Report by Renta 4
European markets opened lower (Eurostoxx futures down 0.5%) whilst US markets edged higher (S&P futures up 0.3%, Nasdaq futures up 0.4%) following falls of more than 1% yesterday, closing at session lows, and a flat session in Asia (Japanese Nikkei up 0.1%, South Korean Kospi up 0.1%) on a day when the main focus will be on the ECB, which we expect to announce its first rate hike since September 2023 in response to the energy shock triggered by the Middle East conflict. This decision is widely priced in, so all attention will be on Lagarde’s speech regarding future interest rate moves.
On the geopolitical front, Trump’s back-and-forth has caused Brent to react only slightly (this morning it rose 1% to USD 94/bbl following a moderate rise yesterday) to the US president’s latest threats against Iran, which, in his words, “has taken too long to negotiate a deal that would have been excellent for them; now they will have to pay the price.” In the background, and despite his tougher tone (which seems more like a negotiating tactic), we have peace talks that are moving forward, but also facing the same obstacles (Hormuz, nuclear programme, frozen assets), as well as the persistence of Israeli attacks on Lebanon. Tonight, the US has struck multiple targets for the second consecutive day. Trump commented on Fox that the bombings will end soon but will continue if no agreement is reached.
As for the ECB, as we mentioned, the market is fully pricing in a 25 bp hike to 2.25% (deposit rate). This ‘safety’ hike to avoid second-round effects comes against the backdrop of the inflationary shock caused by the conflict in the Middle East, which has led to a sharp rise in price data (PPI up 4.9% year-on-year in April against 2% previously, preliminary May CPI 3.2% year-on-year overall against 3% previously, the highest since September 2023, with some pass-through to core inflation, 2.5% year-on-year against 2.2% previously). The ECB will also present its updated macroeconomic outlook, in which there should be no major changes, merely a slight upward revision to the CPI (up 0.3 percentage points to 2.9%) and a downward revision to GDP for 2026 (contracting PMIs), with no significant changes to the 2027 estimates. We expect it to reiterate its data-dependent stance and its meeting-by-meeting decision-making approach. Although the market is pricing in a second hike in Sept 2026 and a third in Q1 2027, we believe the ECB should be cautious, adopting a somewhat “hawkish” tone to prevent inflation expectations from becoming unanchored, but bearing in mind that we are not in the same situation as in 2022 (when a demand shock – the post-Covid recovery – compounded the supply shock, with much greater fiscal stimulus, higher inflation and a much looser monetary policy with a deposit rate of minus 0.5% versus the current 2% plus QE), and we must avoid repeating the mistakes of the past that led to stagflation (Trichet raised rates in 2008 and 2011 to curb the oil-related inflation spike, only to be forced to cut them in the wake of the Great Financial Crisis and the European Debt Crisis).
As regards the US, yesterday’s US CPI for May confirmed expectations by rising to 4.2% year-on-year, a three-year high (compared to 3.8% previously), due to the impact of the energy component (petrol up 7% month-on-month), and to a lesser extent the core rate (2.9% compared to 2.8% previously year-on-year, although the monthly rate moderated more than expected, 0.2% compared to 0.3% estimated and 0.4% previously). Whilst pressure could increase in the future if supply chain problems persist, the core rate could be eased by a fall in rental prices, the reversal of the impact of reciprocal tariffs following the Supreme Court’s rejection, and wage growth that continues to slow. Following the CPI data, the expectation of a 25 bp hike for the final quarter of the year remains, whilst the probability of a second hike in 2027 has eased slightly. We will see whether Kevin Warsh shares these expectations or not at what will be his first meeting as head of the Fed next week (17 June). Furthermore, today we will see producer price data, which could show a sharper rise in May (up an estimated 6.4% year-on-year against 6% previously and 3% before the start of the conflict in the Middle East).
On the corporate front, we highlight Oracle’s results last night at the close of trading, which beat forecasts. However, the shares are falling sharply in after-hours trading, down 11% after losing 2.2% during the regular session. Q4 25 revenue: $19.2 billion (versus $19.1 billion estimated) with strong performance from the cloud division (51% of revenue, up 47% versus Q4 24) and a poor performance from software (down 2% versus Q4 24). Revenue up 21% compared to Q4 2024, EBIT up 21% compared to Q4 2024 and adjusted EPS of $2.11 (compared to $1.96).
