Morning from Europe.

The market action yesterday and today is a clear hint that market participants are starting to expect a soft inflation print. We see headline printing at 4% and core at 5.1% or maybe even close to 5%. The evidence gathered through May has been extremely inflation dovish and the Danish CPI number yesterday added to the momentum in that view.

Danish CPI printed at -1.4% MoM a new record monthly deflation and something that will spill-over to Euro-zone numbers as well. All in all, we get why markets are chasing the disinflation narrative, but the US CPI report better deliver today – or else the market will be challenged. The risk/reward in betting on a soft number is not as good as it was last week.

Chart 1: Danish CPI was dovish as it could be