Markets
June inflation rates of several EA member states were supposed to be the main dish for today but US weekly jobless claims unexpectedly stole the show. They retreated to 239k vs the stabilization expected at 265k. Unemployment benefits applications were on the rise since mid-May in a sign of the very first cracks in the labor market following the Fed’s aggressive tightening campaign. That’s now again being called into question with today’s data. US bond yields, already advancing before the release, extended gains by several bps. Current changes vary between 7.1 bps in the 30-y) to 15.3 bps for the 2-y with the latter hitting the highest level since the mid-March tremors. Suddenly markets are pricing in a 50% chance for a second rate hike after the one delivered in July. Turning to European price data then, most of them were at or slightly above expectations. Spanish HICP rose 0.6% m/m to 1.6% y/y, beating consensus by 0.2 and 0.1 ppts respectively. German inflation picked up again exactly as expected through a 0.4% monthly rise, bringing the yearly figure to 6.8%, up from 6.3%. Belgian inflation (national calculation) dropped below 5% (4.15%) on a huge energy price effect (-3.48 ppts). Core inflation ex energy decelerated to a still lofty 8.14%, down from 8.7% while services inflation stood at 7.25% (from 8.16%). Tomorrow’s Euro Area headline reading is seen at 5.6% but more importantly, the core gauge may reaccelerate to 5.5%. German yields shoot 5-8.4 bps higher with the belly underperforming the wings. The move is overwhelmingly inspired by the US though. The euro held the upper hand against the dollar but growing yield differentials favoured the dollar eventually. EUR/USD returned earlier gains to trade lower for the day below 1.09. The trade-weighted USD DXY index rises towards 103.34 and USD/JPY is taking another step to 145. Other interesting currency moves come from the SEK, which is trading at an all-time low as we speak (see below). EUR/GBP is trading slightly weaker around 0.8624. European bourses pared gains from their noon intraday highs of 0.6% to about a third. US futures in one streak forfeited all gains after the claims publications, leading to a neutral cash opening.
News & Views
The Swedish Riksbank today raised its policy rate as expected by 25 bps to 3.75%. The bank assessed that inflation is falling but still far too high. Services prices are raising unexpectedly rapidly and a weaker koruna are seen as an indication that inflation is declining more slowly than expected. The RB only marginally changed its forecasts for CPIF inflation this year (5.9%) and in 2024 (2.4%). Even so, the bank now concludes that policy needs to be tightened further, guiding for at least one more rate hike later this year and that the policy rate will remain at a contractionary level for a long period of time. As part of the policy normalization the RB also decided to expand the sales for government bonds from a pace of SEK 3.5 bln per month now to SEK 5 bln taking effect from September. The RB hopes that this will contribute to a stronger koruna and improve capacity to reduce inflation. The Swedish krone was not impressed by today’s action/amended guidance. The Swedish currency immediately after the RB decision touched a new all-time low against the euro at EUR/SEK 11.82. Markets apparently still conclude that the RB remains behind the curve. The RB in its monetary policy report also admits that the interest rates abroad have risen more than in Sweden, depriving the krona from the necessary interest rate support. After a temporary intraday rebound the krone currently (EUR/SEK 11.84) again trades at all-time lows. Separately from the monetary policy actions, the RB also announced that it is examining reducing the FX risk of its SEK 410 bln currency reserves via hedging. The measure is said not to have any monetary policy purpose.
Data from the Bank of England today showed that UK households repaid a £0.1 bln of mortgage debt in May following a record net £1.5 bln net repayment in April. Net borrowing on consumer credit by individuals decreased from £1.5 bln in April to £1.1 bln in May. Households also drained a net £4.6 bln from savings at banks and building societies, the biggest outflow on record. The withdrawal could be an indication that consumer are using savings buffers to cope with the higher cost of living and to repay mortgage debt.
