EQUITY TECHS: E-MINI S&P: (U5) Trend Needle Points North

• Taking a step back, dispersion metrics of CPI inflation saw a mild uptick with 33% of ~190 items in the overall basket growing in excess of 3% Y/Y vs 29% in April.
• It’s the highest since February and before that May 2024, with the share having bottomed out at 28% in December. For context, it averaged 24% in 2019 or 19% in 2015-19.
• The same analysis for core goods saw the >3% Y/Y share rise from 14% to 19% in May for its highest since Feb and before that Apr 2024. As noted in the details, whilst there were multiple large increases in M/M rates for some specific items, there were also some surprisingly weak readings elsewhere.
• Further, whilst the latest level is above the 12% averaged in 2015-19, it’s only back to the 18.5% seen just in 2019, having peaked at 75% in 2022.
• The share of core services items growing >3% Y/Y largely consolidated an impressive recent drop, only rising 1pp to 51% having been at 63% in February. However, it averaged 38% in 2019 or 34% in 2015-19. 

The dovish move in U.S. rates following the CPI data proves to be the stickiest from a cross-market perspective, with short end pricing stabilising around 50bp of Fed cuts through year-end and Tsys just off fresh session highs

• USD reaction is muddied by the fact that the stagflationary backdrop has weighed on the USD in recent times.
• While this data points to a less stagflationary picture (a USD positive when compared to the recent data narrative), market participants initially sold USD on the lower print owing to feedthrough into Fed pricing (reverting to the more traditional relationship), with the market’s recent bias to look for any reason to sell the USD a likely factor as well.
• The greenback has since recovered from worst levels of the day.
• E-mini futures have pulled back from session highs that followed the data release.

• Should the pair fail to print a new high ahead of the close today, the daily candle chart shows four consecutive lower highs for the pair for the first time since early January (where the pair shed over 450 pips over the course of a week).
• While this week's further fade off 1.3616 is of a considerably smaller magnitude, there are building risks to the net GBP long. The net position has built well across 2025, but has stalled in recent weeks to contrast the solid spot rally. This week's poor wages & jobs data, combined with today's spending review cement the downside risk, which the government see as triggering the "next phase" of the current parliament.
• This more cautious approach toward GBP/USD is reflected in options premiums: having topped out at end-May, the vol premium for one-month GBP/USD calls over puts has been wholly erased, endorsing the recent roll off highs.
• GBP/USD has failed to top yesterday's high despite the break lower in the USD Index and the 3bps move in the US/UK 2yr yield spread. This may suggest a sell-on-rallies theme could firm in the price, with next week's May CPI print the key risk for the 2 x 25bps BoE rate cut pricing into year-end.