European bourses are drifting, hovering around all-time highs in quiet trade after a subdued session on Wall Street. Few investors are willing to take on big positions ahead of tomorrow’s double risk whammy – the ECB rate decision and US CPI inflation data.

It was a mixed session on Wall Street, with the Nasdaq closing 0.3% higher, while the Dow closed -0.09% lower. Adding some level of confusion, while inflation pressures appear to be building, bond yields are moving lower, suggesting the opposite. Yields on the benchmark 10-year treasury are extending yesterday’s losses and trade at a seven-month low.

There are plenty of signs to suggest that inflationary pressures are building. Friday’s NFP revealed a weaker than expected headline number, but average wages rose by more than forecast. Yesterday’s JOLTs job openings revealed a record 9.3 million openings, up one million over the month. With eight million fewer people in the workforce than pre-pandemic, wages may well need to be lifted to encourage them to return.

In China, CPI inflation rose 1.3% YoY in May, up from 0.9% in April, slightly short of the 1.6% forecast. However, PPI wholesale inflation shot up to 9% YoY in May, up from 6.8% in April and a 13-year high. The concern here is that rising factory costs could trickle into the rest of the world.

The FTSE is underperforming its European peers. Miners are trading under pressure, tracing base metal prices lower. Any tightening of policy in China could dampen demand for these commodities.

Elsewhere in Europe, aviation stocks are outperforming well as the US CDC announced it will ease travel recommendations on 110 countries. The US looks set to restart international travel. Hopefully, Europe won’t be too far behind.

FX – USD eases, GBP jumps, BoC in focus

The US dollar is edging lower, paring some of the gains from the previous session. Trading remains subdued as market participants are in a wait-and-see mood ahead of tomorrow’s CPI data and the ECB announcement.

The dollar has been trending lower across much of the year. However, it has found a floor around 90.00 and rising concerns over inflationary pressures building and expectations of an earlier move by the Fed.

The Canadian dollar is outperforming its major peers thanks to surging oil prices, which support the commodity-linked loonie, and as investors look ahead to the BoC rate decision later today. The BoC has adopted a more hawkish stance in its April meeting as the first major central bank to cut back on its pandemic stimulus programme.

USD/CAD has been in a consolidation phase for the past month. Any further hawkish signals could see the pair break below the 1.20 psychological level.

The pound is putting in a solid performance, bouncing towards 1.42 on hawkish commentary from the BoE’s chief economist Andy Haldane. Haldane sees the UK economy firing on all cylinders and the time for tapering support approaching. The pound’s jump higher proves there is nothing like central bank hawkish commentary to lift a currency.


For a look at all of today’s economic events, please check out our economic calendar at www.marketpulse.com/economic-events/