The two most important events of the week, i.e. the ECB decision and the publication of the US CPI inflation, are behind us. However, they did not introduce significant volatility to the markets.
Core inflation in the United States approached the level of nearly 4 percent, reaching the highest value since 1992, equal to 3.8 percent. On the other hand, CPI inflation rose to 5 percent in May and was the highest since 2008. However, due to the base effect, inflation in the USA may stabilize in the coming months, and the data for May may have already brought the peak of this indicator readings overseas.
This may also be indicated by the US bond market, where the yield on 10-year treasury bonds was on Friday at its lowest level in 3 months, amounting to 1.43%, despite the mentioned recent data pointing to a dynamic increase in prices. This week's Treasury bond auctions showed strong demand for 10-year and 3-year bonds and mixed demand for 30-year bonds. Investors have apparently concluded that inflationary pressures are transitory, according to Fed comments, while the labor market recovery is far from complete. The preliminary number of new claims for unemployment benefits in the US came in higher than expected at 376,000. Attention now turns to next week's Fed meeting for clues on the timing of tapering, i.e. scaling back the asset purchase program.
Optimistic ECB forecasts
In Europe, indexes traded near record highs on Friday after fresh economic data showed German wholesale prices rose in May by the most since July 2008 and British GDP grew at a solid pace in April, pointing to a faster economic recovery with the easing of epidemic-related restrictions.
The European Central Bank reaffirmed its highly accommodative monetary policy stance on Thursday and revised upward its growth and inflation forecasts for 2021 and 2022.
Does the situation in India no longer weigh on the oil market?
In the commodity market, which is responsible, among other things, for such a significant increase in inflation, WTI crude oil futures continue to oscillate at $70 per barrel, holding at the highest levels since 2018. This may have to do with the prospects for strong oil demand amid a post-pandemic economic recovery in the northern hemisphere.
OPEC said in its June report that oil demand will increase by 5.95 million barrels per day this year, unchanged from its May forecast. Investors ignored a rise in U.S. gasoline inventories last week that pointed to weaker-than-expected fuel demand in early summer, as well as a drop in Indian fuel demand to its lowest level since August 2020.
Daniel Kostecki, Chief Analyst Conotoxia Ltd.
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