European Summary and Highlights 31 May

European morning session

EUR/USD gained 25 pips and USD/JPY gained half a figure through the European morning session. The EUR gains were supported by a stronger than expected Eurozone CPI number, which showed a 2.6% y/y rise in May against market expectations of a 2.5% increase. The core rise of 2.9% was even further above the consensus of 2.7%. The rise to 2.8% in Germany and 2.7% in France were the main drivers of the Eurozone gains, although the national data was weaker than the HICP basis number.

There was no obvious trigger for JPY weakness, which suggests there may be some impact from end of month flow. However, EUR/CHF also rose significantly to 0.9825 from 0.9790, and AUD and CAD also made gains, suggesting a risk positive tone, although there was little movement in equities.

Other data included slightly weaker than expected German retail sales data for April, and mixed UK money and credit data, with mortgage lending stronger than expected but consumer credit somewhat weaker.

Asia session

Obviously, the key headline of the day would be Donald Trump's conviction of falsifying business record and sentencing would be on July. So far its impact towards the market seems muted as Trump is one of the first U.S. president to be convicted of felony and it is unclear whether it will affect his run for presidency as first timers are usually fined and instructed for community service instead of imprisonment. On Friday, we also have Chinese may manufacturing PMI which show a contraction at 49.5 while service at 51.1, both missing estimates. Regional risk sentiment does not seem to be affected and is in the green but AUD/USD has reversed earlier gains to trade 1 pip lower at 0.6632 as USD solid, NZD/USD is up 0.16% to 0.6124 while USD/CAD slipped 0.05%.

The May Japan Tokyo headline y/y CPI has rebounded above 2% to 2.2% from 1.8%, so as ex-fresh food and energy. Ex fresh food y/y CPI stays below 2% at 1.9% but also rebounded from 1.6% in April. While Tokyo CPI likely come in National CPI most of the time, we are forecasting National CPi to also rebound to 2% y/y on accelerating wage growth. 10yr JGB rebounds while U.S. Treasury Yields continue to soften. USD/JPY is trading 0.02% higher at 156.83. Else, EUR/USD is down 0.13% and GBP/USD is down 0.1%.