ECB Meeting and US CPI: Transitory Impact

Today’s Highlights

•    The US dollar is mostly firmer against the major currencies. Softer than expected inflation readings from Norway and Sweden make their currencies bear the brunt of the greenback’s gain.
•    The focus on the ECB meeting is the word cues about its bond purchases.  The staff also provides updated macro forecasts.
•    The euro and European yields have risen since the March decision to accelerate the bond purchases. 
•    The US is considering tariffs on rare earths from China to make it more attractive to build domestic capacity.
•    The EU and UK remain at loggerheads about the implementation of Brexit.  The US is expected to add pressure on the UK.
•    Mexico has a new finance minister and will have a new central bank governor as AMLO wastes no time after the legislative elections.  
•    US reports May CPI, which could be the peak in the base effect.  FOMC will look through it next week.  Weekly initial jobless claims are expected to have fallen again.

The ECB meeting and the US May CPI report is at hand. The US dollar is consolidating at a higher level against most of the major currencies. Softer than expected, inflation readings are weighing on the Scandis, which are bearing the brunt.

The US 10-year yield closed below 1.50% for the first time in three months yesterday, and this may have helped underpin the Japanese yen. European benchmark yields are slightly firmer today, while bond yields in the Asia Pacific region fell as they played catch-up to yesterday’s US yield slump.

The large bourses in the region advanced, though Japan was mixed.  Europe’s Dow Jones Stoxx 600 is little changed and has a four-day rally in tow ahead of the ECB meeting.  US futures are sporting a slightly softer profile.

Falling for the third consecutive session, gold has made new lows for the week near $1876.  Ahead of OPEC’s monthly report, June WTI is consolidating below $70 a barrel.  Steel rebar and iron ore futures advanced for the second consecutive session in Asia, while copper is off for the third session. The US Department of Agriculture releases its monthly assessment of global supply and demand later today. The drought in Brazil and in the western part of the US may give the reports a cautious tone.        

Marc Chandler

Managing Director
Bannockburn Global Forex
www.bannockburnglobal.com