Breaking News
Get 40% Off 0
👀 Reveal Warren Buffett's stock picks that are beating the S&P 500 by +174.3% Get 40% Off

EU CPI Set To Post Another Record High

By CMC Markets (Michael Hewson)Market OverviewMay 31, 2022 06:23
EU CPI Set To Post Another Record High
By CMC Markets (Michael Hewson)   |  May 31, 2022 06:23
Saved. See Saved Items.
This article has already been saved in your Saved Items

Reports over the weekend that COVID restrictions in Shanghai and Beijing were on the cusp of being relaxed, got equity markets in Asia and Europe off to a positive start to the week yesterday, as we come to the end of what has been another roller coaster month for markets.

The damage to the Chinese economy by the various restrictions imposed during May is no better illustrated by the latest manufacturing and non-manufacturing PMI numbers which showed another contraction in economic activity.

In April these fell to 47.4, for manufacturing and 41.9 for services. Today’s numbers showed a modest improvement in both with manufacturing at 49.6, while non-manufacturing or services came in at 47.8, still firmly in contraction territory.

Asia markets have undergone a mixed session, in the aftermath of these numbers, and while things may be improving in the Chinese economy, the continued rise in oil prices is likely to act as a drag on economic activity, after EU leaders agreed on a deal to block 90% of oil imports by the end of this year.

As a result of this drag, European markets look set to open cautiously lower.

Despite the challenges facing the UK economy retail sales rebounded strongly in April. House price growth also remained resilient despite rising inflationary pressures and 4 rate rises in succession from the Bank of England.

We’ve also seen consumer credit and mortgage lending numbers remain resilient throughout the first quarter of 2022, with net lending rising to £7bn in March and a six-month high. This picture could start to change with today’s April numbers, as a whole range of price and tax rises hit consumer incomes. Net lending secured on dwellings is expected to fall back to £5.7bn.

Net consumer credit has also recovered after a slow start to the year, coming in at £1.3bn in March, and is expected to remain steady at these levels in April.

As we look apprehensively ahead to Q2 the mortgage approvals numbers might start to show signs of slowing, while consumer credit numbers could go either way, rising as struggling consumers borrow more to pay for everyday items, or slowing as consumers tighten their belts and dip into savings.

When EU CPI pushed up to record highs of 7.5% in April, and with core prices at less than half of that at 3.5%, there had been some talk that inflation in the euro area was starting to plateau.

Given the CPI numbers that we saw from Germany and Spain yesterday, this view seems rather quaint, especially when considering what is happening with PPI prices, which are over 3 times higher. We also have the European Central Bank starting to prepare the markets for a possible 25bps rate hike at the July meeting in response to this inflation surge, however, it’s doubtful that such a small move when rates are already negative at -0.5% will do that much good.

Headline CPI is already much higher in other parts of the EU. While it's lower in France, due to the French government capping energy prices, it’s still set to rise to 5.2% this morning, whereas in places like Estonia it's already at 18.8%, and 16.8% in Lithuania.

Given the huge jumps seen in both Spain and German CPI yesterday, today’s headline EU CPI number for May could well push above 8% this morning, thus making the ECB’s job in regaining credibility even more difficult. What price a 50bps rate move in July? Core prices are expected to rise from 3.5% to 3.6%, however, it can only be a matter of time before core inflation starts to surge, as inflation becomes more embedded.

The return of US markets from the Memorial Day holiday is expected to see the latest US consumer confidence numbers for May show another decline, from 107.30 in April, to 103.80 and a 15-month low.

EUR/USD – pushing through trend line resistance from the highs this year, as well as the 50-day MA, potentially opening up a move towards 1.0850. Support comes in at 1.0640, and the 1.0530 area.

GBP/USD – continues to edge higher, holding above the 1.2600 area, as we look for a move towards the 1.2830 level. Only a move below 1.2550 undermines the case for further sterling gains. Below 1.2550 argues for 1.2470.

EUR/GBP – currently finding resistance at 0.8530. Still range-bound within the wider range of 0.8200/0.8600. A move below 0.8470 retargets the 0.8420 area.

USD/JPY – still holding above the 50-day MA, with a break potentially opening a move towards the 123.00 area. Looks set for a move towards 128.30 area, having broken above trend line resistance from the highs this month.

Disclaimer: CMC Markets is an execution-only service provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although we are not specifically prevented from dealing before providing this material, we do not seek to take advantage of the material prior to its dissemination.

Original Post

EU CPI Set To Post Another Record High

Related Articles

EU CPI Set To Post Another Record High

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind: 

  • Enrich the conversation
  • Stay focused and on track. Only post material that’s relevant to the topic being discussed.
  • Be respectful. Even negative opinions can be framed positively and diplomatically.
  •  Use standard writing style. Include punctuation and upper and lower cases.
  • NOTE: Spam and/or promotional messages and links within a comment will be removed
  • Avoid profanity, slander or personal attacks directed at an author or another user.
  • Don’t Monopolize the Conversation. We appreciate passion and conviction, but we also believe strongly in giving everyone a chance to air their thoughts. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at’s discretion.

Write your thoughts here
Are you sure you want to delete this chart?
Post also to:
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Are you sure you want to delete this chart?
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Continue with Google
Sign up with Email