Today, the most important event will be the publication of June euro zone inflation. Markets expect price growth to slow down to 2.5 percent. (2.6 percent in May). So far, the forecast appears to be on target, with German inflation slowing to 2.2 percent, less than the 2.3 that markets had expected, and inflation in France almost on target at 2.1 percent in June.
Markets currently expect between 1 and 2 ECB rate cuts this year. The next central bank meeting is on July 18, and while no interest rate changes are expected, with falling inflation, the ECB may provide clues about the future rate curve.
Stocks rose yesterday in both the US and Europe. Positive sentiment after the first round of the French parliamentary elections lifted stock markets, with the STOXX 600 rising 0.3 percent and France's CAC 40 as much as 1.1 percent. There was more optimism at the start of the trading session, but markets later softened slightly as more questions arose about the future political situation and lingering uncertainty. In the US, as the probability that D. Trump will win the election increased, long-term bond yields rose more than short-term. The main reason for this is likely higher inflation due to high rates and expansionary policies, and with it higher long-term interest rates.
Oil prices rose to two-month highs. Brent oil is trading at $87/bbl this morning. The Israeli military said 18 soldiers were wounded by Hezbollah drone attacks. The terrorist organization operating in Lebanon has been exchanging attacks for some time and raises the risk that a full-scale war between Israel and Hezbollah may begin. The hurricane season also brings risks to the oil markets – the storm Beryl raging in the Caribbean Sea has strengthened to a category 5 hurricane. It is important to note that this is the strongest hurricane ever to form so early. Meteorologists predict that this year's US hurricane season should be stronger than average.
