US inflation in focus

The key event today for markets will be the US CPI release for June, which will give insights whether inflationary pressures start to abate. Consensus is looking for continued high CPI inflation of 4.9%, but the monthly increase in core CPI is expected to slow to 0.4% m/m from 0.7% m/m in May. Overall, we expect inflation pressures in the US to remain elevated and settle at a higher level than before the pandemic, but not spin out of control, see Research US - Higher inflation but not spinning out of control due to still well-behaved expectations, 14 June.

Trade relations: In order not to endanger progress on a minimum global corporate tax deal, the EU decided to postpone the release of its controversial digital levy that has met stiff opposition from Washington. It is another sign that transatlantic relations are on the mend after the EU and US already last month struck an agreement on a long-running Airbus-Boeing subsidy dispute. Separately, the Biden administration is also mulling proposals for a digital trade agreement covering Indo-Pacific economies as a way to check China's influence in the region.

Equities: Asian shares are up this morning, after S&P 500 and tech-heavy Nasdaq 100 closed at new highs yesterday. US banks will kick off the Q2 earnings season today and expectations for solid reports are underpinning the stock rally. Big dividends from European banks may be off the table after ECB official Margarita Delgado said the central bank could take steps to stop excessive pay-outs.

FI: European bond yields continue to decline on the back of the statements from various ECB officials and despite the significant supply this week.

FX: Monday proved a quiet start to the week for FX majors. G10 bilateral currency moves were kept within +/- 1 standard deviation for the session leaving EUR/USD close to 1.1850, EUR/NOK around 10.30, EUR/SEK just shy of 10.20, and EUR/GBP close to 0.8550.

Credit: Credit indices were aligned with relatively stable equity markets on Monday. iTraxx Xover was roughly flat (closed at 232.7bp) and iTraxx Main was also flat (closed at 46.6bp). HY cash bonds tightened slightly (-1.4bp) IG cash bonds were also marginally tighter (-0.8bp).