In focus today
In the US, April PPI is due for release this afternoon, unusually ahead of the CPI release tomorrow. This means markets could pay even more attention to it than usual, not least after the upside surprises seen in the March inflation data.
In Germany, we receive the ZEW survey for May. The assessment of the current economic situation has been flat for the past six months while expectations have risen greatly. Hence, it will be interesting to see if we finally get an improvement in the assessment of the economic situation.
Overnight, China will announce policy rates (Medium Lending Facility) but a rate cut is unlikely at this stage as China is likely waiting for the Fed to ease before cutting rates further.
Economic and market news
What happened yesterday
In the US, the Survey of Consumer Expectations from the New York Fed echoed the University of Michigan sentiment survey. 1y inflation expectations rose to 3.3% from 3.0%, the highest print since November 2023, while the 5y figure increased to 2.8% from 2.6%. Conversely, the 3y measure decreased to 2.8% from 2.9%. The elevated inflation expectations are largely attributed to anticipated rises in home prices, food, fuel, and medical costs.
Moreover, Fed vice-chair Philip Jefferson (voting member) was on the wire stating that the Fed should maintain interest rates at restrictive levels until it has further evidence that inflation is reaching its 2% target.
Market movements
Equities: Global equities saw a marginal increase yesterday, characterised by low trading volume and what felt like a snoozefest. In other words, it was a wait-and-see game in anticipation of the Wednesday data release, particularly the US CPI numbers. Tech and growth sectors, along with small caps, outperformed slightly. Of more concern is the resurgence of the meme stock frenzy, with a few names showing remarkable gains and Bitcoin’s value on the rise. This indicates a return of complacency and exuberance in the markets following a downturn in volatility and a perceived lack of clear market threats. In the US yesterday, the Dow was down by 0.2%, the S&P 500 by 0.02%, while the Nasdaq rose 0.3% and the Russell 2000 increased 0.1%. Asian markets are mixed or marginally lower this morning, a trend mirrored by futures in Europe and the US.
FI: There were modest movements in global bond yields yesterday with both US Treasuries and Bunds range trading ahead of the US inflation data released on Wednesday. Yesterday, a survey by the New York Federal Reserve showed that consumers expect prices to rise to 3.3% for 2024 relative to the consensus forecast of 3.1% for 2024. Today, we have US Producer prices for April as well as the ZEW indicator from Germany.
FX: EUR/USD trended slightly higher, trading just below 1.08 in a rather uneventful session. USD/JPY has continued to climb, surpassing the 156-mark. EUR/NOK and EUR/SEK still trade around 11.70, with the former slightly below, benefiting from higher oil prices. EUR/GBP continues to hover just below 0.8600, ahead of today’s UK labour market report.
