Powell highlights growing confidence in inflation's path to target

Jerome Powell, speaking during an interview yesterday, suggested that the last three inflation prints had provided monetary policy makers with greater confidence that inflation was continuing to move towards the 2% target. Powell also highlighted that a cooling in the US labour market meant that the committee would be increasing their attention on the dual mandate. The FOMC is due to meet at the end of the month. Markets are currently anticipating that the Fed will hold rates unchanged at the July meeting, but fully pricing in a cut at the September meeting.

Industrial production in the Eurozone fell 0.6% m/m in May, well below the 0% growth recorded in April. While the outturn was better than the 0.8% decline markets had been expecting, the headline figure was buoyed by a large rise in Irish industrial output. Some of the strength in the Irish data is however likely to be related to transfer pricing practices amongst large corporates. Excluding Ireland, industrial output would have fallen 1.2% m/m.

Today’s Economic Data and Events

• 13:00 GE ZEW survey (Jun): forecast 41
• 16:30 US retail sales (Jun): forecast -0.2% m/m

Fixed Income

• Longer dated US treasury yields ended the day higher on Monday, reacting to growing sentiment that the assassination attempt on Donal Trump likely improved his chances of winning the November election. Yields on the 10yr UST gained 5bps to 4.2294%, while the 2yr yield was broadly flat at 4.4575%.
• Bond yields were lower across major European markets on the day. The 10yr German Bund yield fell 2bps to 2.47%.

FX

• The US dollar gained against major peer currencies on Monday, with the attempted assassination of Donald Trump driving safe haven trades. EURUSD fell 0.12% to close the day at 1.0894, while GBPUSD declined by 0.15% to 1.2968. USDJPY gained 0.15% to close at 158.06.
• Commodity currencies also fell against the dollar on the day. AUSUSD fell 0.35% to 0.676, NZDUSD declined by 0.72% to 0.6075, and USDCAD rose 0.35% to 1.3683.

Equities

• US equity markets rose on Monday, driven by the so-called “Trump trade” and growing expectations of a rate cut after comments from Fed officials. The Dow Jones gained 0.53%, the NASDAQ rose 0.4% and the S&P 500 increased by 0.28%.
• European equity markets, in contrast, saw widespread declines with disappointing Chinese data hurting luxury brands. Both the Euro Stoxx 50 and CAC 40 dropped 1.2%, while the DAX declined by 0.8%. The FTSE 100 fell 0.9%.

Commodities

• Oil prices closed lower again on Monday, with Brent futures down 0.2% at USD 84.85/b and WTI declining 0.36% to USD 81.91/b.
• Kuwait announced the discovery of a significant new oil ang gas field yesterday, with the Kuwait Oil Company suggesting that the scale of the discovery was equivalent to around three years of the country’s production.