The macro data on the US economy released on Friday showed that high inflation in April failed to stifle consumer momentum in an economy that has a history dating back to post-COVID fiscal stimulus. Although household incomes did not grow as fast as expected (0.4% m/m, vs. 0.5% expected), consumers increased spending by 0.9% m/m, compared to 0.7% expected. The fact that spending has outstripped income growth suggests that consumers are willing to spend savings to maintain lifestyle, which means that consumer confidence may be not so low as depicted in U. of Michigan consumer sentiment data.Positive US consumer data countered fears that the Fed has taken to tightening policy when the consumer trend approached a tipping point, which could exacerbate the reversal trend, in other words, led to hard landing after the boom. The reassessment of fears led to the fact that the bullish momentum in the US market on Friday did not meet with any significant opposition, which allowed the S&P 500 to close in positive territory by 2.5%, rising to a three-week high:Core PCE, this time without surprises, retreated from 5.2% to 4.9% in April, which in itself was a very positive signal, given how many times the market has been wrong before, underestimating inflation rates. As the Core CPI and Core PCE went into decline, the market could begin to think that inflation had peaked and would now gradually decline towards the Fed’s target level:On Monday, risk assets are trying to borrow the optimism of last Friday, the main European stock markets are rising, SPX futures added another 1%, approaching 4200. The dollar index is trying to hold support at 101.50, but is under pressure due to rising demand for risk assets. China continues to ease social restrictions and is preparing measures to support the economy. Shanghai allowed businesses to reopen starting June 1, and Beijing authorities said the epidemic was under control, prompting a reassessment of lockdown risks and economic costs in the Chinese stock market, while overseas markets, in turn, priced in lower risks of disruptions or delays in supplies.The EU continues to discuss the sixth package of sanctions against the Russian Federation, which includes a partial embargo on Russian oil, details should appear today. Brent has topped $120/bbl and time spreads are widening, reflecting market expectations that the near-term demand picture is getting more positive.Data in focus today: German inflation report. Consumer price growth is expected to accelerate from 7.4% to 7.6%. With the ECB signaling that it will act if the data warrants to do so, an inflation rate in line with expectations or higher could trigger a surge in EURUSD to 1.08 or slightly higher. However, with the release of the May NFP this week, which could dampen the chances of the now hotly-discussed “September pause” in rate hikes, buyers may prefer to wait out the release before adding to long positions, or may take profits. Actually, the execution of such a scenario on the market may lead to a correction towards 1.07 in the second half of the week:
Source: Tickmill
