• After three days of forceful data-driven market moves, especially on interest rate markets, it was time to take a step back and take a breather. EMU PPI remains elevated at 1.2% M/M and 37.2% Y/Y suggesting that pipeline pressures are still building. However, for once, an inflation data series didn’t surprise to the upside. In the US, net job creation as measured by the ADP survey slowed more than expected from 202 000 tot 128 000 (vs 300 expected). On the other side of the equation, weekly jobless claims fell slightly more than expected to 200k. US yields briefly dipped after ADP, but markets realized that the reality check only comes tomorrow with the official payrolls report, including wage data. With data providing little guidance, investors kept a close eye at the OPEC+ meeting in Vienna. According, to sources, OPEC+ plans to speed up the pace of its monthly output hike from 432 000 bpd to a potential hike of 648 000 in the July and August. An output hike evidently would be good news for oil consumers, including in the US and Europe. However, a decision still has to be made and even if decided there’s plenty of ‘execution risk’ as only a few OPEC countries have additional production capacity left. Brent oil this morning dropped from $116/b to the mid $112 area. However, most of this setback is already reversed intraday. Evidently, this is not enough for (interest rate) markets to anticipate that lower oil prices might contribute to a meaningful easing of inflationary pressures. The US yield curve bear steepens with yields adding up to 5 bps (30-yr). European yields continue their uptrend with German yields rising between 7.0/6.0 bps in the 2-5-y sector and 5.0/3.0 bps for the 10/30-y. After a two-day sell-off the Eurostoxx 50 regains 0.6% even as European yields continue rising. US equities are underperforming losing about 0.5% after the open. On FX markets, this week’s dollar rebound is losing momentum. the DXY index eases from the 102.55 area to currently trade just north of 102. USD/JPY is also running into resistance. An attempt to surmount the 130 barrier failed (for now). The pair currently trades in the 129.75 area. At the same time, the euro shows some resilience too, with EUR/USD trying to regain the 1.07 handle. In CE, the forint rebounds after the MNB hiked its weekly deposit rate by 0.30 bps , as expected, coming on the back of the MNB slowing the pace of its base rate hikes from 1.0% to 0.5% earlier this week.
• Swiss inflation quickened by a stronger-than-expected 0.7% m/m to be up 2.7% y/y (from 2.3%) in May. Excluding energy and food, core inflation continued its sharp uptrend to 1.75% y/y. Both are the highest readings since 2008. Compared to the euro area average (8.1%), price increases are still low for reasons including the strong Swiss franc. Nevertheless, inflation has settled above the Swiss National Bank’s 2% inflation target. SNB president Jordan (and other board members) said more than once that the central bank is ready to take on the threat of inflation if it materializes. Vice-chair Zurbruegg yesterday told Reuters the SNB will consider the persistence of high inflation at the policy meeting on June 16. Speculation is keeping the Swiss franc supported. EUR/CHF briefly fell through the upward sloping trendline following the CPI release but pared back losses to 1.026 in the meantime.
• The central bank of Ukraine (NBU) jacked up interest rates by a whopping 1500 bps to 25%. It was the first meeting since the Russian invasion, which caused such psychological pressures that policy in the months after was unlikely to stabilize financial markets. Economic decision-making logics have returned, the NBU now says. Inflation is soaring (16.4% in May) and is expected to rise further. The NBU is serious in halting worsening inflation expectations that may further encourage investors to convert hryvnia savings into FX, causing imbalances in the economy. “To revive interest in hryvnia assets, their yields must exceed expected inflation rates”, and so it happened. The idea is to act bold once before cutting rates in the next meetings, provided hryvnia devaluation and inflation expectations have calmed down, a NBU deputy governor explained. The NBU fixed the hryvnia exchange rate at USD/UAH at 29.5 since the invasion.