Sluggish start of ECB week

We start this week with positive data on Chinese imports that grew at their fastest pace in 10 years in May due to rising commodity prices. After a benign US job report on Friday, the focus this week will be on US inflation data and ECB meeting on Thursday. UK will release monthly GDP figures on Friday amidst growing doubts about pushing ahead with the final step of the reopening plan. Also of interest will be the progress of President Biden’s proposed $1.7 trillion infrastructure plan, as well as the market reaction to the G7’s agreement on a minimum global corporate tax rate of at least 15%.

On Friday non-farm employment increased to 559,000 in May, a result very close to the forecast but about 100,000 short of consensus expectations. It was still a relief after April’s shockingly weak report. The jobless rate of 5.8% is still far from the Federal Reserve’s goal of full employment. Yields on US 10-year notes were a fraction higher at 1.57% after diving 7 basis points on Friday. The decline in yield dragged the US Dollar lower with DXY Index currently at around 90.23. U.S. equities climbed, pushing the S&P 500 to within striking distance of an all-time high, after a pickup in hiring last month bolstered confidence in the economy, while a strong rise in hourly wages added to inflation worries. S&P 500 is currently trading at around 4,229.89, Dow is 34,756.39 and Nasdaq is 13,814.49, all 0.5 -1.5 higher. Attention is now on Thursday’s CPI release as one of the last major pieces of economic data ahead of the next Fed meeting on June 15-16. Janet Yellen says, rising inflation and interest rates are good.

European markets are mixed this morning with FTSE 100 up 0.07%, DAX down by 0.12% and CAC 40 trading at 0.11% lower. EURUSD is lower at 1.2153. The focus this week will be on ECB meeting on Thursday. ECB is not likely to officially indicate a slowing down of PEPP purchases, but link them to the financial conditions thus allowing themselves some flexibility. UK is facing an “easing dilemma” with Matt Hancock saying it is too early to say whether the planned easing of virus restrictions will go ahead on June 21. UK’s monthly GDP figures will be closely watched on Friday with a forecast of 2.4% growth.

China’s imports grew at their fastest pace in 10 years in May, while export growth missed the expectations, likely weighed by Covid-19 disruptions at major ports in the south of the country. Chinese blue chips lost 0.5%. Taiwan stocks lost 0.2% as a spike in Covid -19 cases hit three tech companies in northern Taiwan. MSCI’s broadest index of Asia-Pacific shares outside of Japan slipped 0.1% with a risk of fourth straight session of losses.

Oil is trading lower after hitting multi-year highs on Monday at $72.27 with Brent crude August futures falling 0.5% to $71.51 a barrel. US West Texas for July touched $70 for the first time since the October 2018, but has fallen now 0.4% to $69.32 a barrel. The primary concern is about Iran’s exports coming back to the market after talks over a nuclear deal. Data showing a 14.6% drop in China’s crude oil imports in May has also weighed on prices.