European Outlook: Asian stock markets mostly moved higher, although Nikkei and CSI remained marginally in the red, while Hang Seng and especially ASX moved higher, led by Commonwealth Bank of Australia. The tech rout that hit markets yesterday has started to calm down as the Nasdaq 100 managed to pare losses going into yesterday’s close. Investors remained largely defensive though in Japan ahead of the Fed meeting, but U.S and FTSE 100 futures are moving up. Oil prices are also higher on the day and the front end Nymex future is trading at USD 46.33 per barrel. Today’s calendar has inflation readings from Spain, Sweden and the U.K., with the latter seen falling back slightly to 2.6% y/y (med 2.7%) from 2.7% in April. German ZEW investor confidence meanwhile is expected to rise to 21.0 (med 21.5) from 20.6 in May. Meanwhile there are reports that Labour and Conservative MPs are “plotting” to force PM May to take a soft Brexit stance, while the Prime Minister continues to reshuffle her team and politics.
U.S. reports: Budget deficit widened to $88 bln in May just wide of median $87.0 bln, a large deterioration from the $53 bln deficit in May of last year. This estimate roughly aligns with the CBO Monthly Budget Review released June 7 as a change in the corporate tax deadline appeared to pull those dollars into April.
UK: Moody warned yesterday that UK’s minority government poses a “credit negative” risk. The prime minister’s Conservative Party is forming a government with Northern Ireland’s DUP, with the combined seat total standing at a weak 328 out of 650 parliamentary seats. Things have settled yet, just one week ahead of the start of EU exit negotiations, as there is pressure on the prime minister to resign following a disastrous election campaign. A snap poll of 700 member of the UK’s Institute of Directors found a “dramatic drop” in confidence following the hung parliament outcome of the election last Thursday.
Main Macro Events Today
- UK CPI – Data is highlighted by May inflation figures today, where CPI expected to stay unchanged after logging a 2.7% cycle high in April. This would fit the BoE view. The central bank has clearly signaled that it is looking through the current phase of above-target inflation, anticipating a return to 2.0% target next year.
- German ZEW – After slightly mixed survey data in May, German ZEW investor confidence for June expected to rise in the headline reading to 21.5 from 20.6 in the previous month, backed by the ECB’s cautious approach to exit steps and the improved overall economic outlook, although with the ECB meeting as well as the U.K. election last Thursday much could depend on when the answers got in and uncertainty about Brexit prospects, global political events and the prospect of further rate hikes in the U.S. will likely weigh on sentiment.
- US PPI – Headline May PPI is seen sinking 0.0% from 0.5%; core may rise 0.2% vs 0.4% or 2.0% y/y.
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