Report by Bankinter
The US has bombed Iranian air defences near the Strait of Hormuz and Iran is responding with attacks in various parts of the Middle East. Although these attacks appear to have been successfully intercepted, they are weighing on stock markets: Japan (down 2%); South Korea (down 6.5%); NY futures (down 0.2%)…
However, what will really determine the direction of today’s session is US inflation (14:30) for May. It is estimated to rise to 4.2% from 3.8%, and core inflation—which excludes the most volatile components of the indicator—to 2.9% from 2.8%.
In our view, if the figure aligns with estimates, the impact on the market would be largely positive. Mainly because (i) core inflation above 3.0% shows that the rise in energy prices is not feeding through via second-round effects into the economy and that, therefore, (ii) the rise in inflation has a more transitory than structural component. All of this (iii) should temper the expectations of rate hikes currently priced into the market. Conversely, a worse-than-expected figure will be met with a negative reaction, in a move similar to that seen yesterday or last Friday following the employment figures. In any case, we reiterate the view that some profit-taking would be healthy for the market, to allow it to digest the levels reached and provide some breathing space for current valuations.
In short, today everything hinges on inflation. In our view, if the figures are in line with or less bad than expected, this could act as a catalyst for the stock markets. All this comes in the run-up to tomorrow’s ECB meeting and with eyes already on SpaceX’s IPO on Friday.
