Inflation releases to take centre stage as central bank meetings loom

In focus today

• Focus today will be on inflation releases from the US, Norway and Denmark. These figures will set the tone ahead of the ECB monetary policy meeting tomorrow, as well as the Norges Bank and Fed decisions next week.
• In the US, we forecast headline inflation at 0.6% m/m SA (4.3% y/y), slightly above consensus, and core at 0.3% m/m SA (2.9% y/y), in line with consensus. After the recent repricing higher in Treasury yields on the back of strong labour market data, an upside surprise could further strengthen the case for a Fed tightening bias.
• In Norway, we expect core inflation to rise moderately to 3.3% y/y in May (April: 3.2%, cons.: 3.2%), in line with the Norges Bank's March MPR-estimate. If our forecast is correct, it should be completely neutral for the market expectations. In light of Norges Bank's determination to bring down inflation and inflation expectations, we must assume that the threshold for reacting to upside surprises is much lower than on the downside.
• In Denmark, we expect an increase in May inflation figures to 1.9% y/y from 1.4% y/y in April, driven mainly by higher electricity prices and normalisation of summer house inflation. We will watch food prices closely after what appears to have been an extensive retail price war in May, and we have pencilled in flat food prices in a month that usually sees increases.
• In Sweden, several interesting data points are released at 08:00 CET today. The April GDP indicator follows a strong March (+1.9% m/m), after weak January and February prints (-0.4% and -0.6% m/m). Household consumption is particularly important given key role households are expected to play in the Swedish recovery. Based on the historical relationship with retail sales, household consumption is expected to have increased in April. We also receive industrial order data but, given recent volatility, we place greater weight on the PVI production data also published today.
• In line with consensus and market pricing, we expect Bank of Canada to leave policy rates unchanged at the interim monetary policy decision today. We expect a relatively neutral, wait-and-see stance amid the central bank facing continued uncertainty with regard to US-trade relations and the war in Iran at a point in time when domestic releases have painted a mildly disinflationary picture for the domestic economy.

Economic and market news

What happened overnight

In China, PPI increased 3.9% y/y in May (cons.: 3.8% y/y, April: 2.8%), marking a third consecutive monthly increase to its highest level since July 2022. The increase in PPI underline that China is becoming an inflationary force after three years of exporting deflation. CPI came in at 1.2% y/y (cons.: 1.3%, April: 1.2%), driven by rising gasoline and services prices. Food prices continued to drag, falling 1.7% y/y.

In the Israel-Iran war, Iran's Revolutionary Guards struck a US base in Jordan and 21 other Gulf targets in retaliation for US attacks near the Strait of Hormuz, which were themselves triggered by the alleged downing of a US helicopter. The escalation raises serious doubts over a peace deal and keep energy markets on edge.

What happened yesterday

In oil space, Brent crude briefly went below USD 90/bbl yesterday as US energy secretary Wright signalled that traffic through the strait of Hormuz was increasing. Oil prices later retraced to about USD 92/bbl and remain around this level this morning.

In Denmark, April foreign trade data showed total exports of goods and services rising 0.4% m/m SA (March: 8.6%), driven primarily by higher services exports. Imports fell slightly by 0.4% m/m SA (March: 4.0%), reflecting a drop in goods imports. Additionally, industrial production declined 1.1% in May, a sharp reversal from the revised 8.3% increase in April. Industrial production remains one of the more reliable indicators for GDP growth in Denmark.

In the US, the NFIB small business optimism index for May slipped to 95.3 (April: 95.9), the lowest level in more than a year. Firms reported rising uncertainty, with job openings and hiring plans falling notably to their lowest levels in six years.

Equities: Major equity indices were dragged lower yesterday, led by tech, which have had a rough spell since Friday down about 7%, despite the slight rebound on Monday. Global equities finished down 0.2%, having been almost 1.8% lower earlier in the day, in a significant roller-coaster session. Tech was the primary source of weakness, joined only by the energy sector, which was weighed down by lower oil prices. Asian markets traded lower overnight, with South Korea among the weakest performers. US equity futures are also pointing lower this morning.

FI and FX: Risk sentiment takes a hit as US and Iran conducts tit-for-tat escalation over the last 24 hours. Despite this, EUR/USD sits steady in the mid-1.15's and Brent crude edges closer to USD90/bbl. This morning brings interesting data releases out of both Norway and Sweden, with potential implications for the Scandi currencies. But the hottest release of the day is the US CPI, where we expect a slightly above-consensus print. Together with potential further escalation in the Middle East, this will likely set the today.