Rise and shine everyone.

It’s a big day for markets with the US CPI inflation numbers to be released at 8:30 am ET and the FOMC rate decision later at 2pm ET, followed by Fed Chair Powell’s press conference at 2:30pm ET.

This Fed meeting also brings us the Summary of Economic Projections (SEP) and we’re expecting some changes - namely, lower rate cuts for 2024, higher inflation, higher unemployment, and lower growth. If the SEP doesn’t show a change to rate cuts today (from 3 to 2), we’re likely going to see the market move much higher.

US Equity Futures are trading higher this morning after a positive close yesterday. The first hours of regular trading yesterday saw the market come under immense pressure, with the exception of Apple. But, a relatively well-received 10Y Treasury Note auction turned things around.

Volatility is still trading higher because of the macro data releases but, we’re also likely seeing some of the spillover effect from Europe. Yesterday, France and Spain both saw their yields cross German yields. Today, the spread between Italy and Germany continues to widen crossing 1.45%.

European markets are firmer though this morning, following a mixed Asia. China’s inflation reading came out lower than expected - CPI at 0.3% YoY vs. 0.4% est., and PPI at -1.4% YoY vs. -1.5% est.

Finally, commodities are also seeing some stability this morning led higher by crude oil.

US CPI Preview

The consensus estimate shows that month-on-month, headline CPI is expected to come in lower, while core CPI is expected to stay stable. The market is not expecting a big change, which in reality is not a good thing because it means “inflation remains sticky”.

Key Items to watch would be:

• Consumer Electronics and Personal Care Products: Expected to see price declines due to reductions announced by large retailers.

• Car Insurance: Prices are expected to continue rising but at a slower pace compared to previous months.

• Rent and Owners' Equivalent Rent (OER): Inflation in these categories is expected to remain stable.

• Used Cars: Prices are expected to increase slightly.

• Energy Prices: Expected to decline, affecting the headline CPI.

UK GDP stagnates

The UK economy stagnated in April 2024, following a 0.4% increase in March, meeting expectations.

This marks the weakest performance in four months, with a decline in industrial output and construction counterbalancing a rise in services. Production output decreased by 0.9% after a 0.2% growth, driven by a 1.4% drop in manufacturing. The 3-month average for GDP growth came in marginally higher at 0.7% vs. 0.6% in March.

This saw UK Equities gain some ground, with the idea that rate cuts could be sooner rather than later. The BoE meeting is next week, Jun 20 but, we still maintain August as the timing of the first cut.

More Trade Wars

Further news of sanctions and tariffs this morning, all leading to higher costs for the end consumer. None of this is market friendly.

1. Japan's Potential Sanctions: Japan is considering imposing sanctions on groups, including Chinese companies, for aiding Russia's invasion of Ukraine.

2. US Chip Access Restrictions: The United States is reportedly contemplating further restrictions on China's access to chips used for artificial intelligence.

3. EU Tariffs on Chinese EVs: The European Commission has confirmed additional tariffs on imported Chinese electric vehicles (EVs). Specific tariffs include:

   • 20% on Geely Auto

   • 17.4% on BYD

   • 38.1% on SAIC

   Tesla might receive an individually calculated duty rate at the definitive stage. Other Chinese EV producers cooperating in the investigation but not selected for sampling will face a 21% duty. Non-cooperating producers will face a 38.1% duty. These new tariffs add to an existing 10% tariff on Chinese EVs.

Calendars

(news taken from Reuters, FT, Bloomberg; Calendar from Trading Economics)