In focus today
- In Sweden, some interesting data points will be announced today. First, the Producer Price Index provides interesting insights into the build-up of inflationary pressures and is often cited as an important leading indicator by the Riksbank. Even more interesting is the NIER survey which contains, among many other things, the price plans that will be examined in order to assess the transmission of current supply disruptions to inflation. Furthermore, the broader ETI is also one of the best indicators of Swedish GDP growth and has recently been an indicator of growth over the 2-2.5% period.
- In Norway, retail sales for June will be announced today. Rising inflation and the prospect of higher mortgage interest rates have dampened retail growth, and we expect a modest increase of 0.3% in May.
- The European Central Bank’s Consumer Expectations Survey covering the month of May will be released today. After a significant increase in March, expectations stabilized in April with one-year growth at 4.0% and three-year growth at 2.9%. This is particularly interesting in relation to Schnabel’s recent hawkish comment about bringing inflation back on target.
Economic and market news
What happened overnight
The US-Iranian agreementA cargo ship was reportedly attacked near Oman by Iran, prompting UN naval efforts to halt its escort operation in the Strait of Hormuz (SoH) and raising doubts about an initial agreement to end the US-Iran war. Iran’s Persian Gulf Strait Authority warned that ships outside their designated routes travel at their own risk, while shipping data showed that crude oil flows through Hormuz rose to their highest level since the war began. Despite the initial rally, Brent crude fell below US$74 per barrel and remains on track to post sharp weekly losses, as markets look past renewed tensions in the Strait of Hormuz and focus on the broader supply outlook.
What happened yesterday?
In the United States, Personal consumption expenditures inflation rose further in May, boosting expectations that the Fed could still raise interest rates later this year. Headline PCE inflation accelerated to 4.1% year-on-year in May, the first reading above 4.0% since April 2023, driven in part by higher energy prices amid turmoil in the SoH. Core personal consumption expenditures rose 3.4% y/y and 0.3% m/m, underscoring continued underlying price pressures, especially in services. However, the market fell slightly short of US interest rate expectations after PCE inflation was lower than expected in May.
In goods, According to Reuters, Iraq is considering leaving OPEC if it does not obtain a higher quota, after the UAE’s exit on May 1, which strengthened Iraq’s negotiating position. If SoH traffic returns to normal, increased production from the UAE and perhaps Iraq could lead to a positive oil supply shock and even a price war that would effectively end OPEC, although Bloomberg tracking shows Hormuz traffic remains well below pre-war levels despite the recent rebound.
Stock:
Stock markets rose yesterday, but once again the dominant theme was not the index level itself, but the important sector and regional rotation beneath it.
While European and Asian stocks advanced, US stocks fell, with intraday volatility dominating trading once again, which focused on technology and talk of Iran and oil.
With oil prices reversing higher during the US session, markets effectively ended Wednesday’s rotation, with capital exiting consumer sectors.
Micron’s exceptionally strong earnings released Wednesday evening also failed to provide lasting support for the technology, as investor discussions increasingly revolve around the sustainability of earnings growth and, in particular, today’s unusually high profit margins across parts of its semiconductor and memory complex.
It remains important to separate these rotation drivers from the underlying macro environment. The current volatility is driven by geopolitics and ongoing questions surrounding parts of the technology sector, while the overall backdrop remains exceptionally strong.
This still calls for calm overall market volatility and an upward trend for stocks over time.
This morning, Asian markets are trading sharply lower, led by more tech-heavy markets, while US and European futures are also lower as technology once again accounts for most of the weakness.
FI and FX: Movements were quieter in the price space during yesterday’s session. Euro swap rates fell with the two-year swap yield falling from 2.75% to just under 2.73% while the 10-year bond yield fell marginally to below 2.92%. In the United States, US bond yields fell, especially in frontal areas that mirrored moves in Europe. The EUR/USD pair took a breather from its recent rise and ended the session back above 1.1350. The EUR/NOK pair continued to rise, crossing the 11.20 level as oil prices continued to trade strongly.
