Futures Fall, Tech Rally Fades Ahead Of Record $5 Trillion OpEx

US futures were slightly lower, with tech companies indicating declines as the AI-fueled rally showed signs of fading, even as tech funds had their largest weekly inflow on record, which Bank of America's Michael Harnett said hints at “AI capitulation.” As of 8:00am ET, S&P futures were down 0.1%, with Nasdaq futures also in the red.

As previewed yesterday, Wall Street braced for the biggest triple witching option expiration day on record, where some $5.1 trillion worth of options tied to indexes, stocks, and ETFs mature...

... which could "unclench" record $10 billion in dealer gamma and spark sharp market moves as "pins" expire.

Bond yields are 2-4bp lower this morning, reversing a move higher, after Europe's ugly PMI prints (see below) which also pushed the EUR lower and the USD higher. Commodities are mixed; oil is modestly lower; base metals are higher. Today’s macro focus will be the flash PMIs at 9.45am ET; consensus expects a mfg print of 51.0 while the PMI-Srvcs is seen printing 54.0 survey vs. 54.8 prior.

In premarket trading, tech names are mostly lower: NVDA -1.8%, QCOM -71bps, MSFT -25bps and AAPL -23bps. Spirit AeroSystems jumped 4% after Reuters reported Boeing is nearing a deal to buy back the aircraft-parts supplier. Here are the other notable premarket movers:

• Abacus Life falls 21% after its offering of 10 million shares priced at $8 per share, representing an 18% discount to last close.
• Gilead advances 3%, extending Thursday’s gains, after interim results from a trial of the firm’s drug lenacapavir showed 100% efficacy for the prevention of HIV in cisgender women.
• Sarepta Therapeutics soars 37% after the FDA approved expanded use of the company’s gene therapy to treat children aged four and above with Duchenne muscular dystrophy.
• Smith & Wesson slips 3% after the gun maker said sales in its first quarter would be about 10% lower year over year.

Risk-off trades were also in vogue in Europe, where the fallout from French President Emmanuel Macron’s decision to call a snap election continued to make itself felt in the region’s economy.  The yield on Germany’s benchmark 10-year bonds tumbled seven basis points after manufacturing and services PMI readings for Europe’s two biggest economies fell short of expectations. The rate on US Treasuries also declined, while the dollar held near a 2024 high after the PMI data, which underscored how French political risk is dragging on growth. Traders now see a second ECB cut by October and an 80% chance of a third this year, up from about 65% on Thursday.

Key numbers:

• Euro Area Composite PMI (June, Flash): 50.8, missing consensus 52.5, last 52.2.
  • Euro Area Manufacturing PMI (June, Flash): 45.6, missing consensus 47.9, last 47.3.
  • Euro Area Services PMI (June, Flash): 52.6, missing consensus 53.4, last 53.2.
• France Composite PMI (June, Flash): 48.2, missing consensus 49.4, last 48.9.
• Germany Composite PMI (June, Flash): 50.6, missing consensus 52.7, last 52.4.
• UK Composite PMI (June, Flash): 51.7, missing consensus 53.0, last 53.0.

Macron’s shock call for a vote has stoked volatility in the region’s markets and left investors worried that an economic rebound could be snuffed out by far-right leaders, should they prevail in elections. European stock funds suffered their fifth week of outflows, according to Bank of America strategists, citing EPFR Global data.

“The most important problem for us is the economic outlook for the euro zone,” said Benoit Peloille, chief investment officer at Natixis Wealth Management. “It really poses a risk.”

And speaking of European stock markets, the Stoxx 600 was on course for its worst day this week, dropping 0.7%,  with banks the worst performers, with construction and tech also falling. Here are the most notable European movers:

• Zealand Pharma shares soar as much as 27% to a record high after the Danish drugmaker’s next-generation weight-loss compound petrelintide showed positive results in an early-stage trial, with analysts noting its impressive tolerability.
• Britvic shares climb as much as 16% after its board unanimously rejected a second takeover proposal from Carlsberg. Shares in the UK beverage maker touch a record-high 1,176p, heading toward Carlsberg’s 1,250p/share offer.
• RENK shares rise as much as 2.4% as analysts presented bullish takeaways from this week’s defense trade show Eurosatory, with Berenberg in particular, highlighting the strong demand outlook for the German defense company’s new ATREX transmission system.
• Informa shares rise as much as 1.6% after the events and publishing firm reported 10.1% underlying revenue growth for the first five months of the year, likely beating consensus estimates that had been expecting around 8% growth in the first-half, Morgan Stanley said. The company maintained guidance that was raised in May.
• ITV shares jump as much as 5.2%, most since March, as JPMorgan analysts say the British broadcaster’s advertising revenue in the current quarter will be much stronger than its previous guidance, thanks to a boost from the European Football Championship.
• Kion shares fall as much as 9.7%, the steepest decline since October 2023. UBS (buy) lowers its price target on the German industrial firm, saying second-half order spikes are always tough to rely on.
• REC Silicon shares drop as much as 15% after the company provided an update on its Washington facility’s delayed clean up process, which caused a setback in the delivery of product.
• Intercos falls as much as 7.5% after holder Innovation Trust completed its accelerated bookbuilding offering of 6.5m shares at €15.20 a share, representing ~8.5% discount to last close.
• Varta shares fall as much as 9.3%, the most in six weeks, after the company warned market conditions in the energy storage system market have deteriorated further, prompting it to lower its annual revenue goal.

Earlier in the session, Asian stocks traded lower, led by losses in Hong Kong, as a global tech-driven rally showed signs of fatigue, while concerns persist over China’s economy. The MSCI Asia Pacific Index fell as much as 0.6%, with TSMC, Samsung and Tencent among the biggest drags. Declines were also notable in South Korea and Taiwan, while a tumble in the Philippines’ main benchmark put it on course to enter a technical correction. For the week, the regional gauge is little changed.
Hong Kong’s Hang Seng dropped as much as 2% while mainland gauges also slid as Beijing is seen as reluctant to step up stimulus. US stocks fell overnight as the high-flying tech group led by Nvidia came under pressure amid signs of overheating.

Canada's Prime Minister Justin Trudeau is preparing potential new tariffs on Chinese-made electric vehicles to align the nation with actions taken by the US and European Union, Bloomberg reported. The government still has to make final decisions on how to proceed, but it’s likely to announce soon the start of public consultations on tariffs that would hit Chinese exports of EVs into Canada, according to officials. In May the US announced a plan to nearly quadruple tariffs on Chinese-manufactured electric vehicles, up to a final rate of 102.5%, while the European Union said last week it plans to increase tariffs to as high as 48% on some vehicles.

In FX, the Bloomberg Dollar Spot Index was little changed, pulling back from near this year’s high ahead of fresh data later today. Dollar demand over the Tokyo benchmark fix saw spot offers attached to 159 strikes — worth a collective $2.05 billion and expiring between today and June 26 — get taken out, according to an Asia-based FX trader. European political and fiscal risk, an easier stance from BoE and a steady slide in JPY have countered the recent run of softer US data, Tim Riddell, director of strategy at Westpac Banking Corp. wrote in a note. “Despite remaining contained within its range, the sharpness of recent DXY moves suggests that a directional move may be developing.”

• EURUSD, down 0.13%, which has been under pressure since French President Emmanuel Macron’s surprise decision to call a snap election, fell to its lowest in a week.
• GBPUSD +0.1% to 1.2670 after better than expected May UK retail sales data, including revisions. The gain was brief and the cable is now little changed.

In rates, treasuries hold an advance that was led by core European rates, with German bonds outperforming after soft PMI data across Europe and US PMIs due later Friday. US long-end tenors lag slightly, extending the recent steepening in 5s30s spread beyond Thursday’s highs. German 10-year yields fell 6bps to 2.38% while treasury yields were richer by 2bp to 4bp across the curve with front-end- and belly-led gains steepening 5s30s spread by around 1bp on the day; 10-year yields trade around 4.225%, richer by 3bp vs Thursday’s close with bunds outperforming by 4bp in the sector

In commodities, oil prices decline, with WTI falling 0.2% to trade near $81.15 a barrel. Spot gold rises ~$6 to $2,366/oz. Bitcoin continues to slip and now sits beneath USD 64k, with Ethereum also slipping below USD 3.5k.

Looking at today's calendar, US economic data slate includes June S&P Global manufacturing and services PMIs (9:45am) and May Leading index and existing home sales (10am). No Fed officials scheduled to speak during the session

Market Snapshot

• S&P 500 futures down 0.2% to 5,465.75
• STOXX Europe 600 down 0.5% to 516.50
• MXAP down 0.5% to 179.78
• MXAPJ down 0.7% to 568.66
• Nikkei little changed at 38,596.47
• Topix little changed at 2,724.69
• Hang Seng Index down 1.7% to 18,028.52
• Shanghai Composite down 0.2% to 2,998.14
• Sensex little changed at 77,422.88
• Australia S&P/ASX 200 up 0.3% to 7,795.97
• Kospi down 0.8% to 2,784.26
• German 10Y yield -5 bps at 2.37%
• Euro down 0.1% to $1.0687
• Brent Futures down 0.4% to $85.33/bbl
• Gold spot up 0.3% to $2,366.36
• US Dollar Index up 0.15% to 105.74

Top Overnight News

• Japan’s core national CPI eases to +2.1% in May, down from +2.4% in Apr and below the Street’s +2.2% forecast. RTRS
• China’s 618 online shopping festival saw sales fall Y/Y for the first time, the latest indication of cooling consumer demand and price discounting. FT
• Prime Minister Justin Trudeau’s government is preparing potential new tariffs on Chinese-made electric vehicles to align Canada with actions taken by the US and European Union. BBG
• Europe’s flash PMIs show significant weakness in June, with manufacturing dropping to 45.6 (down from 47.3 in May) and services cooling to 52.6 (down from 53.2 in May), although inflationary pressures eased along with growth (which is a small silver lining). RTRS  
• UK retail sales for May come in solidly above expectations, rising 2.9% M/M (vs. the Street +1.8%), and Apr was revised higher. WSJ
• Trump sees a surge in campaign inflows (his recent conviction helped to fuel donations), all but erasing Biden’s financial advantage. WaPo
• Chicago Fed President Austan Goolsbee said policy makers will be able to cut rates if inflation continues to cool as it did last month. But Richmond Fed boss Thomas Barkin said he needs further clarity. BBG
• Bank capital rules: Fed, OCC, and FDIC at odds over how to release the revised B3 endgame rules (the Fed wants to allow the industry to comment while the OCC and FDIC would prefer to just publish the rules for implementation). RTRS   
• Spirit is nearing a deal to be purchased by Boeing after Airbus-related work issues were resolved, and a formal announcement could arrive within days or weeks. RTRS

A more detailed look at global markets courtesy of Newsquawk

APAC stocks were mostly rangebound with sentiment subdued after the lacklustre handover from Wall St where tech underperformed and risk appetite was sapped as participants reflected on higher yields and soft data releases ahead of quad-witching. ASX 200 was rangebound with upside restricted after weak Australian flash PMI data including a steeper contraction in manufacturing. Nikkei 225 traded indecisively after softer-than-expected National CPI data and weakening PMIs. Hang Seng and Shanghai Comp. were pressured with underperformance in Hong Kong as the local benchmark dipped beneath 18,000 amid losses in property and tech, while the mainland conformed to the glum mood amid ongoing trade-related headwinds with Canada also preparing a tariffs plan on Chinese electric vehicles.

Top Asian News

• Canada is reportedly preparing a tariffs plan on Chinese electric vehicles, according to Bloomberg.
• Japanese PM Kishida is to resume utility and maintain gasoline subsidies, according to FNN. It was separately reported that Japan's government is in final preparations to adopt additional steps to ease the burden of higher electricity and gas prices, according to NHK.
• Japan's Chief Cabinet Secretary Hayashi said the inclusion to the US monitoring list does not mean that Japan's foreign exchange policy is a problem, while he added that stable forex levels are desirable and it is important that forex rates reflect fundamentals.
• BoJ Deputy Governor Uchida says Japan's economy recovering moderately albeit with some weak signs; underlying inflation likely to gradually accelerate. Uncertainty surrounding Japan's economic and price outlook remains high. Must be vigilant to financial, FX market developments and their impact on Japan's economy and prices. BoJ will decide specifics on bond tapering plan and size of reducing in bond buying will be significant. Japan's financial system remains stable as a whole. BoJ will adjust degree of monetary easing if economy and prices move in line with forecasts.
• BoJ to hold meetings with bond market participants on bond-tapering plan on July 9-10th
• China's Commerce Ministry says EU continues to escalate trade friction; may "trigger a trade war"; responsibility lies entirely with the EU side; hopes EU would meet China halfway

European bourses, Stoxx 600 (-0.4%) are lower across the board, though with price action fairly rangebound, and generally unreactive to the downbeat EZ PMI data. European sectors are mostly lower, and hold a slight defensive bias, with Utilities and Healthcare towards the top of the pile, whilst Banks are towards the bottom of the pile, alongside Tech. US Equity Futures (ES -0.1%, NQ -0.1%, RTY -0.1%) are very modestly lower, continuing some of the losses seen in the prior session, and in fitting with the broader sentiment in Europe.

Top European News

• UK Conservative MPs have accused the BoE of making a "political decision" after deciding to hold rates, according to The Telegraph.

European PMIs

• French HCOB Composite Flash PMI (Jun) 48.2 vs. Exp. 49.5 (Prev. 48.9); HCOB Services Flash PMI (Jun) 48.8 vs. Exp. 50.0 (Prev. 49.3); HCOB Manufacturing Flash PMI (Jun) 45.3 vs. Exp. 46.8 (Prev. 46.4)
• German HCOB Composite Flash PMI (Jun) 50.6 vs. Exp. 52.7 (Prev. 52.4); HCOB Services Flash PMI (Jun) 53.5 vs. Exp. 54.4 (Prev. 54.2); HCOB Manufacturing Flash PMI (Jun) 43.4 vs. Exp. 46.4 (Prev. 45.4). "This should be a further reason for the ECB to proceed cautiously with interest rate cuts."
• EU HCOB Composite Flash PMI (Jun) 50.8 vs. Exp. 52.5 (Prev. 52.2); HCOB Manufacturing Flash PMI (Jun) 45.6 vs. Exp. 47.9 (Prev. 47.3); HCOB Services Flash PMI (Jun) 52.6 vs. Exp. 53.5 (Prev. 53.2)
• UK Flash Manufacturing PMI (Jun) 51.4 vs. Exp. 51.3 (Prev. 51.2); Flash Services PMI (Jun) 51.2 vs. Exp. 53.0 (Prev. 52.9); Flash Composite PMI (Jun) 51.7 vs. Exp. 53.1 (Prev. 53.0). "Meanwhile, from an inflation perspective, stubbornly persistent service sector inflation – a major barrier to lower interest rates – remains evident in the survey, but should at least cool further from the current 5.7% pace in coming months. However, companies' costs are rising, most notably in manufacturing, where shipping costs in particular are spiking again and adding to a renewed rise in inflationary pressures from goods."

FX

• DXY is slightly firmer amid the risk aversion which emanated from yesterday's US session, with the index also benefiting from the weaker EUR following the downbeat EZ PMIs.
• EUR is softer after France, Germany and the EZ all reported soft PMI figures, though with the accompanying release suggesting "the HCOB PMI do not provide ammunition for another rate cut in July by the ECB." EUR/USD sits in a 1.0672-0720 range after testing levels near the 14th June low.
• GBP is also losing vs the Dollar, with the hotter-than-expected UK Retail Sales providing fleeting upside for Cable, before edging lower ahead of the region's own PMI data, which was mixed. Cable fell from 1.2649 to 1.2630 before paring the entirety of the move and lifting incrementally to 1.2653.
• JPY is flat in the European morning following APAC weakness which saw softer-than-expected Japanese CPI and weaker PMI. USD/JPY briefly topped 159.00 to a 159.12 peak (vs low 158.68), with European strength possibly emanating from the risk aversion and a pullback in bond yields.
• Mild divergence between the Antipodeans but largely flat trade with upside capped by the risk aversion (and decline in base metals).

Fixed Income

• USTs are modestly firmer and at the top-end of 110-12+ to 110-23 parameters into US PMI data and Fed's Barkin.
• Bunds are firmer, with price action dominated by EZ PMIs; French numbers missed and remained in contraction with the election perhaps factoring, with Germany and the EZ-wide figure also lower than expected. The metrics have lifted Bunds from c. 132.50 to a peak of 133.00, before stabilising around 132.80.
• Gilts opened modestly firmer with impetus from benchmarks more broadly somewhat capped by a hawkish UK retail sales number. Tracking EGBs into the UK's own PMIs which came in mixed and saw a knee-jerk spike to 99.14, before swiftly paring to below 99.00.

Commodities

• Crude is lower amid the stronger Dollar and the broadly downbeat risk tone across the market which reverberated from a lacklustre US performance. WTI August found some support at USD 81/bbl while Brent dipped under USD 85.50/bbl.
• Mixed trade across precious metals with spot gold holding onto gains despite the stronger Dollar, with newsflow also relatively quiet this morning. Spot silver lags following yesterday's outperformance. Spot gold resides near yesterday's peak (USD 2,365.59/oz).
• Copper futures pulled back from yesterday's advances with demand sapped by the subdued risk tone.
• Goldman Sachs sees minimal impact from new EU restrictions on Russian LNG. GS says the latest EU package of sanctions impacting Russia bans the transshipment of Russian LNG by member countries, but the measures do not block EU member states from importing Russian LNG.
• Citi says crude markets are showing tightness, sees Brent picking up in Q3, but notes opportunities to sell into the strength
• Global crude steel output rises 1.5% to 165.1mln tonnes in May 2024 vs May 2023; China crude steel output rises 2.7% Y/Y to 92.9mln tonnes in May 2024

Geopolitics: Middle East

• "The IDF wants to declare the end of the war after the Rafah operation", according to Sky News Arabia citing Israeli press Haaretz
• Israel will reportedly step up attempts to assassinate Hamas leaders in a bid to force Hamas to accept the ceasefire deal, according to a senior Israeli official cited by The Times.
• US Secretary of State Blinken underscored the importance of avoiding further escalation in Lebanon and reaching a diplomatic resolution in the meeting with Israeli officials, while he emphasised the need to take additional steps to surge humanitarian aid into Gaza and plan for post-conflict governance, security, and reconstruction, according to the State Department.

Geopolitics: Other

• UK is reportedly at loggerheads with the US and Germany over Ukraine joining NATO as the US and Germany have derailed a European plan to grant Ukraine an “irreversible” path to NATO membership and instead support offering Ukraine a lighter commitment to membership of the military alliance, according to The Telegraph.
• Russian President Putin said Russia is ready to start talks on a settlement of the Ukrainian conflict even as early as tomorrow but all parties should study its peace proposals and it is up to them when they bother to do it, while he added Russia never rejected the idea of negotiations and that the Ukrainian side has forbidden itself to negotiate, according to TASS.
• Japan imposed sanctions against China-based companies in connection to the Ukraine war with sanctions placed on China-based Yilufa Electronics and Shenzhen 5G High-Tech Innovation Co.
• South Korean military fired warning shots after North Korean soldiers crossed the border on Thursday, according to Yonhap.

US Event Calendar

• 09:45: June S&P Global US Services PMI, est. 54.0, prior 54.8
  • June S&P Global US Manufacturing PM, est. 51.0, prior 51.3
  • June S&P Global US Composite PMI, est. 53.5, prior 54.5
• 10:00: May Existing Home Sales MoM, est. -1.0%, prior -1.9%
• 10:00: May Leading Index, est. -0.3%, prior -0.6%

DB's Jim Reid concludes the overnight wrap

Not to depress you but enjoy today while you can if you're in the northern hemisphere as tomorrow will have a little less daylight as a slippery dark slope to Xmas begins. I'm currently writing this on the longest day in Watford in the middle of a large longstanding annual 2-day DB Macro conference. Maybe we should have held it at Stonehenge this year given the date.

On that theme it feels like you have to go back to the Neolithic period to find a day when the US significantly underperformed Europe but that's what happened yesterday. The S&P 500 (-0.25%) opened around a third of a percent higher and above 5500 for the first time before slipping as the session progressed with even Nvidia, on its first day as the largest company in the world, slipping from +3.82% at the day's early highs to close -3.54% and losing its largest company crown back to Microsoft . The recent rally in US stocks has been very narrow with only 2% of the 503 constituents currently at all-time highs and 7% at one-month lows. So we are seemingly in the hands of tech and particular Nvidia at the moment.

Over the other side of the Atlantic, sentiment was helped by a strong bond auction in France , suggesting that investors were still willing to buy OATs despite the political uncertainty. But on top of that, there was growing hope among investors about the chance of rate cuts ahead, as the Swiss National Bank marginally surprised markets by cutting rates for the second time this year, and the Bank of England made some dovish noises as well. So that offered fresh signs that the global monetary policy cycle was turning, with further rate cuts on the horizon.

That narrative got going after the SNB’s decision, where they delivered a 25bp cut in their policy rate to 1.25%. A narrow majority of economists in Bloomberg’s survey had expected them to remain on hold. They also lowered their inflation forecasts compared to March, which now see it falling from 1.3% in 2024, to 1.1% in 2025, and 1.0% in 2026. In turn, the Swiss Franc weakened by -0.80% against the US Dollar yesterday, making it the worst-performing G10 currency on the day.

That was then followed up by a dovish hold from the Bank of England. They kept the Bank Rate at 5.25% as expected, and the decision was split 7-2 with the two preferring a 25bp rate cut. But even though 7 wanted to stay on hold, the statement pointed out that for some of that group, “ the policy decision at this meeting was finely balanced ”, and investors dialled up the chance of a rate cuts in response. For instance, the chance of a cut by the next meeting in August rose from 34% the previous day to 62% by the close. That helped gilts to outperform, with the 10yr yield down -1.1bps on the day to 4.055%.

European markets got a further boost from the situation in France, where the Treasury raised €10.5bn in an auction of 3-8yr debt. That auction had been in the spotlight, as there were concerns about how much demand there’d be given the political uncertainty. But in reality it went smoothly, and the Franco-German 10yr spread came down by -2.2bps on the day to 77bps. That supportive backdrop helped French equities to recover as well, and the CAC 40 (+1.34%) posted its strongest daily performance since January.

That strength was echoed across European equities, where the STOXX 600 (+0.93%), the DAX (+1.03%) and the FTSE MIB (+1.37%) all posted solid gains. Over in the US, the S&P 500 (-0.25%) weakness after the holiday was driven by the information technology sector (-1.60%). The NASDAQ (-0.79%) and the Magnificent 7 (-0.85%) in turn posted sizeable declines. In addition to Nvidia’s reversal, Apple fell -2.15%, allowing Microsoft (-0.14%) to sneak back in as the world’s most valuable company. The equity mood was slightly more positive otherwise, with 58% of S&P 500 constituents higher on the day. Energy stocks led on the upside (+1.86%), amid a boost from the latest rise in oil prices, with Brent crude (+0.75%) closing at a 7-week high of $85.71/bbl.

The US session was punctuated by largely weaker data releases yesterday. For example, the continuing jobless claims were up to 1.828m in the week ending June 8 (vs. 1.810m expected), which is their highest level since January. And the initial jobless claims were at 238k over the week ending June 15 (vs. 235k expected), which pushed the 4-week moving average up to a 9-month high of 232.75k. However, note that claims can be distorted this time of year by the timing of the end of the school year so we're not yet reading too much into the recent climb. At the same time though, data also showed that housing starts fell to an annualised rate of 1.277m in May (vs. 1.370m expected), which is their lowest rate since June 2020. But even with the weaker data, the Atlanta Fed’s GDPNow estimate only ticked down a tenth in the latest update, and now points to annualised growth in Q2 at +3.0%.

That subdued data failed to stop sovereign bond yields from moving higher yesterday, which took place on both sides of the Atlantic. Indeed, yields on 10yr Treasuries were up +3.7bps to 4.26%, whilst those on bunds (+2.8bps), OATs (+0.6bps) and BTPs (+0.8bps) all moved higher as well. The only major exceptions to that were in the UK (-1.1bps) and Switzerland (-5.0bps), who both had dovish-leaning central bank decisions yesterday.

Asian equity markets are mostly trading lower this morning with Chinese stocks the major underperformers. The Hang Seng (-1.72%) is leading losses while the CSI (-0.60%) and the Shanghai Composite (-0.40%) are also edging lower. Elsewhere, the KOSPI (-0.88%) is also drifting lower in early trade with the Nikkei 225 (-0.12%) swinging between gains and losses after Japan’s inflation data (more on this below). S&P 500 (+0.02%) and NASDAQ 100 (+0.08%) futures are slightly higher.

Coming back to Japan, consumer prices ex fresh food accelerated for the first time in a couple of months, advancing +2.5% y/y in May (v/s +2.2% in April, +2.6% consensus) even if it was slightly below consensus. Headline consumer inflation also advanced at a faster pace in May, rising +2.8% y/y (+2.9% expected) and compared with the +2.5% recorded in April, partly due to higher energy bills. However, the core-core CPI, which strips away both energy and fresh food, increased +2.1% y/y in May (v/s +2.2% expected) down from a +2.4% gain in the previous month.

Separately, reports showed that Japan's factory activity expanded for a second straight month in June but the pace of growth eased. The au Jibun Bank flash manufacturing PMI came in at 50.1 in June slightly down from 50.4 in May. Meanwhile, services sector activity contracted in June for the first time in about two years amid subdued new business as the flash services PMI slipped to 49.8 in June from 53.8 in May.

In FX, the Japanese yen (+0.03%) is trading around 159 versus the dollar, its weakest level in two-months and near the lows again, thus ramping up expectations that the authorities will again intervene in the FX market. Meanwhile, Masato Kanda, the top currency diplomat, reiterated that the authorities are prepared to take necessary measures if there are any highly volatile moves in currency markets.

To the day ahead now, and the main data highlight will be the flash PMIs for June from the US and Europe. Otherwise in the US we’ll get existing home sales for May and the Conference Board’s leading index for May, and in the UK there’s retail sales for May. From central banks, we’ll hear from the ECB’s Nagel and Simkus.