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Stronger In a Range


Weaker In A Range


Ending The Week On A Soft Note


Bearish Risk Growing


Stronger, But Still Vulnerable


SP500 PE Ratio vs. CPI Inflation

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  • US CPI seen rising to 4.7% Y/Y, the highest since 2008
  • ECB rate decision due, no policy changes expected but focus will be on PEPP talk
  • NOK underperforming as lower CPI release calls Sept hike into question

US TSYS SUMMARY: ​CPI The Focal Point Of A Busy Morning​

Tsys have faded nascent gains made in Asia-Pac trade and are slightly lower on the session, but remain well within Wednesday's ranges as we gear up for the ECB decision, 30-Yr supply, and of course, the latest read on inflation.

  • Long end underperforming, with supply ahead. The 2-Yr yield is up 0.2bps at 0.1568%, 5-Yr is up 1bps at 0.7596%, 10-Yr is up 0.8bps at 1.4992%, and 30-Yr is up 1.1bps at 2.1795%.
  • Sep 10-Yr futures (TY) down 3.5/32 at 132-21 (L: 132-20 / H: 132-27.0).
  • The ECB decision at 0745ET and press conference at 0830ET in focus early.
  • But May CPI the clear focal point of the session at 0830ET, following April's huge upside beat. Price pressures seen decelerating M/M vs April but accelerating Y/Y on base effects.
  • We also get jobless claims at 0830ET. Rounding out data are Q1 household net worth (1700ET) and monthly budget statement (1900ET).
  • Supply is highlighted by $24B 30Y Bond re-opening at 1300ET, with $80B combined in 4-/8-wk auctions at 1130ET. NY Fed buys ~$6.025B of 4.5-7Y Tsys.

EGB/GILT SUMMARY: Trading Weaker Ahead of ECB

EGBs have traded weaker and equities are broadly lower ahead of today's ECB meeting.

  • The June ECB meeting will be closely watched - particularly any adjustments to the PEPP programme.There will be a fresh set of staff macroeconomic projections, which are expected to be revised slightly higher in line with the improvement to the economic outlook since March. The MNI ECB Preview is available online and by email.
  • Bunds opened stronger but quickly began selling off through the morning with the long end slightly underperforming. The curve is 1bp steeper.
  • OATs have underperformed bunds on the day with cash yields broadly 1-2bp higher.
  • It is a similar story for BTPs where yields are also 1-2bp higher with the curve close to flat overall.
  • Gilts opened stronger before selling off back towards yesterday's closing levels.
  • Supply this morning came from Italy (BTPs, EUR7.75bn) and Ireland (IGBs, EUR1.25bn).

EUROPE ISSUANCE UPDATE: Italian, Irish Auctions

Ireland sells:
- E600mln 1.10% May-29 IGB, Avg yield -0.094%, (Previous 0.043%), Bid-to-cover 2.2x (Prev. 2.3x
- E325mln 1.70% May-37 IGB, Avg yield 0.477%, (Previous 1.414%), Bid-to-cover 2.06x (Prev. 2.8x)
- E325mln 2.00% Feb-45 IGB, Avg yield 0.717%, Bid-to-cover 1.67x

Italy sells:
- E3.5bln 0% Apr-24 BTP, Avg yield -0.220%, (Prev -0.060%), Bid-to-cover 1.35x (Prev 1.41x)
- E2.5bln 0.50% Jul-28 BTP, Avg yield -0.460%, (Prev 0.690%), Bid-to-cover 1.48x (Prev 1.35x)
- E1.75bln 1.80% Mar-41 BTP Avg yield 1.550% (Prev. 1.140%), Bid-to-cover 1.41x (Prev 1.27x)


2RH2 100.25/100.37/100.62 broken call fly, bought for 2.25 in 29.6k

2LZ1 99.50/99.62/99.75c ladder, sold at 1.25 in 4.5k

FOREX: NOK Drops as CPI Slips One Week Ahead of Rate Projections

  • Major G10 FX are largely rangebound early Thursday, with markets sitting on the sidelines ahead of tier 1 data releases and the ECB decision later today.
  • EUR/USD has inched further off the Wednesday high, but remains above 1.2150 and nearby support. The 50-day EMA undercuts at 1.2108 and marks the first major downside level ahead of the Jun 4 low at 1.2104.
  • The Norwegian policy mix became slightly more complicated this morning on the release of a set of lower than expected inflation numbers. This comes ahead of next week's Norges Bank decision, at which the bank are expected to provide their thoughts on whether a rate hike could occur as soon as September. EUR/NOK has rallied sharply following the release, with the cross narrowing in on the Friday high of 10.1784.
  • Focus turns to the ECB rate decision. While no major policy changes are expected, markets will likely pay very close attention to any language surrounding the use of the bank's PEPP asset purchase programme,. Traders look to gauge just how and when the Bank will wean markets off extraordinary monetary policy.

FX OPTIONS: Expiries for Jun10 NY cut 1000ET (Source DTCC)

  • EUR/USD: $1.2080-1.2100(E1.9bln-EUR puts), $1.2140(E597mln-EUR puts), $1.2175-90(E2.2bln), $1.2200-10(E950mln-EUR puts), $1.2280-00(E1.1bln)
  • USD/JPY: Y108.50-60($921mln), Y108.95-10($1.5bln-USD puts), Y109.55-65($2.5bln-USD puts), Y109.70-75($775mln), Y110.00($981mln-USD puts)
  • EUR/GBP: Gbp0.8600-05(E1.4bln-EUR puts)
  • AUD/USD: $0.7750(A$537mln-AUD puts)
  • EUR/AUD: A$1.5630(E937mln-EUR puts)
  • USD/MXN: Mxn19.60($545mln-USD puts)

Price Signal Summary - EURUSD Attention Is On The 50-Day EMA

  • In the equity space, S&P E-minis (U1) are unchanged and still consolidating close to the all-time high of 4228.25 May 10 high. This remains the key resistance and the trigger that will confirm a resumption of the uptrend. Initial support is at 4165.25, Jun 3 low.
  • In the FX space, EURUSD failed to hold onto yesterday's gains and still appears vulnerable. The focus is on 1.2108, the 50-day EMA and 1.2104,Jun 4 low. GBPUSD is softer and remains below 1.4248, Jun 1 high. A deeper pullback would expose 1.4006, May 13 low. Note the 50-day EMA intersects at 1.4028 and also represents a key support level. Recent USDJPY weakness resulted in a probe of support at 109.33, Jun 1 low. A clear break lower would threaten the recent uptrend and expose 108.56, May 25 low. 110.33, the Jun 4 high is the bull trigger.
  • On the commodity front, Gold key short-term directional triggers are unchanged at; $1916.6, the Jun 1 and bull trigger and $1856.2, the Jun 4 low. Trend conditions in oil remain bullish and price has traded higher this week. Recent Brent (Q1) gains have opened $73.00 next, a round number resistance. WTI (N1) similarly has cleared resistance to hit new cycle highs, breaching the $70.00 psychological level in the process. The focus is on $70.92, 2.764 projection of Mar 23 - 30 - Apr 5 price swing
  • Within FI, Bunds (U1) have this week topped the 50-day EMA at 172.00 and trend structures appear bullish. The focus is on 173.32 next, 76.4% of the Mar 25 - May 19 sell-off. Gilts (U1) traded higher yesterday and in the process cleared the key resistance zone at 127.74/82, marking the highs between Apr 20 and May 26. This opens 128.50, 1.00 projection of the May 13 - 26 - Jun 3 price swing.

EQUITIES: Stocks Mixed, With Directional Parameters Intact

  • Continental stock markets are mixed ahead of the NY crossover, with the UK's FTSE-100 is the outperformer, adding around 0.3%, while Italy's FTSE-MIB lags, lower by 0.4% at pixel time.
  • Europe's consumer discretionary and industrials sectors are the laggards, while communication services and financials are the continent's best performers. Individual notable gainers include BT Group, Credit Agricole and SocGen, while easyJet and Ryanair trade poorly.
  • In futures space, the Dow Jones is leading, indicating a positive open on Wall Street, while the tech-led NASDAQ is in minor negative territory.

COMMODITIES: Oil Markets Stabilise, Metals Watching CPI

  • Following the drift in oil prices into the Wednesday close, markets have stabilised somewhat Thursday, with both WTI and Brent benchmarks in minor positive territory. Focus turns to the OPEC monthly oil market report, due to cross at 1315BST/0815ET.
  • Precious metals are more mixed, with gold and silver lower by around 0.4%. Markets watch for the release of US CPI later today, with the Y/Y rate seen rising to the highest rate since 2008.
  • Gold directional parameters are unchanged, with Gold key short-term triggers at; $1916.6, the Jun 1 and bull trigger and $1856.2, the Jun 4 low.