Please ensure Javascript is enabled for purposes of website accessibility

Eurozone inflation slows further in May

Edward Bell - Senior Director, Market Economics
Published Date: 02 June 2023


CPI inflation in the Eurozone fell to 6.1% y/y in May, down from 7.0% the previous month and beating expectations of 6.3%. Core inflation was at 5.3% y/y, down from 5.6% in April and below the predicted 5.5%. The bloc’s largest economies France and Germany in particular saw a pronounced slowdown in price growth. Nevertheless, the likelihood remains that the ECB will continue to hike its benchmark interest rates for the time being, and President Christine Lagarde cautioned yesterday that ‘we have made clear that we still have ground to cover to bring interest rates to sufficiently restrictive levels.’

Labour market data from the US was stronger than anticipated yesterday, as the ADP jobs number for May came in at a gain of 278,000. This was a slowdown on April’s 291,000 but was still far higher than the predicted 170,000. Leisure and hospitality led the jobs gains but there were losses in some other sectors such as technology, retail, and media. Meanwhile, wage growth slowed to 6.5% y/y for those who had remained in their jobs, down from 6.7% in April and the lowest reading since December 2021. This is some positive news for the Fed, but all eyes will now be on the NFP report due later today, where a net gain of 195,000 jobs is predicted. In other labour market data, initial jobless claims in the week to May 27 were at 232,000, marginally lower than the predicted 235,000.

The ISM manufacturing survey for the US was also released yesterday, coming in at 46.9 for May, down moderately from 47.1 in April and missing consensus estimate of 47.0. This was the seventh contractionary reading in a row for the index, underscoring the challenges facing the US manufacturing sector. Positively for the Fed, the prices paid component dropped to 44.2, down from 53.2 and compared with the predicted 52.3, suggesting downward pressure on goods inflation. Meanwhile, the debt ceiling bill continues to make its way through Congress

The official WAM news agency for the UAE has reported that the trade deal between the UAE and Turkey, agreed in March after negotiations began in 2021, has been ratified. The Comprehensive Economic Partnership Agreement aims to growth the size of trade between the two countries to USD 40bn over the next five year, more than doubling the present level. Meanwhile, the new corporate income tax was launched in the UAE yesterday, with the government providing some more details on the new levy, with qualifying firms operating from free zones exempt from paying duties.

Today’s Economic Data and Events

  • 16:30 US nonfarm payrolls, May. Forecast: 195,000
  • 10:45 France industrial production, April, % m/m. Forecast: 0.3%

Fixed Income

  • US Treasuries extended their rally overnight as more Fed officials came out in support of a pause at the June FOMC as well as some data that showed wage pressures slowing. Yields on the 2yr UST fell 6bps to 4.3408% while the 10yr yield sank about 5bps to 3.595%. Market probabilities have about a 30% chance of a 25bps hike at the June meeting, down from nearly 60% earlier in the week.
  • Philadelphia Fed president Patrick Harker said the Fed was at the point where it could let “monetary policy do its work” to bring inflation down, explicitly supporting a pause.
  • European markets were generally stronger overnight as well with bund yields down 3bps at 2.243% and gilt yields falling 7bps to 4.108%.
  • The move in risk assets brought EM Eurobonds higher as well. Yields on the 10yr USD Turkey government bond fell 8bps to 9.255% while in local currency markets South African 10yrs rallied after several weeks of pain.


  • The dollar was off sharply overnight as declining expectations for another imminent rate hike weigh on the market. EURUSD rallied nearly 0.7% to 1.0762 while GBPUSD also moved up by about 0.7% to 1.2526. USDJPY extended is moves lower for a fourth day to 138.80, down 0.4%.
  • Commodity currencies were resolutely higher with USDCAD down 0.9% to 1.3449 in favour of the loonie while AUDUSD added more than 1% to 0.6571 and NZDUSD gained 0.8% to 0.6071.


  • Sentiment in equity markets was stronger yesterday than seen of late, buoyed by progress on the US debt ceiling, stronger Chinese data, and slower Eurozone inflation.
  • Asian equity markets fared somewhat better on Thursday, with the Shanghai Composite closing flat and the Hang Seng dropping just 0.1% compared to the previous day’s 1.9% drop. The index remains just outside bear territory, down 19.7% from the recent peak. In Japan, the Nikkei gained 0.8%.
  • There was an improvement in sentiment in Europe also, snapping three days of losses. The composite STOXX 600 gained 0.8% and the DAX 1.2%. In the US, the NASDAQ was the biggest gainer as it added 1.3%, while the S&P 500 added 1.0% and the Dow Jones 0.5%.
  • Locally, the DFM closed down 0.2% while the ADX lost 0.4%.


  • Oil prices recovered somewhat overnight with Brent futures up 2.2% at USD 74.28/b and WTI managing nearly a 3% gain at USD 70.10/b. The OPEC+ is setting up for a potential showdown on output levels with the potential of another cut rising up the ranks of probabilities. Much softer time spreads may help to encourage a wider cut among members.
  • Commercial crude stocks in the US increased by 4.5m bbl last week while gasoline stockpiles showed a modest draw. US oil production fell by 100k b/d to 12.2m b/d along with a drop in product supplied.