EUROPEAN INFLATION: Airfares and Package Holidays Weigh On French May Services
French headline HICP confirmed flash estimates on a rounded basis at 0.59% Y/Y (vs 0.62% flash, 0.92% prior), with CPI also confirmed at 0.66% Y/Y (vs 0.67% flash, 0.82% prior). INSEE’s seasonally adjusted CPI series highlights waning 3m/3m momentum in France (-0.66% in May vs -0.65% prior), which is coming alongside weak developments in the labour market outlook.
- Services CPI inflation was confirmed at 2.1% Y/Y (vs 2.4% prior).
- Looking at a detailed breakdown of HICP components, package holidays (4.61% Y/Y vs 8.33% prior) and airfares (0.68% Y/Y vs 6.20% prior) were key drivers of services disinflation in May. This is consistent with unwinding Easter effects from April.
- There were mixed developments across other services components: Rents eased a touch to 2.23% Y/Y (vs 2.37% prior), medical services pulled back to 2.18% Y/Y (vs 6.56% prior) and communications was -13.82% Y/Y (vs -10.76% prior). On the other hand, accommodation services rose to 1.59% Y/Y (vs 1.31% prior) and insurance accelerated to 10.17% Y/Y (vs 8.90% prior).
- Core goods price CPI development was confirmed to be soft at -0.2% Y/Y (vs -0.2% prior).
- Both clothing/footwear and furniture/household equipment HICP inflation eased in May.
- The porportion of HICP sub-components with annual inflation rates below 1% Y/Y ticked up to 57% (vs 56% prior), in line with January/February’s levels.
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GILTS: Support In Futures Holds
Gilts trade on the defensive over the last hour or so, perhaps in part owing setup for this morning’s 10-Year supply.
- Initial support in futures (91.43) holds on the first test.
- A break would deepen the bearish threat and expose the 76.4% retracement of the April 9 -May 2 rally (90.92).
- Yields now little changed on the day.
FOREX: FX OPTION EXPIRY
Of note:
AUDUSD 1.86bn at 0.6480/0.6500 (could act as magnet).
EURUSD 1.4bn at 1.1175 (a little far).
USDJPY 1.06bn at 147.00 (thu).
AUDUSD 1.32bn at 0.6475 (thu).
EURUSD 2.53bn at 1.1200 (fri).
- EURUSD: 1.1175 (1.4bn), 1.1200 (835mln).
- USDCAD: 1.3910 (366mln).
- AUDUSD: 0.6480 (945mln), 0.6500 (911mln).
- USDCNY: 7.2000 (758mln).
CROSS ASSET: UBS: CTAs Supporting Risk Rally, Wary Of Negative Duration Bias
UBS suggest that “CTAs have been supporting the rebound in risky assets”.
- Since their last update (April 28) UBS calculate that CTAs “have bought ~$30bln worth of global stocks, with a clear tilt towards DM indices”.
- UBS think that given “uninspiring price action and negative base effects (Q2-Q3 '24 rally falling out of the 1-Year rolling window), CTAs are about to turn negative duration again. We expect them to sell ~$50mln of bond DV01 over the next two weeks. All regions & tenors are likely to face selling pressure in the near term, with Korea 10s being the most at risk”.
- Elsewhere, they find that “in credit, CTAs have already covered their shorts, and are about to initiate new longs. The recent tightening, coupled with the elevated carry, make short positions difficult to sustain”.
- In FX, UBS believe that “CTAs continued to be heavy sellers of the USD in May (~$30bln). After aggressively buying G10 FX between February and April, their focus switched to EM FX this month. Going forward, we expect decent profit-taking in G10 FX, especially in JPY, and limited flows in EM FX”.
- Finally, for commodities, UBS point to “a little bit of agricultural selling this month, not much action elsewhere. CTAs remain heavily long gold and heavily short energy. We foresee some profit taking there”.
