Inflation, Inflation, Inflation

In focus today

Focus today turns to euro area inflation for May which is due 11.00 CET. After German and Spanish headline HICP came in slightly stronger than consensus, we see slight risks of a topside surprise to the euro area headline HICP consensus of 2.5% y/y. We expect headline HICP to print 2.5-2.6% y/y. As for the core HICP we expect this to be unchanged from April at 2.7% y/y, as the recent momentum in services inflation has been too strong, and we expect this to be the case for May too. Ahead of the euro area print, we receive inflation figures from France (08.45 CET), Austria (09.00 CET), Portugal (10.30 CET), and Slovenia (10.30 CET).

In the US we get Fed’s favourite price gauge in the form of the PCE print for May at 14.30 CET. Consensus expectations by Reuters have analysts expecting the headline figure at 2.7% y/y, whereas they expect core PCE to print 2.8% y/y, both unchanged from the month prior.

In Norway we get May NAV unemployment figures at 10.00 CET which we expect to stand at 1.9% seasonally adjusted slightly down from April’s 2.0% seasonally adjusted.

Economic and market news

What happened overnight

In the US, Donald Trump became the first ever former president to be convicted in a criminal case, as he was found guilty of all 34 charges in the so-called ‘hush-money’ case. Sentencing is set to take place 11 July. A January poll conducted by Bloomberg and Morning Consult found that 53% of voters in swing states said they would be unlikely to vote for him if convicted of a crime. A more recent poll by the Quinnipiac University conducted in May found 6% of Trump supporters would be less likely to vote for him if convicted of a crime. In a tight race between the former president and the incumbent president Biden, such figures could potentially mean a great deal at the 5 November election.

In China, PMIs for May disappointed to the low side, as the official PMI for the manufacturing sector dropped into retracting territory (below the 50 mark), standing at 49.5. Both March and April had seen expansions to the figure, and economists polled by Reuters had expected an unchanged print from April at 50.4. The non-manufacturing PMI stood at 51.1 (prior 51.2), and composite came in at 51.0 (prior 51.7), hence both remain in expansionary territory despite slight retractions.

In Asia, equity markets are in the green this morning, with Hong Kong in front. US equity futures look set to continue yesterday’s session however, as they are in the red this morning, indicating lower prices by opening bell today.

Oil is down around 0.4% this morning with Brent trading around USD 81.6/bbl.

What happened yesterday

In the euro area, the unemployment rate declined to its all-time lowest level in April. The unemployment rate stood at 6.4% in April, with the number of unemployed persons down by 100k, to below 11m for the first time in the euro area’s history. Notably, half of this decline came from Italy where the unemployment rate now stands at 6.9%. The biggest economy and country in the euro area, Germany, saw the number of unemployed persons unchanged for the fourth consecutive month.

The strong labour market combined with rising incomes and decent amounts of savings point to an uptick in private consumption this year. However, these factors also put upward pressure on domestic inflation. It is therefore natural, also considering how growth has returned to the euro area economy, that the ECB is in less of a hurry deciding on when to cut interest rates after 6 June, as the ECB has all but promised a cut at this Governing Council meeting.

In the US, growth for Q1 2024 was revised lower to 1.3% q/q (down from 1.6%) in line with market consensus as per Reuters. The downgrade came after recent soft readings in retail sales and equipment spending.

Jobless claims continued edging up in line with market expectations, as initial claims rose to 218k seasonally adjusted whereas 219k had been expected by economists according to Reuters.

In South Africa, the ruling party ANC looks set to come out of the general election as the biggest party once again, however they appear to have also lost their majority which they have held the previous 30 years. As of this morning more than 50% of the votes had been counted, and ANC stood to receive around 42% down from the 57.5% they won in the 2019 election. The new parliament will elect South Africa’s next president once it has been formally constituted, and incumbent president, Ramaphosa (ANC leader), is likely to land another term, although the ANC will most likely have to form an alliance with other parties this time around.