UK inflation holds steady at 2% y/y

UK consumer price inflation remained at 2% y/y, for a second consecutive month in June, marginally higher than consensus expectations for 1.9% rise. Measures of both core and services inflation also proved sticky, remaining at 3.5% and 5.7% in June, respectively. The persistence of services inflation was largely due to hotel and restaurant prices, driven by both a 10% rise in the minimum wage and demand related to the Taylor Swift tour. Market expectations for a rate cut when the BoE next meets at the beginning of August fell after the print, with a cut only being fully priced in by November.

US industrial production rose 0.6% m/m in June, higher than consensus expectations for a 0.3% rise. Together with the 0.9% m/m gain seen in May, this marks the largest 2-month gain in production since end-2021. While the headline number surprised on the upside, it was in large part driven by the production of non-durables and a rise in utilities – likely a result of recent heatwaves.

Today’s Economic Data and Events

• 10:00 UK average weekly earnings (May): forecast 5.7% 3m/YoY
• 16:15 ECB Deposit facility rate: forecast 3.75%
• 16:30 US initial jobless claims (w/e 13 Jul): forecast 230K

Fixed Income

• Moves in US Treasury yields were minimal on Wednesday, with Fed official – Christopher Waller – saying that while the FOMC wasn’t in a position to cut rates just yet, they were getting “closer”. Yields on the 10yr UST were broadly flat at 4.1575%, while the 2yr yield gained 2bps to reach 4.4379%.
• Changes in bond yields across major European markets were mixed on the day. The 10yr Gilt gained 3bps to reach 4.0748%, while the German Bund yields fell by less than 1bps to 2.419%.
• Masdar has mandated benchmarks for a USD benchmark dual tranche bond with maturities of five and 10 years. Masdar is rated ‘A2’ with a stable outlook by Moody’s and ‘AA-‘ with a stable outlook from Fitch.

FX

• The US dollar moved lower against major peer currencies on Wednesday, with the dollar spot index declining 0.5%. EURUSD gained 0.4% to close the day at 1.0939, while GBPUSD rose 0.3% to 1.3009. USDJPY saw a particularly sharp reversal, dropping 1.4% to close at 156.2.
• Moves in commodity currencies were mixed. AUSUSD fell 0.1% to 0.6729, NZDUSD gained 0.5% to 0.6083, while USDCAD rose 0.07% to 1.3683.

Equities

• Technology stocks struggled on Wednesday, amid rising concerns that the US could impose tougher trade restrictions on chip makers. The S&P 500 declined 1.4%, and the NASDAQ fell 2.8%. The Dow Jones managed to gain 0.6%.
• Similar concerns shifted several European equity markets lower. The Euro Stoxx 50 dropped 1.14%, the CAC 40 fell 0.12%, and the DAX declined by 0.4%. The FTSE 100 gained 0.28%.
• Locally, the DFM rose 0.54% and the ADX gained 0.14%.

Commodities

• Oil prices rebounded on Wednesday, with data from the EIA suggesting that US crude stockpiles hit their lowest level since February, falling by 4.87m barrels last week. Brent futures were up 1.6% to USD 85.08/b and WTI jumped 2.6% to USD 82.85/b.