The hint that peak inflation has passed from the latest US Core PCE print helped risk markets rally for the first part of this week. This positive risk sentiment was helped by Chinese PMI prints that, although still contractionary, were not as bad as feared. The Eurozone inflation data printed at the top end of analysts’ estimates and that increased the pressure on the ECB to potentially act next week. The EU announced a ban on some Russian oil imports and that boosted oil prices while also lifting inflation expectations, so that was the reason for yields moving higher.

Other key events from the past week

  • China: PMI’s hint worst is past, May 31: The PMI data out this week was better than feared and suggests the slowdown for China has peaked. The news that Shanghai and Beijing are moving out of lockdowns also lifted sentiment. Is this the last chance to be bullish on China or are slower times still ahead?
  • EUR: Hot inflation, May 31: The headline Eurozone inflation print came in at 8.1% y/y this week vs the 7.7% forecast. This puts pressure on the ECB to act next week with a hike and should still support a EURGBP upside bias.
  • CAD: BoC’s hawkish tilt, June 01: The Bank of Canada pulled off a hawkish surprise saying they are prepared to act ‘more forcefully’ to achieve the 2% inflation target. This gave the CAD immediate upside as the BoC gets tough on inflation. However, when will growth concerns weigh on the BoC?

Key events for the coming week

  • AUD: Interest rate decision, June 07: Short-term interest rate markets are pricing in a 100% chance of a 25 bps rate hike. However, will the RBA go further after their last hawkish tilt in May’s meeting?
  • Fruity seasonals: A bite of Apple? Will Apple shares move higher over the summer?
  • EUR: Interest rate, June 09: Short-term interest rate markets (STIR) are pricing in a 53% chance of a rate hold from the ECB next week. However, after this week’s high inflation print of 8.1% will the ECB be pressured to hike rates?

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