Welcome to your weekly macroeconomic round-up, where we spotlight a few of the most significant events in the last week.
Eurozone inflation rises to 2% target for the first time in over two years
The Eurozone composite consumer price index increased 2% in May compared to the previous year, up from 1.6% in April, beating economists’ expectations. The rebound in energy prices compared to this last time last year was the major driver in higher prices but the higher cost of package holidays was noted as an additional factor.
This increase in inflation is likely to mean that the European Central Bank committee, which meets next week, will face greater pressure to review its current policy stance and recent decision to accelerate the pace of bond-buying, an expansionary measure.
German business confidence hits two-year high
Falling Covid-19 infections and the relaxing of restrictions drove the Ifo Business Climate Index, a closely watched economic indicator in Germany, to rise 2.6 points to 99.2, compared to expectations of 98.0. This positive surprise was predominantly due to improving expectations of future conditions.
A relatively uneventful week brought to an end a relatively uneventful May, at least as far as asset markets were concerned. Equity markets recovered lost ground following the poor US jobs report, but were broadly flat over the month. Within fixed income, the market barometer 10-year yield on US treasuries ended the month where it started, at roughly 1.63%, despite evidence that prices are higher than expected.
The major price action over the month came in commodities markets. The gold price, as measured in dollars, rose nearly 8%, with some pointing to the fall in the Bitcoin price (and cryptocurrencies generally) as a contributing factor. Oil prices rose to their highest level since 2018, while the price of both copper and corn in the futures market both made fresh all-time highs. Although each market is affected by idiosyncratic factors, the broad picture indicates that the rebound in demand is outstripping supply.
Look out for next week’s update, where we’ll be focusing on the US jobs report and Chinese PMI data.
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