US core-PCE inflations slowed for third consecutive month.

US core-PCE inflation slowed for a third consecutive month. It fell to 4.7% in May Elsewhere, US personal consumption rose by 0.2% in May while the April data were revised lower to +0.3% from +0.7%. This follows a substantial downward revision in consumer spending in Q1 also, indicating that inflation has been weighing on household spending by more than previously thought.

Following Thursday’s U.S. figures on slowing consumer spending and still-rising inflation, China at least delivered some positive news, reporting on Friday that the easing of lockdowns had allowed factory activity to expand at the fastest pace in 13 months.

This week brought a welcome slowing in German price growth but an alarming 10%-plus reading in Spain.  June price growth due on Friday is predicted at 8.4%, versus 8.1% in May. Friday is also when the ECB starts using proceeds from maturing German, French and Dutch debt to buy bonds from Italy and other southern states to halt north-south fragmentation.

U.S. and German yields are lower, with U.S. 10-year borrowing costs below 3% and in line for their second week of declines. And markets reckon rate hike cycles may pause earlier than anticipated, seeing the Fed funds rate peaking around 3.4% next April, and declining thereafter to end 2023 below 3%.

The main pairs start today at almost identical levels to 24hrs ago. EUR/USD opens in the upper half of $1.04-1.05. EUR/GBP is operating just above 86p. Meantime, GBP/USD is changing hands below the midpoint of $1.21-1.22.  The main release of note will be Eurozone flash HICP inflation for June. Both the headline and the core rate are forecast to rise to 8.4% and 4.5%, respectively.

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