Macro-News round-up

🇬🇧 UK inflation fell back to the Bank of England’s 2% target for the first time in almost three years in May. However, services inflation remained sticky at 5.7%, higher than expected, keeping policymakers cautious on acting. The figures are unlikely to improve the Conservative Party’s political fortunes ahead of the July 4 election. The UK has now suppressed inflation faster than peers like the euro area and US. Policymakers remain watchful of signs inflation may persist given wage and price pressures. No changes are expected from the Bank of England, which will leave rates unchanged during an election period like this one, leaving the benchmark rate at 5.25%.

🇺🇸 Fed representatives, such as President Alberto Musalem of the St. Louis Fed and Governor Adriana Kugler, stressed the need for additional proof of declining inflation before cutting interest rates. The yield on the US 2-year bond was again close to 4.80%, although it has retreated in the last few hours.

📈 Yesterday, NVIDIA surged 3.5% on the stock market to a market capitalisation of $3.3 trillion, surpassing giants Microsoft and Apple in valuation. The company, which was born in the 1990s and grew out of the gaming industry, seems to have found a new niche in the market. Artificial intelligence and its heavy use of microprocessors are giving the company a new lease of life.

🇫🇷🇮🇹 France and Italy will face an EU infringement procedure for their excessive deficits in 2023, according to a confidential source. The European Commission will announce the reprimands against seven countries on Wednesday. Italy and Poland had already said they expected reprimands for breaching rules on debt above 60% of GDP and deficits over 3%. 

Countries got leeway in recent years as rules were suspended during the pandemic and energy crisis. Debt increased by 15% and the deficit suffered a worse shock in 2020 than during the 2009 financial crisis. The announcement comes at a bad time for France as Macron called snap elections opening risks.

🇯🇵 Japan: Japan’s agricultural cooperative bank Norinchukin is set to liquidate $63 billion worth of US Treasuries and European government bonds. This move is aimed at plugging massive unrealized losses incurred due to the surge in global bond yields over the past year. In December 2023, Norinchukin was quietly added to the Fed’s foreign bank bailout program, raising concerns about its financial position.

📊 Markets: The US flagship indices continue to make new highs. Mini SP500 futures are trading above 5550 points. The Nasdaq 100 is just 20 points away from reaching 20,000 points. As we said yesterday, this does not apply to indices such as the Dow Jones 30 or Russell, which are in sideways ranges and below their all-time highs.

📉 In Europe, after yesterday’s small recovery in the stock markets, the fall seems to continue today. The Dax 40 is once again approaching the 18000 point level and the Cac 40 in France seems to be heading back towards the 7500 point zone. In both cases, we have a bearish crossover of the 55 average over the 200 average on intraday charts, which is a bad omen.

💵 The dollar index DXY is starting to consolidate what looks like a bullish pattern, despite a slight pullback from yesterday’s 105.50 level. The EURUSD, which bounced to the upside yesterday and temporarily managed to break above 1.0750, is again weak and looks set to continue its declines towards 1.06.

📈 Surprisingly, the Hong Kong Stock Exchange HSI was up almost 2.5% during the early morning session. After the government of Hong Kong said on September 23 that markets in the financial centre will remain open during typhoons and extreme weather, traders rushed to take up new positions.

🛢️ The oil market is also particularly interesting. Brent Crude Oil has risen above $85 a barrel, making June one of the best performing months of the year.

🌍 Geopolitics: Russia is discussing deploying long-range weapons with its closest partners in Asia and Latin America, according to Deputy Foreign Minister Ryabkov. Putin previously said Russia could provide such weapons to third countries to strike Western targets in response to NATO arms in Ukraine. Concerns were raised that Russia could aid North Korea’s banned nuclear and missile programs after its Putin’s visit. Relations may worsen further in response to US seizures of Russian assets worth over $300 billion.