of not backing Trump’s hard stance against the regime.
