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US CPI rose to 8.6% yoy, highest since 1981, food price rose 10.1% yoy

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    US CPI accelerated again from 8.3% yoy to 8.6% yoy in May, well above expectation of 8.2% yoy. That’s the highest level since December 1981. CPI core slowed from 6.2% yoy to 6.0% yoy, above expectation of 5.9% yoy. Energy index rose 34.6% yoy, largest 12-month increase since September 2005. Food index rose 10.1% yoy, first rise above 10% since March 1981.

    CPI rose 1.0% mom, above expectation of 0.7% mom. Core CPI rose 0.6% mom, above expectation of 0.5% mom.

    Full release here.

    Bundesbank: Germany inflation to hit 7% or higher, resolute action needed

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      Bundesbank revised down growth projection for Germany’s GDP in 2022 and 2023, and upgraded inflation projection for 2022, 2023, and 2024.

      2022 GDP growth is slashed from 4.2% to just 1.9%. 2023 growth was cut from 3.2% to 2.4%. But 2024 growth was raised from 0.9% to 1.8%.

      2022 HICP inflation forecast was raised from 3.6% to 7.1%. 2023 HICP forecast was raised from 2.25% to 4.5%. 2024 HICP forecast was raised from 2.2% to 2.6%.

      President Joachim Nagel said: “Inflation this year will be even stronger than it was at the beginning of the 1980s. Price pressures have even intensified again recently, which is not fully reflected in the present projections. If this development is assumed to continue, the annual average HICP rate for 2022 could be considerably above 7%”.

      Euro area inflation rates won’t fall by themselves,” Nagel added. “Monetary policy is called upon to reduce inflation through resolute action.”

      Full release here.

      Villeroy: ECB will pursue gradual but sustained rate hikes to neutral

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        ECB Governing Council member Francois Villeroy de Galhau told French radio that inflation is “not only too high but also too broad”. The ECB will purse a “gradual but sustained” rate hikes until reaching neutral range. He estimated that it’s “somewhere between 1% and 2%”.

        Separately, another Governing Council member Robert Holzmann said, “financial markets reacted very well to yesterday’s announcement.” “Even if we had started with a 50 bps rate hike it might have an effect on credibility but it would have raised expectations of bigger rate rises afterwards,” he added.

        DOW lost -638pts as markets await US CPI

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          ActionForex.com
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          US stocks tumbled sharp in late trading overnight, as traders turned into defense mode ahead of today’s consumer inflation report. Headline CPI is expected to tick down from 8.3% yoy to 8.2% yoy in May. Core CPI is also expected to slow from 6.2% to 5.9% yoy.

          Headline CPI appeared to have peaked at 8.5% yoy and core CPI at 6.5% yoy in March. Markets will look for validation that these levels were the peak. But the more important question is whether inflation is plateauing, or reversing. That is important for Fed officials to decide whether a pause in tightening is needed in September.

          Technically, DOW’s picture is not looking good with the sharp -638pts decline, which suggests rejection by the falling 55 day EMA. If there is no come back to push for a strong rebound in DOW in the next few days, it will likely extend the correction from 36952.65 through 30635.76 low before finally finding a bottom.

          China PPI slowed to 14-mth low, CPI unchanged

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            ActionForex.com
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            China PPI slowed notably from 8.0% yoy to 6.4% yoy in May, below expectation of 6.5% yoy. That’s also the lowest level in 14 months since March 2021. CPI was unchanged at 2.1% yoy, below expectation of 2.5% yoy. Core CPI, excluding food and energy, was unchanged at 0.9% yoy.

            “In May, the pandemic control continued to improve, with overall sufficient supplies in the consumer market, CPI has decreased compared to last month, and the year-on-year increase remained stable,” said senior NBS statistician Dong Lijuan. “As a great amount of fresh vegetables entered the market and logistics gradually smooth, prices of fresh vegetables fell by 15 per cent”.

            US initial jobless claims rose to 229k, continuing claims unchanged at 1.3m

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              US initial jobless claims rose 27k to 229k in the week ending June 4, above expectation of 208k. Four-week moving average of initial claims rose 8k to 215k.

              Continuing claims was unchanged at 1306k in the week ending May 28. Four-week moving average of continuing claims dropped -9k to 1318k, lowest since January 10, 1970 when it was 1310k.

              Full release here.

              ECB Press conference live stream

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                ECB ends net APP purchase, to hike 25bps in Jul, again and maybe larger in Sep

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                  ActionForex.com
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                  ECB leaves interest rates unchanged today as widely expected. That is, The main refinancing rate, marginal lending facility rate and deposit rate are held at 0.00%, 0.25% and -0.50% respectively. However, it explicitly said, “the Governing Council intends to raise the key ECB interest rates by 25 basis points at its July monetary policy meeting.”

                  Besides, ECB said is expects to “raise the key ECB interest rates again in September”. The size would depend on the updated medium-term inflation outlook by then. “If the medium-term inflation outlook persists or deteriorates, a larger increment will be appropriate at the September meeting,” it added. Beyond September, “a gradual but sustained path of further increases in interest rates will be appropriate.”

                  Also as expected, ECB decided to end net asset purchases as of July 1, 2022. It will “continue reinvesting, in full, the principal payments from maturing securities purchased under the APP for an extended period of time past the date when it starts raising the key ECB interest rates and, in any case, for as long as necessary to maintain ample liquidity conditions and an appropriate monetary policy stance.”

                  In the new economic projections, annual inflation will hit 6.8% in 2022, then decline to 3.l5% in 2023 and then 2.1% in 2024. Excluding energy and food, inflation is projected to it 3.3% in 3022, then slow to 2.8% in 2023 and then 2.3% in 2024. Inflation projections were revised up “significantly” due to surging energy and food prices, including due to the impact of war”.

                  GDP growth is projected at 2.8% in 2022, 2.1% in 2023 and 2.1% in 2024 (revised down slightly for 2022 and 2023, but up for 2024).

                  Full statement here.

                  EUR/USD ready for range breakout? Some ECB previews

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                    ActionForex.com
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                    ECB policy decision and press conference are the major focuses of the day. The central bank is widely expected to announce the end of net asset purchases after this month. That would set the stage for a rate hike “some after after” in July.

                    Markets are expecting a 25bps rate hike in July, followed by a 50bps move in September. That would bring interest rate comfortably back into positive territory, finally after eight years of negative rate policy. President Lagarde will affirm the latter view, but she’d keep the options open on the pace of tightening.

                    Suggested readings on ECB:

                    EUR/USD’s reaction to ECB is definitely worth a watch today. It should first be noted that EUR/USD had just bounced off above 1.0339 (2017 low) in May. An upside breakout from the near term range today will have 1.0805 support turned resistance and 55 day EMA taken out firmly. That should confirm medium term bottoming at 1.0348. In this case, even as a correction to the down trend from 1.2348, EUR/USD should rise further to channel resistance (now at 1.1159), which is close to 38.2% retracement of 1.2348 to 1.0348 at 1.1112.

                    BCC: UK inflation to hit 10% in Q4, no GDP growth in Q2 & Q3 with contraction in Q4

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                      ActionForex.com
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                      In the new economic forecasts, British Chambers of Commerce projected that UK inflation rate will reach 10% in Q4 this year, “comfortably outpacing average earnings growth”. That would be the highest since CPI records began in 1989. CPI is only expected to finally fall back to BoE’s target of 2% by the end of 2024. BoE interest rate is expected to rise to 2% in 2022, and 3% in 2023.

                      GDP growth in 2022 was downgraded slightly from 3.6% to 3.5%. Quarter on quarter GDP growth is expected to ” flatline with no growth expected in Q2 and Q3 before contracting by 0.2% in Q4″. Growth is expected to slow sharply to just 0.6% for 2023, before recovering slightly to 1.2% in 2024.

                      Alex Veitch, Director of Policy at the British Chambers of Commerce, said: “Our latest forecast indicates that the headwinds facing the UK economy show little sign of reducing with continued inflationary pressures and sluggish growth. The war in Ukraine came just as the UK was beginning a Covid recovery; placing a further squeeze on business profitability.”

                      Full release here.

                      IMF: Recent Yen depreciation reflect fundamentals

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                        ActionForex.com
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                        IMF Japan mission chief Ranil Salgado said Yen’s recent movements “reflect fundamentals”, adding, “we see both positive and negative effects in yen depreciation.”

                        He noted that risks to inflation in Japan are on the upside. But, “inflation in the medium-term will remain well below the BOJ’s target once the cost-push factors go away,” he said.

                        “We consider it appropriate for the BOJ to maintain monetary easing until inflation is achieved in a stable and durable manner.”

                        Eurozone GDP finalized at 0.6% qoq in Q1, EU at 0.7% qoq

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                          ActionForex.com
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                          Eurozone GDP grew 0.6% qoq in Q1, revised up from prior estimate of 0.3% qoq. EU GDP grew 0.7% qoq. Ireland (+10.8%) recorded the highest increase of GDP compared to the previous quarter, followed by Romania (+5.2%) and Latvia (+3.6%). Decreases were observed in Sweden (-0.8%), France (-0.2%) and Denmark (-0.1%).

                          Eurozone employment grew 0.6% qoq while EU employment grew 0.5% qoq. In the first quarter of 2022, Estonia (+3.5%), Latvia (+2.1%) and Portugal (+1.7%) recorded the highest growth of employment in persons compared with the previous quarter. Employment declined in Poland (-0.6%) and Croatia (-0.1%).

                          Full release here.

                          UK PMI construction dropped to 56.4, optimism deteriorates

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                            ActionForex.com
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                            UK PMI Construction dropped from 58.2 to 56.4 in May, below expectation of 56.9. S&P Global said total activity expanded at the slowest pace since January. Housing remained worst-performing category. Optimism was lowest since August 2020.

                            Tim Moore, Economics Director at S&P Global Market Intelligence: “May data signalled a solid overall rise in UK construction output as resilience across the commercial and civil engineering segments helped to offset weakness in house building. Residential construction activity was close to stagnation… New order volumes expanded at the slowest pace since the end of 2021…

                            “Concerns about the business outlook were signalled by a fall in construction sector growth projections to the lowest for more than one-and-a-half years in May. Around 19% of construction firms predict an outright decline in business activity during the year ahead, up from just 5% at the start of 2022.”

                            Full release here.

                            BoJ Kuroda: Various models show weak yen is positive

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                              BoJ Governor Haruhiko Kuroda said today that Yen’s depreciation is “positive to the economy as long as the moves are stable”. He added, “various macroeconomic models show weak yen is positive.. But he also reiterated that it’s important for exchange rate to move “reflecting fundamentals”.

                              Kuroda also retracted the remain made earlier on inflation which triggered massive social media backlashes. He told reporters at the Prime Minister’s Office, “I did not mean that consumers are voluntarily accepting the price increases. I apologize if my words led to a misunderstanding.”

                              CHF/JPY resumes up trend, targeting 140 next

                                By
                                ActionForex.com
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                                While Swiss Franc and Yen are both the biggest losers for the month so far, Yen is worse by a mile. BoJ is clear that it’s going to maintain the current ultra-loose monetary easing. On the other hand, SNB is sounding more and more open to adjustments on its monetary policy to counter inflation. In particular, if ECB is going to exit negative interest rates later in the year, there is prospect of SNB following, at least with a rate hike.

                                Technically, the break of 136.16 high confirms resumption of larger up trend from 101.66 (2016 low). That came after the deep pull back was support slightly above 127.05 resistance turned support. For now, near term outlook will stay bullish as long as 134.88 support holds. Next medium term target will be 200% projection of 101.66 to 118.59 from 106.71 at 140.57.

                                Japan Q1 GDP finalized at -0.1% qoq, -0.5% annualized

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                                  ActionForex.com
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                                  Japan’s GDP was finalized at -0.1% qoq in Q1, better than earlier estimate of -0.3% qoq. In annualized term. GDP contracted -0.5%.

                                  Private consumption, which accounts for more than half of the GDP, was revised up to 0.06% qoq rise, from -0.03% decline. Capital expenditure dropped -0.7%, down graded from -0.5%. Exports grow was unchanged at 1.1% while imports rose 3.3%, downgraded from 3.4%.

                                  GDP deflator was finalized at -0.5% yoy, revised form -0.4% yoy.

                                  US exports of goods and services rose 3.5% mom in Apr, imports dropped -3.4% mom

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                                    ActionForex.com
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                                    US exports of goods and services rose 3.5% mom to USD 252.6B in April. Imports dropped -3.4% mom to USD 339.7B. Trade deficit narrowed from USD 107.7B to USD 87.1B, versus expectation of USD 89.3B.

                                    In Q1, goods and services trade deficit with China increased USD 22.9B to USD 112.7B. The deficit with Canada increased USD 9.6B to USD 19.1B. The surplus with the United Kingdom increased USD 2.5B to USD 5.8B.

                                    Full release here.

                                    UK PMI services finalized at 53.4, worrying combination of slower growth and higher prices

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                                      ActionForex.com
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                                      UK PMI Services was finalized at 53.4 in May, down from April’s 58.9. That’s the weakest level since February 2021. PMI Composite was finalized at 53.1, down from April’s 58.2. S&P Global added that business activity expansions eased for the second month running. Input cost and prices charged inflation hit fresh record highs. Growth projections were lowest since October 2020.

                                      Tim Moore, Economics Director at S&P Global Market Intelligence: “May data illustrate a worrying combination of slower growth and higher prices across the UK service sector. The latest round of input cost inflation was the steepest since this index began in July 1996, while the monthly loss of momentum for business activity expansion was a survey-record outside of lockdown periods.”

                                      Full release here.

                                      Eurozone Sentix investor confidence rose to -15.8, real economy is not suffering as quickly and as severely than expected

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                                        ActionForex.com
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                                        Eurozone Sentix Investor Confidence rose from -22.6 to -15.8 in June, above expectation of -20.0. Current Situation Index rose from -10.5 to -7.3. Expectations Index rose from -34.0 to -24.0.

                                        Sentix said, “the real economy is not suffering as quickly and as severely from phenomena such as rising inflation and supply chain problems as one might have suspected.

                                        “While consumers are already suffering much more from rising prices, many companies are still benefiting from inflation-related pull-forward effects. So far, many companies have also been able to pass on their sharply rising costs to their customers.

                                        “But this is likely to be a finite phase. At a certain point, end consumers will have to cut back. Then, at the latest, the ability of companies to pass on their costs without restriction will also come to an end. In addition, there is a foresee-able change in monetary policy, which could also become more restrictive in the Eurozone from July.

                                        “On the other hand, it should be positive that according to the sentix topic barometer the inflation peak should have been passed for the time being.”

                                        Full release here.

                                        RBA hikes by 50bps to 0.85%, more normalization over the months ahead

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                                          ActionForex.com
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                                          RBA raises cash rate target by 50bps to 0.85% today, larger than expectation of 40bps. Interest rate on exchange settlement balances is also lifted by 50bps to 75bps. The central bank also maintains tightening bias, as “the Board expects to take further steps in the process of normalizing monetary conditions in Australia over the months ahead.”

                                          In the accompanying statement, RBA said inflation in Australia has “increased significantly”, and is “expected to increase further”, before declining back towards the 2-3% target range next year. The economy is “resilient” while labour market is “strong”.

                                          One source of uncertainty is “how household spending evolves”, given the “increasing pressure” from higher inflation, and interest rates. The central scenario is for strong household consumption growth this year, but RBA will pay close attention to various influences on consumption.

                                          Full statement here.

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