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US CPI drops to a 2-year low, while UK rates soar on wages surge

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European markets look set to close higher for the second day in a row, after the latest US inflation numbers for May came in at a two-year low, and speculation about further Chinese stimulus measures boosted sentiment. 


Mining shares got a boost, along with metals prices, after China cut seven-day repo rates in a sign that more policy easing may be on the way. A rise in copper prices to one-month highs is helping to lift Rio Tinto, Anglo American and AntofagastaGlencore is also being helped by the proceeds of the sale of its 50% stake in Viterra which has been bought by Bunge for $8.2bn. BP and Shell are also higher on the back of today’s rebound in oil and gas prices.

Industrial rental equipment company Ashtead shares have slipped back despite reporting Q4 and full-year numbers that came in ahead of forecasts. Increased rental revenue has helped boost revenues and profits, with Q4 revenue rising from $1.87bn a year ago to $2.13bn. Full-year revenues rose by 24% to $9.67bn, helping to boost pre-tax profits by 30% $2.15bn.

Today’s sharp rise in short-dated interest rates, which has seen UK 2-year gilt yields rise to their highest levels since 2008, is weighing on the housebuilding sector with the likes of Taylor Wimpey and Barratt Developments slipping back.

Admiral shares have also taken a swan dive after Citi cut its outlook on the insurer saying that higher costs were likely to make its first-half profits forecasts overly optimistic. 


US markets opened strongly higher after US CPI came in broadly as expected, slowing to 4%, while core prices slowed to 5.3%, as markets priced out the likelihood that the Fed would surprise with another rate hike, when they conclude their two-day meeting tomorrow.

Microsoft shares are in focus on reports that the US Federal Trade Commission has applied for an injunction to prevent the acquisition of Activision. Oracle shares have risen to new record highs after Q4 revenues and profits beat expectations, while its Q1 guidance was also solid. Q4 revenues of $13.84bn, was a rise of 17% with Q1 set to see an increase of between 8% and 10% driven by cloud and AI services for use by the US defence and intelligence agencies.

Tesla shares are also higher, opening above $250 and on course for their 13th successive day of gains. Manchester United shares jumped to two-month highs on more media speculation that the club was closer to reaching a deal to be sold by a Qatari consortium of investors. 


The US dollar has slipped back after May CPI slowed to 4% from 4.9% in April, and a two-year low, while core prices slowed to 5.3%, from 5.5%. This has seen US yields slide back in anticipation of a hold in rates when the Fed meets tomorrow. If the Fed does go down that route, and it would be a surprise if it didn’t, then we could well have seen a short-term peak for US rates. While the Fed will want to keep the prospect of a rate rise on the table for July, it will be very difficult for them to do so if inflation continues to slow, and we start to see the labour market slow. We could be closer to peak US rates then we realise.

The pound has found an element of support after average wage growth in April surged to 7.2%, and a record high outside of the pandemic, while UK 2-year gilt yields have surged to 15-year highs. It is also important to remember that these wage numbers are average numbers which means in a lot of cases, pay rises are much higher in certain areas of the economy, meaning it will be much tougher for the Bank of England to get prices back under control. The number of people in employment also rose to a record 76% as high food inflation forced people back into work, forcing the unemployment rate down to 3.8%. The UK central bank is in a whole world of pain at this point with no good options available to them, with further rate hikes now increasingly likely, which in turn will act as an even bigger drag on the housing market in the second half of this year, potentially risking a recession towards the end of the year. 

It is clear from today’s economic numbers that the Bank of England will have to hike rates again next week, with markets now pricing in a terminal bank rate of 5.75%, 125bps above where we are now. UK 2-year gilt yields pushed above last year’s peaks to their highest level since 2008 in a further ominous sign for the housing market, when fixed rate deals roll off in the second part of this year. Today’s numbers also reinforce the concerns that external BoE policymaker Catherine Mann’s concerns that inflation is becoming increasingly embedded in the UK economy.


Crude oil prices have seen a decent rebound from yesterday’s slide to three-month lows, after the People’s Bank of China cut its seven-day repo rates by 10bps in a sign that they might have to go further in looking to ease financial conditions in an economy that is clearly struggling.

Copper prices have risen to their highest level in a month in anticipation that China might be looking to implement further measures to help its ailing economy.

Natural gas prices, which had been sharply lower in the morning, reversed sharply just after midday to surging to six-week highs after outages at three Norwegian gas plants were extended due to technical issues in a sign of how fickle the gas market currently is when it comes to concerns about supply. 


Shares in Oracle leapt higher in after-hours trade last night following the company’s upbeat earnings report, along with upgraded revenue guidance. A broker upgrade rounded off the positive session for the stock, with the underlying settling almost 10% higher. One day vol stood at 48.7% against 34.83% for the month.

In terms of commodities, sugar was the standout as markets became wary over the impact that the El Nino weather pattern could have on global production. The USDA has already stated that it expects global reserves to fall to a five-year low, a situation that would be exacerbated in the event that harvests are constrained. One day vol on US sugar came in at 55.63% against 38.82% for the month.

US banks saw elevated levels of price action on Monday, with this being played out in CMC’s proprietary basket for the sector. Although gains were focused in the early part of the day and abated as the session continued, there’s optimism that the Fed will hold fire on further rate hikes tomorrow and whilst this will limit revenue gains from interest income, it will also have the potential to limit impairments. One day vol on the basket printed 66.24% against 43.18% for the month.

And volatility for cryptocurrencies has returned, as a number of alt coins attempt to recoup last week’s losses. Whilst elevated price action was seen across a number of instruments, it was Cardano that delivered the greatest impact, with a one-day print of 83.17% against 44.45% for the month.

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