Investors' focus will be on Europe

In focus today

In the euro area, the EU commission will reveal against which countries it recommends opening an excessive deficit procedure (EDF) due to breaches of the EU fiscal rules. The Commission will most likely recommend opening an EDP against France, which is to be expected due to France's public finances.

In the UK, inflation figures for May are released, with headline inflation expected to edge down to 2% y/y. Overall, we do not expect the inflation print to affect the immediate policy decision on tomorrow's monetary policy meeting, but it will prove important in terms of guidance for the future rate path.

The Swedish LFS labour market data is scheduled for release at 08:00 CET. In April the unemployment rate stood at 8.5%. However, it must be noted that these data are volatile on a monthly basis and should be taken with a pinch of salt. Moreover, NIER presents its new macroeconomic forecasts at 09:15 CET.

Economic and market news

What happened overnight

In Japan, the minutes from the BoJ's April monetary policy meeting was released. Some officials noted the weak yen's contribution to inflation, emphasizing that the BoJ must respond with monetary policy if exchange rate movements alter its view on the outlook and risks. The market reaction was muted, with USD/JPY trading somewhat higher.

What happened yesterday

In the US, May's retail sales were weaker than expected at 0.1% m/m SA (cons: 0.3%). The weak print could partly stem from the volatile seasonal adjustment factor, which was more negative in May compared to recent years. The core measure of retail sales, namely control group sales, was as expected at 0.4% m/m SA, but April figures were revised lower. While the negative print aligns with weaker data seen lately, we believe this does not signal a sharp weakening in US growth prospects.

Several Fed speakers shared their views after last week's FOMC meeting. NY Fed President Williams (hawk and voting member) mentioned that interest rates will come lower over the next couple of years as inflation approaches the 2% target, but refrained from hinting when the Fed could initiate its cutting cycle. Williams emphasized that policy path depends on incoming data.

St. Louis President Musalem (hawk and non-voting member) stated that the Fed needs sustained lower inflation, moderating demand, and expanding supply before considering rate cuts, which could take several months or even quarters. In a similar vein, Richmond Fed's Barkin (hawk and voting member) stressed the necessity of inflation moving sustainably down to 2% before contemplating policy rate changes, while Boston Fed President Collins (hawk and non-voting member) cautioned that the Fed must remain patient when considering its monetary policy.

Governor Kugler (dove and voting member) suggested that it might be appropriate to cut rates later this year if economic conditions, including smaller price markups, stable inflation expectations, softening demand and more balanced labour markets, continue to move in the right direction.

In Germany, the ZEW index for June revealed that investor confidence rose less than anticipated, with the economic sentiment index increasing to 47.5 (cons: 49.8). The assessment of the current economic situation worsened slightly, recording -73.8 (cons:-65.0).

In Hungary, the central bank cut its policy rate to 7.0% - fully in line with the 25bp we and consensus had expected.

In the equity space, Nvidia has surpassed Microsoft to become the world's most valuable company. The milestone is driven by the imperative role that its chips play in the competitive landscape of artificial intelligence. The company's market value is now more than USD 3tn.

Market movements

Equities: Global equities were higher yesterday, with many headlines around the string of new all-time highs in the US. However, more interestingly, Europe was positive and outperformed the US. Secondly, this was not just a tech rally despite Nvidia becoming the most valuable company. We saw more broad-based gains with banks, energy, and insurance outperforming while tech marginally underperformed. In the US yesterday, the Dow was up 0.2%, the S&P 500 was up 0.3%, the Nasdaq was up 0.03%, and the Russell 2000 was up 0.16%. Asian markets are mostly higher this morning, lifted by Chinese stocks. Futures in Europe and the US are around yesterday's closing levels.

FI: Fading political risks from France led to the intra-euro area spread tightening continuing yesterday. This week, the French-German yield spread has tightening 5bp with a 2bp performance yesterday relative to German bunds. It still trades 25bp wider than ahead of the EU election/election announcement. The IG Metal announcement on asking 7% in pay rise over 12m in 2025 did not seem to catch market attention, neither did the final inflation release that pointed to rising inflation dynamics in most underlying measures. ECB's Knot cautioned yesterday that inflation may start rising again,'‘for example due to continued strong wage growth".

FX: The oil price has risen again to around USD 84-85/bbl which has also contributed to lifting the Norwegian currency in recent sessions. Weaker than expected US retail sales provided support for EUR/USD during yesterdday's session although political risks from France remain in focus. CHF continues to be among the top performs ahead of the SNB meeting tomorrow. For GBP FX, inflation figures released this morning are in focus ahead of the BoE monetary policy meeting tomorrow.