June 13, 2024

“Weaker inflation data ultimately trumped more hawkish expectations at the Fed yesterday, pulling the US dollar around half a percent lower. The US data remains the focus today, with the producer price index and a return of Fed speakers in the diary this afternoon.”

Sam Cornford – Head of Trading

Main Headlines

The European Commission followed Washington in announcing further tariffs on Chinese EV imports from next month to counteract excessive subsidies, with some industries now fearing Chinese retaliation. The additional duties rise to almost 40% for SAIC and are 17% for BYD.

In the UK, a YouGov snap poll showed that 64% thought Labour leader Keir Starmer outperformed Conservative Prime Minister Rishi Sunak in a live audience interview last night, where both were challenged over manifesto pledges and their ability to fund their policies if elected in next month’s vote. This comes after viewers thought that Sunak narrowly won last week’s head-to-head debate.

GBP

While a softer US inflation print catapulted sterling by 1% to a three-month high at its peak yesterday, it lost around two-thirds of these gains later in the session and inched lower against the euro. With the UK data calendar light for now, it’s the US data keeping traders busy ahead of a bumper few days next week when we get CPI and a Bank of England rate decision. Sticky services inflation means that few are expecting a rate cut, although a cooling in inflation similar to the US next week could prompt another dovish turn.

EUR

The euro surged 0.7% on renewed hopes for US rate cuts that shrank the expected divergence between the ECB and the Fed. We’re still some 0.8% lower on EUR/USD than before the strong 272K US payrolls figure from last Friday – political uncertainty in France is to blame for the stunted recovery – but there is some upward momentum on the crosses this morning. Industrial production is the only domestic data point this morning and the consensus here is for stagnant activity in April, although this is unlikely to move the dial at all for the ECB. The US data is in focus again today.

USD

A hawkish Fed decision could only recover around half of the dollar’s 1% slide on softer-than-expected inflation data yesterday. Markets breathed a collective sigh of relief as inflation continued to steer in the right direction after Q1’s reacceleration, with the headline CPI print unexpectedly falling from 3.4% to 3.3% and to 0.0% on a month-on-month basis. Markets swiftly priced in a higher chance of a second rate cut this year, beginning in September, sending Treasury yields across the curve to two-month lows and lifting US equities to record highs. The Fed painted an altogether more hawkish picture, however, acknowledging that ‘modest progress’ had been made since the last meeting, but trimming the median projection from three rate cuts this year to only one, despite being given chance to respond to the latest CPI report. Although this outcome was on the more hawkish end of the spectrum of possibilities, the softer inflation data ultimately blunted the impact. Today, the PPI inflation gauge will be scrutinised for clues on the Fed-favoured core PCE figure due in a few weeks. We also get an unemployment claims print and the return of Fed speakers, beginning with Williams later this afternoon.

Markets

The softer-than-expected US inflation print boosted equities globally as investors doubled down on their hopes for a soft landing, lifting the S&P 500 and the Nasdaq to fresh record highs before paring some of the gains on a hawkish Fed. The S&P is now above 5400 for the first time and up 14% on a year-to-date basis.

Main Economic Events (All Times CET)

3:30am: Australian Employment Change
8:30am: Swiss PPI
2:30pm: US PPI & Unemployment Claims
6:00pm: Fed’s Williams speaks

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