Welcome to Super Thursday when in a double whammy of market-moving events we will first find out how the ECB intends to adjust monetary policy as Europe brings the pandemic under control (we expect no material changes), and we will also get to see whether the startling jump in April’s U.S. inflation numbers persisted or even accelerated in May, perhaps rising by the most on record. Needless to say, markets could move substantially on any surprises and yet, listless futures are trading as if nothing notable will take place and with both the ECB announcement and a sharply higher CPI already priced in, they may be right.

In a session that was anything but exciting, S&P futures traded in yet another narrow range ahead of the ECB and CPI data, which is expected to show that the consumer price index increased 0.5% last month after surging 0.8% in April, the largest gain since June 2009, as speedy vaccinations helped re-open the economy. Oil edged higher while the dollar was unchanged. S&P 500 E-minis were up 2.5  points, or 0.07% at 07:15 a.m. ET. Dow E-minis were up 63 points, or 0.18%, while Nasdaq 100 E-minis were down 32 points, or 0.22%.

Traders were on edge to see if the upcoming U.S. inflation print changes perceptions of when the Federal Reserve might begin talks about tapering asset purchases. While the Fed has reiterated that the spike in inflation would be transitory, investors fear that a bigger-than-expected surge could push the central bank into tightening policy earlier than signaled. As a result, the FOMC meeting next week will be closely watched for any signals. The labor market and inflation are two key factors for the Fed to consider tightening, and while inflation has risen, recent payrolls data was underwhelming. Investors were also watching for weekly jobless claims data, due at 8:30 a.m. ET, although that too was not enough to prompt a notable move in futures.

“A new high since the early 1990’s is in the expectations and Treasury yields have been sliding,” according to Steen Jakobsen, chief investment officer at Saxo Bank. “It is difficult to determine how hot the number would have to be on the upside to jolt this market, while a large downside miss would perhaps be more surprising and elicit a larger market reaction in risk appetite.

There was no lack of excitement in the meme world, where retail favorites were mixed in premarket trading, with some of the stocks that surged amid the frenzy on Wednesday giving up some gains, others extending and new names coming into focus.

• GameStop (GME) shares fell 6.9% in premarket trading, set to pare this year’s astronomical gains, after the company said it planned to offer more shares and disclosed that regulators are investigating trading of its stock.
• Dog food company Original Bark up 3% after Jefferies began coverage of the pet-supplies company with a buy rating, a day after the stock jumped on Reddit posts touting the short interest in the stock.
• Aethlon Medical down 9.2%, following a 388% rise for the stock in the previous session following a Reddit tout
• Software company Exela Technologies up 11% amid Reddit touts; stock was boosted by retail traders back in March
• Private-prison operator Geo Group -8.6%, which we profiled last week as being one of the most shorted names currently, jumped the most ever on Wednesday as it joined the meme stock frenzy

Other notable premarket movers included:

• Enzo Biochem (ENZ) gains 7.8%, extending a jump in postmarket trading on Wednesday after the diagnostics company reported its third-consecutive quarter of positive earnings.
• Boeing rose 1.1% after sources told Reuters United Airlines was in talks to place a multi-billion-dollar order for single-aisle jets potentially split between Boeing and Europe’s Airbus.
• Focus was also on a major infrastructure spending bill, talks over which hit a deadlock in the Senate.

The rangebound trading that has characterized the start of June may be about to gain direction as investors seek insights about fiscal and monetary stimulus from key meetings. In addition to the U.S. inflation report and European Central Bank decision Thursday, leaders of Group of Seven nations are gathering in the British seaside village of St. Ives, Cornwall, many of them face-to-face for the first time since the coronavirus erupted.

In Europe, the Stoxx 600 fell 0.1% in morning trading with technology shares leading gains, while travel and leisure dropped the most among sectors, as investors await thede ECB’s statement. The Eurostoxx 50 traded flat, reversing an early 0.2% drop. The FTSE 100 outperformed, rising as much as 0.4%. Tech, healthcare and telecoms are the best performing sectors; travel and retailers underperform. Here are some of the biggest European movers today:

• Auto Trader shares rise as much as 8.1% in London trading to its highest on record after the company reports full-year results that beat estimates, with analysts noting an upbeat outlook.
• Stroeer gains as much as 7.7%, most since Nov. 2020, after Morgan Stanley raises to overweight with corporate- governance concerns seen as overdone and structural growth opportunities ahead in German outdoor advertising.
• BT shares jumped as much a 4% to their highest level since Jan. 2020 after Altice U.K. took a 12% stake in the telecom operator. Analysts said the surprise move prompts questions around the acquirer’s plans to unlock value.
• Telefonica shares rise as much as 3% after Berenberg says shares are “overly hated” by the market, with drags on the stock abating and consensus too negative on its core Spanish operations. Bank upgrades telecoms group to buy from hold, raising PT to EU4.8 from EU4.2.
• Stellantis shares drop as much as 3.4% in Milan trading and is the worst performer in the Stoxx 600 Automobiles & Parts Index; the carmaker says its Peugeot unit was placed under examination Wednesday by a French court on allegations of consumer fraud in connection with the sale of diesel vehicles from 2009 to 2015.

Earlier in the session, Asian equities rose by the most in more than a week, as Chinese and U.S. commerce ministers agreed to push forward trade and investment ties. Separately, China’s central bank reassured the market over rising prices. Technology stocks contributed most to gains in the MSCI Asia Pacific Index. TSMC gave the biggest boost among individual stocks, ahead of a post-close report that showed its sales increased 20% in May. Taiwan, Indonesia and China posted the largest advances among regional benchmarks. Chinese and American commerce officials agreed to “promote the healthy development of pragmatic cooperation in trade and investment”. That followed an earlier announcement that President Joe Biden would revoke Trump-era bans on the Chinese-owned apps TikTok and WeChat. “News that the U.S. was engaging with China by removing bans on apps and starting actual conversations had a positive impact on Asian equity markets,” Sebastien Galy, a senior macro strategist at Nordea Investment Funds, wrote in a note. “The sense that the confrontation is being de-escalated suggests several weeks of the same process are ahead of us as the war for positioning in the public takes a more positive spin.” Meanwhile, People’s Bank of China Governor Yi Gang said the nation’s consumer price inflation is expected to stay under 2% this year, below the government’s official target of about 3%. Traders were also looking ahead to tonight’s U.S. inflation report, which may provide clues on the Federal Reserve’s monetary policy outlook. While Asian and Chinese stocks are seen as less vulnerable to a negative impact from inflation, they have underperformed U.S. peers this year.

In rates, the 10Y traded in proximity to 1.50% with Treasuries slightly cheaper across the curve after erasing gains over early European session. Yields are higher by ~1bp for maturities beyond the 5-year, the 10-year touched 1.50% after dropping as low as 1.474% during Asia session; Wednesday’s low was 1.4705%, last seen May 7. Asia session saw Treasuries continue to firm, following Wednesday’s bull-flattening rally, helped by a large block buy in 10-year note futures.  In Europe, Bunds underperformed marginally ahead of the ECB policy decision and President Christine Lagarde’s press conference. Japanese bonds rallied, with the benchmark 10-year yield falling to the lowest since late January, also tracking gains in U.S. Treasuries. Focal points during U.S. trading hours are May CPI data and 30-year bond reopening.

In FX, the Bloomberg dollar index faded a small pop higher to trade flat. Spot index was little changed and overall moves in Group-of-10 currencies were muted against the greenback, with the Norwegian krone as the main exception. With a one-day breakeven of less than 60 dollar pips, the euro seems confined within its 1.2050-1.2250 range of late; see ECB Decision Guide. The pound fell for a third day, to its lowest in almost a month; the currency extended losses from Wednesday when a dispute between the U.K. and European Union over trade with Northern Ireland escalated. Norway’s krone was the worst G-10 performer and slipped to its weakest level this week against the greenback after inflation data missed estimates; Sweden’s krona also slipped after an inflation miss.

In commodities, WTI traded little changed near $70, fading Asia’s drop of ~1%. Spot gold is in the red but off worst levels, trading near $1,883/oz. Base metals trade poorly: LME copper lags, dropping as much as 1.9% before stabilizing. Bitcoin surge after a proposal from global regulators that would introduce capital requirements for banks dealing in crypto.

Looking at the day ahead now, and the highlights will be the aforementioned CPI release for May out of the US, as well as the ECB’s latest decision and President Lagarde’s press conference. In addition to those, we’ll get French and Italian industrial production for April, along with the weekly initial jobless claims from the US. Other central bank speakers include BoE Chief Economist Haldane.

Market Snapshot

• S&P 500 futures little changed at 4,220.00
• STOXX Europe 600 down 0.07% to 454.13
• MXAP up 0.3% to 209.59
• MXAPJ up 0.5% to 703.02
• Nikkei up 0.3% to 28,958.56
• Topix little changed at 1,956.73
• Hang Seng Index little changed at 28,738.88
• Shanghai Composite up 0.5% to 3,610.86
• Sensex up 0.6% to 52,236.87
• Australia S&P/ASX 200 up 0.4% to 7,302.50
• Kospi up 0.3% to 3,224.64
• Brent Futures up 0.1% to $72.29/bbl
• Gold spot down 0.29% to $1,883.18
• U.S. Dollar Index up 0.08% to 90.19
• German 10Y yield rose 0.6 bps to -0.238%
• Euro down 0.08% to $1.2170

Top Overnight News from Bloomberg

• Commerce ministers from China and the U.S. agreed to push forward trade and investment links in their first call since the start of the Biden administration
• The U.S. plans to buy 500 million doses of Pfizer Inc.’s coronavirus vaccine to share internationally as President Joe Biden prepares to join other Group of Seven leaders in a campaign to end the pandemic by distributing shots worldwide
• Treasuries traders are turning up their noses at the prospect of a higher-than-expected U.S. inflation number with benchmark yields breaking below their recent trading range amid a shakeout of short positions
• If the Bank of Korea were to start raising interest rates again, the move shouldn’t be seen as a tightening of policy given how low they are now, according to a senior official at the bank
• Paris and Frankfurt have their work cut out if they’re going to seriously challenge the City of London, according to an analysis by think tank New Financial, which found five times more international financial activity in the U.K. than France or Germany
• China’s top banking regulator warned retail investors to avoid financial derivatives, stepping up a bid to curb risks amid rising volatility in global commodities

Quick look at global markets courtesy of Newsquawk

Asian equity markets traded higher as US-China dialogue helped the region shrug off the early cautiousness that had stemmed from the losses on Wall Street, although the gains in Asia were modest heading towards the US CPI data. ASX 200 (+0.5%) was lifted back above the 7,300 level and to within proximity of its record highs led by outperformance in the real estate and tech industries, with domestic banks also set to swoop in for the remaining AUD 64bln in low-cost funds from the RBA during the next 3 weeks before the Term Funding Facility expires. Nikkei 225 (+0.4%) was encouraged following the recent rebound in USD/JPY and with the government said to be mulling major economic stimulus as early as the summer prior to a snap election in September. Hang Seng (U/C) and Shanghai Comp. (+0.5%) were underpinned with the PBoC mulling additional support for small companies and following a call between US and China’s commerce chiefs in which they agreed to push forward with trade and investment ties, while it was also reported that President Biden revoked Trump-era executive orders to ban TikTok and WeChat but instructed the Commerce Department to conduct a broader evaluation on the security risk such foreign apps could pose for Americans and their data. Finally, 10yr JGBs were higher as they followed suit to the rally in global counterparts which resulted in the Japanese 10yr yield printing its lowest since early February, while the enhanced liquidity auction for longer-dated JGB also attracted a higher b/c than previous.

Top Asian News

• Singapore to Relax Covid Rules in Stages as Virus Cases Fall
• Hong Kong Mulls Less Quarantine for Some Vaccinated Travelers
• Evergrande’s Bonds Sink Toward Pandemic Lows as Woes Deepen
• Renewables Giant Jumps in Debut After Biggest 2021 China IPO

European equities see another mixed and directionless morning thus far (Euro Stoxx 50 -0.1%) as the tentative sentiment reverberated from the APAC session in the run-up to the ECB and US CPI/IJC figures. US equity futures are similarly mixed with some mild underperformance in the NQ as the US 10yr cash yield attempts to reclaim 1.50%. Back to Europe, the FTSE 100 (+0.3%) sees mild outperformance, and a weaker Sterling aids the exporter-heavy index. Sectors are also mixed and lack a particular bias or theme. Tech outperforms as the sector catches up to yesterday’s decline in yields. Basic Resources rebounds from yesterday’s underperformance, whilst Travel & Leisure, Autos, and Oil & Gas reside as the laggards. In terms of individual movers, BT (+2.8%) is bolstered on reports that Altice announced that it has acquired a 12.1% stake remarking that the Co. has a significant opportunity to upgrade and extend its full-fiber broadband network – in turn supporting the broader sector as it accounts for around 5.5% of the Stoxx 600 Telcom sector. Meanwhile, Daimler (-0.4%) trimmed some of its earlier losses after rejecting pre-market reports that it is looking to lower investments in autonomous driving.

Top European News

• London May Still Dominate European Finance, Report Shows
• Ex-Citi Banker Proctor to Join U.K. Billionaire’s Family Office
• Amazon Gets U.K. Antitrust Scrutiny On Data Usage, FT Says
• The World’s Electric-Car Capital Is Having Nasty Fights Over Oil

In FX, a double whammy for the Norwegian Krona as oil prices pull back a bit further from their heady midweek peaks and core CPI comes in well below consensus to compound less pronounced misses on the headline front, with Eur/Nok hovering near the top of a 10.1420-10.0620 range in response. Moreover, Nok/Sek is back under parity even though Swedish inflation metrics also fell shy of expectations, albeit not to the same extent and as Eur/Sek remains anchored around 10.0700.

• USD, EUR – The Dollar has regained some composure after its yield-related downturn on Wednesday as attention switches from US supply to CPI that is due for release alongside the latest jobless claims updates. Indeed, the DXY has reclaimed 90.000+ status and seems to be forming a base within a 90.128-281 range, though assisted by weakness several index components and facing external risk via the ECB and any major reaction in the Euro as the largest currency in the basket by individual weighting. On that very note, break-even pricing in options has risen ahead of the data and Central Bank event in similar vein for NFP last Friday to circa 53 pips, and this could confirm a break in Eur/Usd outside of the current 1.2181-53 range. However, expiries may also play a role today given a hefty number rolling off at the NY cut and spanning 1.2100 to 1.2210 – see 7.20BST post on the Headline Feed for details and for a preview of the ECB see the Research Suite.
• GBP – Another G10 laggard, as Cable and Eur/Gbp continue to retrace from post-hawkish BoE Haldane highs and lows respectively. Market contacts noted stops on a break of 1.4080 in the former and presumably there were sell orders triggered prior to that when 1.4100 gave way, but for now more suspected to be sitting at or sub-1.4170 are unscathed. Meanwhile, the cross touched 0.8641 before fading and there is technical resistance above in the form of the 100 DMA that stands at 0.8651 today, while support could come from decent option expiry interest down at the 0.8600 strike (0.8600) barring any breakthrough on the NI Protocol stalemate between the UK and EU.
• JPY, AUD, NZD, CAD, CHF – All narrowly mixed vs the Greenback, with the Yen hovering around 109.50 and also enshrined in layered option expiries beyond the current 109.68-45 band, from 108.95 all the way up to 110.00 – see Headline Feed at 7.20BST. Elsewhere, the Aussie hovering below 0.7750, Kiwi under 0.7200 and Loonie beneath 1.2100 before a speech from BoC’s Lane hot on the heels of yesterday’s holding policy convene. Meanwhile, Aud/Cad could be contained by option expiries at 0.9380 and 0.9450 in 1.2 bn and Nzd/Usd has NZ manufacturing PMI to look forward to after a slowdown in card spending, and the Franc is straddling 0.8960 in the run up to next week’s quarterly SNB policy review.

In commodities, WTI and Brent front-month futures have nursed the losses seen during APAC hours, but overall sentiment remains indecisive heading into this week’s main events – which are likely to dictate much of price action today, ceteris paribus. Crude-specific news flow has remained light since the bearish DoEs yesterday – whilst the OPEC MOMR is poised for release today but will likely take a back seat given the more macro events. Turning to geopolitics, little news has come out in terms of JCPOA talks which are due to resume on Saturday, however, reports reaffirmed that the US and EU are set to take a united stance against Russia and China as the G7 gets underway. WTI Jul resides around the USD 70/bbl mark near session highs (vs low 69.29/bbl) while Brent Aug hovers around USD 72.25/bbl (vs low 71.50/bbl). Elsewhere, spot gold and silver drifted lower in early hours as the USD and yields clawed back some lost ground. Copper dipped on worries regarding Chinese price curbs in a continuation of the move seen after yesterday’s Chinese PPI release. Meanwhile, Dalian iron ore futures saw mild gains overnight despite China’s commodity crackdown with some traders citing supply woes.

US Event Calendar

• 8:30am: May CPI MoM, est. 0.5%, prior 0.8%
• 8:30am: May CPI Ex Food and Energy MoM, est. 0.5%, prior 0.9%
• 8:30am: May CPI YoY, est. 4.7%, prior 4.2%
• 8:30am: May CPI Ex Food and Energy YoY, est. 3.5%, prior 3.0%
• 8:30am: June Initial Jobless Claims, est. 370,000, prior 385,000; Continuing Claims, est. 3.65m, prior 3.77m
• 12pm: 1Q US Household Change in Net Wor, prior $6.93t
• 2pm: May Monthly Budget Statement, est. -$250b, prior -$225.6b

DB’s Jim Reid concludes the overnight wrap

Welcome to the day with the most eagerly anticipated data point in recent memory. No not French industrial production this morning but the blockbuster US CPI print for May released at 13:30 London time. I suspect that neither side will admit defeat if the number goes against them as it’s likely too early to see a definitive trend. There will still be large anomalies all over the place. Nevertheless, so far I would say that the inflationists have overwhelmingly won round one of this bout but that the Fed put up a confident defence in round 2 to draw level. Round 3 starts today.

To recap, April’s CPI release saw a rise to +4.2% year-on-year (+3.6% expected at the time), which marked the fastest inflation we’ve seen in the US this side of the financial crisis. Even core inflation was up to +3.0% in April (+2.3% expected).

Here at DB Research the debate has also been lively on this question, and as you hopefully know by now I joined our Group Chief Economist David Folkerts-Landau and Peter Hooper in publishing a note earlier this week on the potential for higher inflation and a return of boom/bust cycles over the next few years. Nevertheless, our US economists are of the view (shared by the Fed’s leadership) that this current episode is likely to prove temporary thanks to one-off factors such as those associated with the economic reopening and base effects. Indeed, they write that the strength in core CPI last month was largely due to categories at the epicentre of the Covid pandemic, where there were likely severe supply/demand imbalances related to reopening or stimulus-boosted demand. They see a similar theme in the May core CPI release, where they’re forecasting a +0.5% month-on-month increase (vs. +0.9% previously), while their expectation for the headline CPI is similarly for a +0.5% monthly increase (vs. +0.8% previously).

A striking feature of the last month is that investors have become progressively more relaxed on inflation risks since that outsized release. Immediately afterwards, they moved to upgrade the expected pace of rate hikes from the Fed, but over the following weeks that move has reversed entirely, with expectations now pointing to a marginally more gradual liftoff in rates than was expected prior to that report. The Fed have done a very good job of being unified around their transitory message and the market buys it for now. That’s also been supported by the fact that the last couple of jobs reports were weaker than the consensus expectations, even as data on job openings point to a record number of available positions and surveys have further suggested firms are struggling with labour shortages.

That easing of inflation concerns was once again the theme in markets yesterday, as yields on 10yr Treasuries fell -4.2bps to 1.491%. That’s the first time they’ve closed beneath 1.50% in over 3 months, and inflation breakevens were also down -4.4bps as they fell for a 6th successive session to their lowest point since April 8. US equities failed to break to new highs once more, with the S&P 500 (-0.18%) falling back marginally and having now traded in a tight 31pt (0.7%) range since the US jobs print last Friday. Cyclicals were weaker in particular as the reopening trade continues to show signs of fatigue, with transportation (-1.54%), banks (-1.43%) and consumer durables (-1.44%) the worst performing industry groups in the S&P while defensive/bond proxies like utility companies (+0.85%) and higher growth industries like biotech (+1.73%) were the only notable outperformers.

Overnight we’ve got a mixed bag of news on US-China relations with the FT reporting that Joe Biden will use the G7 summit to encourage US allies to take a harder stance towards China. On the other hand however, Bloomberg reported that commerce ministers from China and the US have “agreed to promote the healthy development of pragmatic cooperation in trade and investment,” in a phone call overnight. This marks the third call between the two countries in the past three weeks, indicating that communication between the two countries on trade and bilateral issues is picking up pace. Separately, the Biden administration revoked the bans on TikTok and WeChat even as President Biden ordered a review of software apps from foreign adversaries and action against those that pose a security risk.

Those more positive headlines on the US-China relationship have supported sentiment this morning in Asia with the Nikkei (+0.30%), Hang Seng (+0.31%), Shanghai Comp (+0.82%) and Kospi (+0.46%) all posting gains. Outside of Asia, yields on 10yr US Treasuries have continued with their downward march and are down a further -1.4bps this morning to 1.478% ahead of the CPI release. Meanwhile, futures on the S&P 500 (+0.14%) and those on the Stoxx 50 (+0.10%) have both moved higher as well. In terms of overnight data releases Japan’s May PPI came in at +4.9% yoy (vs. +4.5% yoy expected), the highest reading since 2008, as was the case for China’s PPI yesterday, which came in at +9% yoy. Speaking of Chinese inflation, PBoC Governor Yi Gang said overnight that he expects Chinese CPI to be below 2% yoy this year, beneath the government target of around 3% with an ageing society acting as a dampener on it.

As well as that all-important CPI reading from the US, the other main highlight today will be the latest ECB decision, which is coming out 45 minutes beforehand at 12:45 London time. In their preview (link here),our European economists write that they expect the ECB to maintain the faster pace of PEPP purchases for the time being, in line with the dovish tilt in the Governing Council’s latest commentary, though it’s a close call. Afterwards we’ll hear the latest from ECB President Lagarde in her press conference, and also get the latest forecasts for growth and inflation too. On those, our economists expect that the HICP inflation forecasts will be lifted to +1.2% in 2022 and +1.4% in 2023, although this would still be well below the ECB’s inflation aim.

Ahead of the ECB, European equities were slightly more buoyant than their US counterparts, with the STOXX 600 seeing a marginal +0.09% increase to yet another record high. However, the moves lower for sovereign bond yields in the US were echoed across the continent, with those on 10yr bunds (-2.0bps), OATs (-2.0bps) and BTPs (-3.2bps) all moving lower.

In terms of the latest on the pandemic, there was further concern in the UK about the Delta variant that originated in India, as the number of reported cases yesterday was 7,540, the highest since February 27. Nor is that just a blip either, as the number of cases over the last week is up by nearly two-thirds compared to the previous one. It comes as speculation has been rising in the press that there could be a delay to the easing of restrictions on June 21, potentially by two or four weeks, and we should get confirmation on Monday as to what’s actually going to happen then. In more positive news however, the ONS estimated that 80% of English adults would have tested positive for Covid-19 antibodies in the week beginning 3 weeks ago, which is the highest yet. Elsewhere, South Africa announced a positivity rate of 16.5% and daily new cases of over 8,800 as the National Institute of Communicable Diseases said the country is at the start of a third wave with commercial area Gauteng seen as the most affected. In the US, President Biden is expected to announce plans to buy 500mn vials of Pfizer doses to share with WHO-backed Covax – the program distributing vaccines to low income countries. This is seen as a way to bridge the massive divide in vaccine access between developed and emerging markets. The purchases will be split between this year and next, and a formal announcement is expected later today ahead of tomorrow’s G7 meetings. Separately, the G7 group is also likely to pledge to deliver at least 1 billion extra doses of vaccines over the next year to help cover 80% of the world’s adult population. Meanwhile, in Asia, Hong Kong is planning to ease quarantine periods for some fully-vaccinated inbound passengers from countries not classified as “high risk” to 7 days.

To the day ahead now, and the highlights will be the aforementioned CPI release for May out of the US, as well as the ECB’s latest decision and President Lagarde’s press conference. In addition to those, we’ll get French and Italian industrial production for April, along with the weekly initial jobless claims from the US. Other central bank speakers include BoE Chief Economist Haldane.