5 things we watch: May-inflation, Duration bets, Corporate profits, Scandi FX and the USD
Every Wednesday we provide you with the 5 topics that we track intensively in the current environment. Today is no exception.
May’s inflation numbers have surprised on the low side across the European continent, which has led to a resurgence of the duration trade, but falling inflation may be an issue for corporate profits if wages remain sticky until the end of the year. Meanwhile, commodities suffer and China is actively allowing export of lower prices again.
Follow along, as we dive into the topics bit by bit here:
1) Soft inflation numbers in May
2) Duration bets (long bonds and tech) perform again
3) Corporate profits may suffer from lower inflation
4) Scandinavian FX suffers from a strong USD and weak commodities
5) The stronger USD is the trigger for everything
1) Soft inflation in May
European inflation generally surprised 0.4-0.5%-points on the low side across the continent today, which is a major game-changer for the understanding of the inflation outlook in Europe.
The forward-looking evidence from various price surveys in the Euro area also keep suggesting that the price pressures are fading fast. The European Commission survey on price expectations among companies printed at 6.6, which is consistent with <2% inflation in Europe in 6 months from now.
Another 2 hikes in June and September (2x 25bps) are priced into EUR markets and we find that to be the maximum given the current disinflationary vibes, and the most important median-voice of the ECB, Villeroy De Galhau, has acknowledged the recent trends.
Stay short EUR (vs USD) and expect Euro optimism to continue to fade.
Chart 1: Inflation expectations among companies are falling off a cliff in Europe