Inflation expectations are falling

Despite further rise in oil prices

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The further rise in oil prices, with the US benchmark WTI closing above $70 yesterday, caught a lot of the headlines, but the more interesting move was perhaps the drop in inflation expectations. The 10-year US breakeven rate fell by 3 bp yesterday and is now at its lowest since April. That could be a sign markets agree with the view that the rise in inflation this year will be transitory.

Macro

US NFIB small business confidence fell by 0.2 points to 99.6 in May. That is above the long-run average of 97.0.

US small business price plans rose in May. They would normally be consistent with higher core inflation.

The US April trade data showed exports rose by 1.1% MoM and imports decreased by 1.4% MoM - in nominal terms, the trade balance is improving, but remains in a large deficit.

There was a much larger-than-expected rise in Chinese PPI inflation to 9.0% in May, instead of the 8.5% expected.

Japan's economy watchers survey fell in May. It suggests GDP growth will remain weak.

The German industrial production data disappointed in April. With orders high, this shows the negative effect that supply shortages are having.

Markets

The Russell 2000 has outperformed the other major US indices in the past week, rising by 2.1% while the S&P 500 rose by 0.6%.

Some EV stocks seem to be benefitting from the recent wave of momentum for meme stocks more generally.

WTI rose to over $70 yesterday for the first time in years.

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