German Inflation in the Spotlight Ahead of Friday's Euro Area Print

Today, focus is on German inflation data for May which will give an important clue as to what the euro area print on Friday will show. We expect a large increase in core services inflation due to a base effect from the "German ticket", which lowered prices on public transportation in May last year. On Friday, we expect euro area headline inflation to remain at 2.4% y/y driven by rising energy inflation, falling foods inflation and unchanged core inflation at 2.7% y/y.

Dollar Tries to Extend Gains

The dollar tries to extend gains. The eco calendar is thin today, expect for the German CPI data. Monthly HICP is expected to rise a modest 0.2%, but unfavourable base effects might rise the Y/Y-measure to 2.7% from 2.4%. In case of an upward surprise, after yesterday’s global bond move, we’re keen to see the reaction at the long end of the curve. The German 10-y yield isn’t far away from the 2.65% April top. The US Treasury will sell $44bn 7-y notes. EUR/USD is locked in the 1.08/1.09 range.

Australia's Inflation Ticking Up Despite Weak Retail Sales

Consumer inflation in Australia rose in April, contrary to the expected decline. Year-on-year price gains totalled 3.6% vs. 3.5% previously, and average forecasts of a decline to 3.4%.

Accelerating German Inflation Supports Euro on the Downturn

German inflation confirmed an acceleration. Harmonised CPI rose to 2.8% vs 2.4% a month earlier and 2.3% in March. This is positive news for the Euro, which is lagging behind the Pound and relatively weak against the Dollar, based on expectations of a looser ECB monetary policy against rivals.

Sunset Market Commentary

German bunds underperformed US Treasuries today. We should speak in the conditional tense though because there’s still the $44 bn 7-yr auction scheduled after the European close. A mediocre 2-yr and 5-yr sale yesterday triggered additional losses for Treasuries and was the reason for European/German yields to catch up straight at the open. German rates then dipped again on the release of regional inflation numbers.

Will Core PCE Inflation Spur a Less Hawkish Fed?

After months of hotter-than-expected inflation prints, there was finally some good news in the latest CPI report. Both the headline and core measures of the consumer price index (CPI) edged lower in April, raising hopes that the Fed will be able to stay on course to cutting rates later in the year.

OPEC+ Supply Cuts to Stay, But Patience Might Start Running Out

OPEC oil producers and their allies including Russia postponed their 188th gathering for a day to Sunday June 2 and switched from an originally scheduled in-person meeting in Vienna to a virtual conference following the death of the Iranian president Ebrahim Raisi and as the Saudi King, the father of energy minister Abdulaziz bin Salman, who is also the cartel’s chairman, is in poor health.

German Inflation Pushes Rates Higher

German inflation stood at 2.8% y/y for headline HICP, thus slightly higher than the 2.7% consensus amongst analysts. It is however worth noting that headline inflation was affected by the so-called 'German ticket', a discount on public transportation which has lowered headline inflation. Given its introduction more than a year ago, the base effects of the discount are no longer affecting the inflation print.

LT Yields Continue Recent Reacceleration

LT yields yesterday continued recent reacceleration. This tells at least as much on current market momentum as on the news that served as an explanation. Regional German May inflation published throughout the day were soft (0.1% M/M). At 0.2% M/M HICP inflation also decelerated markedly (0.6% in April), but due to base effects, Y/Y inflation jumped from 2.4% to 2.8%.

Crypto Market Infected With Correction

The crypto market has lost almost 2% of its capitalisation in the last 24 hours to $2.51 trillion. Bitcoin is holding up better than the market, pulling back only 0.7% to $67.6K. Many top coins have deeper drawdowns. Ethereum loses almost 3%, BNB loses 1.6%, and Solana loses 2.6%. Meme coins are under fiercer pressure. With no meaningful drivers of its own, the crypto market has come under indirect pressure due to the stock market.