Inflation in Japan is holding above target. European PMI data are disappointing

On Thursday, US central bank governor Jerome Powell said to the House of Representatives that The Federal Reserve’s commitment to curbing 40-year inflation is “unconditional,” but it carries the risk of rising unemployment. On Wednesday, Powell told the US Senate Banking Committee that the Fed is not trying to trigger a recession but is “certainly possible” due to global events beyond its control, particularly the effects of the war in Ukraine and the COVID-19 pandemic. At the same time, Powell expects US economic growth to accelerate in the year’s second half.

On Thursday, another Fed official, Michelle Bowman, said that she supports a 75 basis point rate hike in July, followed by a 50 basis point increase at the next few meetings. That statement coincides with Reuters polls. Economists polled by Reuters this week forecast that the Fed will hold another 75 basis point rate hike next month, followed by a 0.5% hike in September.

New jobless claims fell last week from 231,000 to 229,000, while the key PMI for manufacturing and service sector activity fell to 52.5 (from 57) and 51.6 (from 53.4), respectively.

German and French PMI data showed that the Eurozone economy is starting to show signs of a slowdown. In Germany, the manufacturing PMI decreased from 54.8 to 52 while the services PMI dropped from 55 to 52.4. In France, the manufacturing PMI decreased from 58.3 to 54.4, and the services PMI declined from 54.6 to 51. Typically, a PMI falling below 50 is a sign of recession in which the central bank raises interest rates. At that time, Fed spokesman Kazimir said yesterday that some Eurozone countries might face a short-term recession.

The Norwegian Central Bank surprised markets by raising its interest rate by 50 bps from 0.75% to 1.25%. Concerns about rising inflation in a tight labor market were the reasons for the scale of the increase. Norway’s inflation rate was 5.7% y/y in May versus 5.4% y/y in April. It is the highest level since December 1988.

Ukraine and Moldova officially received candidate status for EU accession.

The Russian State Duma called for bombing the US Embassy in Kyiv because of the deliveries of MLRSs to Ukraine. Such a statement was made by the deputy chairman of the Duma committee for defense, Yuriy Shvytkin. He said that the United States “is bringing World War III closer” by supplying HIMARS multiple-launch rocket systems. At the same time, Estonian Prime Minister Kaja Kallas said that in case of a Russian invasion, Estonia would be wiped off the face of the earth because of the ineffective NATO plan to defend the Baltic states. She called for sending at least 20,000 to 25,000 NATO soldiers to each Baltic country.

Natural gas futures fell more than 5% yesterday on the news of reserves. US domestic natural gas inventories increased by 74 billion cubic feet over the week. Meanwhile, total natural gas in storage is 2.169 trillion cubic feet, 305 billion cubic feet less than a year ago, and 331 billion cubic feet below the five-year average.

Official weekly estimates of US oil inventories had to be released on Thursday, but technical problems delayed those numbers until next week, the US Energy Information Administration said. Russia continues to find alternative buyers for its oil, with China and India among the biggest buyers. China’s crude oil imports from Russia increased by 55% in May from a year earlier to a record high.

Asian markets closed yesterday in green territory. Japan’s Nikkei 225 (JP225) gained 0.08%, Hong Kong’s Hang Seng (HK50) added 1.26%, and Australia’s S&P/ASX 200 (AU200) closed with a gain of 0.31%.

The nationwide core Consumer Price Index was 2.1% for the second month in a row and again exceeded the Bank of Japan’s target level. This data challenges the Bank of Japan’s view that the recent price increase is temporary and does not require a withdrawal of monetary stimulus. Such sentiment provided a brief boost to the Japanese yen. But with wage growth slowing, many analysts expect the Bank of Japan to remain on a soft monetary policy rather than fighting inflation by raising interest rates.