UK report points to continued labour market tightness

Chris Scicluna

Ahead of US CPI, European stocks follow Asian (ex-China) markets lower as euro govvie yields rise again; Japanese officials meeting now to discuss yen
Following yesterday’s hawkish policy statements from the ECB and sell-off on Wall St., and ahead of today’s all-important US CPI report, most Asian stock markets ended the week similarly in reverse. Japan’s Topix was a case in point, falling 1.3% to reduce its gain over the week to 0.5%. Having dropped again back close to 134.5/$, the yen appreciated somewhat, with Japanese officials from the MoF, BoJ and FSA now meeting to discuss international market developments – and raising the likelihood of some verbal intervention – ahead of next week’s BoJ monetary policy meeting. Also in Japan, the latest PPI inflation data reported an unexpected decline despite the weaker yen. The latest Chinese inflation figures were also softer, opening the door a little wider to further policy support. And with a better mood surrounding Chinese regulatory actions against the tech sector, Chinese and Hong Kong stock markets bucked the regional trend, with the Hang Seng little changed and the CSI300 closing up 1.4% to be up more than 3½% on the week. US stock futures are up about 20-30bps. But with euro area govvies weakening further, and periphery bonds significantly underperforming again, European stock markets have opened roughly 1% lower.

Chinese price pressures moderate further leaving scope for further policy easing
Broadly as expected, Chinese consumer price inflation remained steady and – by international standards – low last month, while producer price pressures continued to moderate, seemingly providing scope for additional near-term policy support. In particular, with prices dropping 0.2%M/M – the first fall this year – CPI inflation remained steady in May at 2.1%Y/Y. While food inflation rose 0.4ppt to a 20-month high of 2.3%Y/Y, services inflation eased 0.1ppt to just 0.7%Y/Y, the lowest in 13 months, and core inflation (excluding food and energy) was unchanged at just 0.9%Y/Y. Meanwhile, PPI inflation slowed 1.6ppts to a 14-month low of 6.4%Y/Y, as manufactured goods inflation slowed 1.6ppts to a 16-month low of 3.2%Y/Y with the durable goods component remaining slightly in negative territory (-0.1%Y/Y), while the raw materials component slowed more than 2ppts to 15.1%Y/Y.

Japanese goods PPI inflation unexpectedly eases despite weaker yen
Despite the additional pressures from the weakening yen, as in China, Japanese producer goods inflation also eased in May. Unexpectedly, with prices unchanged from April, goods PPI inflation eased 0.7ppt to a four-month low of 9.1%Y/Y. Compared to the prior month, the weakness came from prices of petroleum and coal, offsetting additional pressures from a range of items including chemicals, electricity and gas, iron and steel and transportation goods. While import prices slowed more than 1ppt to 26.3%Y/Y on a contract currency basis, they accelerated more than 1ppt to 43.3%Y/Y in yen terms.

UK report suggests continued labour market tightness; inflation expectations survey due
Ahead of next week’s BoE monetary policy meeting – at which a hike of 50bps certainly can’t be ruled out although 25bps remains our call – today brings the Bank’s latest Inflation Attitudes survey results. These seem likely to report a further rise in expectations for the coming twelve months from the near-14-year high of 4.3% registered three months ago. Meanwhile, the latest KPMG/REC report on jobs released overnight reported a slowdown in hiring activity last month, noting the weakest growth in both permanent placements and temporary billings since early 2021. However, while growth in vacancies eased to a three-month low, it remained strong. So, the slowdown in hiring appeared principally due to a continued shortage of available candidates, which remained in the recent extreme range. And so, growth in starting pay remained historically high. Expect similar trends to be reported in next week’s official UK labour market data from the ONS.

Italian IP and final Spanish CPI due from the euro area
A relatively quiet day ahead for euro area economic data. Italian industrial production figures will likely report a drop in output in April of around 1.0%M/M after growth stalled in March. In addition, final Spanish inflation data for May are expected to confirm the flash estimates, which saw the national CPI rate rise 0.4ppt to 8.7%Y/Y, still more than 1ppt below the March high.

US consumer prices likely accelerated due to higher energy and food components
Today brings the most important US economic data of the week with the May CPI report. Our colleagues in Daiwa America think that core prices might have slowed 0.2ppts to 0.4%M/M due to an easing of some pandemic-related pressures (e.g. vehicles, clothing and hotels). But they also expect higher energy and food prices to push the headline CPI up 0.6%M/M, twice the rise in April, which leave the annual rate close to April’s level of 8.3%Y/Y. The preliminary University of Michigan consumer confidence survey for June, also due today, could report a slight improvement from the prior month’s recession-level reading thanks to slightly firmer equity markets.

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