German inflation data dominates, helping to drive expectations

European markets are enjoying a welcome boost in early trade, with French stocks pushing sharply higher despite the resounding victory for the Far Right in Sunday’s first Parliamentary election. Coming off the back of four successive daily declines, today’s rebound for the CAC highlights how we have seen traders ‘sell the rumour, buy the fact’. The 33% share of vote taken by the Right-Wing cluster of RN and LR came in somewhat shy of expectations, and polls highlight a strong possibility that they fail to form a majority by achieving the 289 lawmakers needed. Nonetheless, the forecasts that they reach between 260 and 310 seats does highlight how that majority could be on a knife-edge as we head into next weekend’s vote.

German inflation data helped boost hopes for a nationwide decline later today, with five of the most important regions all seeing inflation decline on an annual basis. Building on the weakness seen across the French (2.1%) and Italian (0.8%) CPI readings reported at the tail end of last week, today’s German inflation reading looks likely to provide another indication that tomorrows eurozone gauge will similarly shift closer to the 2% target.

The UK manufacturing PMI survey saw a downward revision that did confirm a second consecutive expansion for the sector. Unfortunately, inflation pressures remain prevalent, with input prices rising at the quickest pace since January 2023. Average purchase prices rose for the sixth successive month in June, with businesses seeing higher prices across the likes of energy, food, metals, packaging, paper, plastics and timber. This report provided us with early evidence that the new border checks being implemented from April could prove inflationary, with businesses reporting higher prices due to tight supply lines, higher import costs, and freight (air, land and sea-based). This in turn saw businesses push up their selling prices, which rose for the eighth successive month.