German inflation comes in higher than forecast in May

German inflation rose 0.2% m/m and 2.8% y/y in May, slightly higher than the median forecast, and up from 2.4% y/y in April. Core CPI was unchanged at 3.0% y/y on the national level data. While the increase was partly due to base effects, the data suggests that the ECB will likely be cautious in terms of the speed with which it eases monetary policy, particularly as wage growth remains elevated in the bloc. The market is pricing a 25bp rate cut by July with a second rate cut only fully priced in Q4 2024.

Private sector credit growth accelerated to 10.7% y/y in Saudi Arabia last month, up from 10.4% in April. Broad money supply growth slowed to 6.3% y/y in May however from 8.3% in April, highlighting the tight liquidity conditions in the kingdom. Net foreign assets at the central bank declined by -USD 10.6bn to USD 423.7bn, after rising sharply in March.

UAE President Sheikh Mohammed bin Zayed begins a state visit to China today to build on already strong ties between the two countries. China is the UAE’s largest non-oil trade partner with the value of non-oil trade reaching AED 296bn (USD 81bn) last year, accounting for 12% of the UAE’s non-oil trade. The UAE has invested almost USD 12bn in China over the last decade, with the reciprocal investment reaching USD 7.7bn.

Today’s Economic Data and Events

16:30 US GDP (Q1, second reading) forecast 1.3% q/q, prev. 1.6% q/q

16:30 US core PCE (Q1, second reading) forecast 3.7% q/q, prev. 3.7% q/q

16:30 US pending home sales (Apr) forecast -1.0% m/m prev. 3.4% m/m

16:30 US initial jobless claims (25 May) forecast 217k, prev 215k

Fixed Income

• US treasuries declined again on Wednesday after the final auction of the week reflected soft demand. The 2y yield closed largely unchanged on the day at 4.97% but had risen to 4.9975% during the session. The 10y yield rose 6bp to 4.61% yesterday.
• 10y yields across EMEA also rose on Wednesday with the 10y gilt up almost 12bp to 4.40% and 10y bund yield up almost 9bp to 2.69%. French, Italian and Greek bond yields also rose more than 10bp yesterday, after slightly higher than forecast German inflation.
• Mashreqbank has mandated banks for a USD benchmark perpetual bond according to press reports. In addition, Gulf International Bank has mandated banks for a USD benchmark 5yr bond.

FX

• The USD index gained almost half-a-percent on Wednesday as most major currencies weakened against the greenback. The biggest losers were AUD and NZD, both 0.4% weaker yesterday and softer again this morning. Assistant Governor of the RBA Sarah Hunter said this morning that the economy was softening, suggesting another rate hike was unlikely.
• EUR and GBP were also on the backfoot yesterday, losing 0.3% respectively against the dollar, while JPY weakened 0.2% to 157.23.

Equities

• US equity markets closed in the red on Wednesday as higher yields weighed on valuations. The DJIA fell -1.1% while the Nasdaq100 and S&P500 closed -0.7% lower. The trend was similar in Europe, with the EuroStoxx50 down -1.3% and the FTSE100 declining -0.9% yesterday. Asian stock indices have opened lower this morning as well.
• Bloomberg has confirmed reports that an announcement on a secondary Aramco offering is imminent and could come by Sunday. The offering is expected to raise more than USD 10bn.
• The Tadawul ASI gained 0.3% on Wednesday, led by banks and insurance stocks. In particular, SNB rose 5.8% yesterday. The DFMGI and ADXGI both closed lower, down -0.7% and -0.4% respectively.

Commodities

• Oil prices declined -0.8% on Wednesday after rising over the prior three sessions. Brent closed at USD 83.6/b while WTI closed at USD 79.23/b yesterday. Both benchmarks are broadly unchanged in Asian trade this morning with the focus on this weekend’s OPEC+ meeting.