The annual pace of inflation in the US rises to 8.6% in May

Key highlights

The British public's expectations for the rate of inflation in a year's time have risen to their highest in records going back to 1999, a quarterly survey by the Bank of England showed. The public's median inflation expectation for 12 months' time rose to 4.6% in May, up from 4.3% in February's survey. Expectations for two- and five years' time rose to 3.4% and 3.5%, the highest since 2013 and 2019 respectively.

Credit growth in China picked up in May, after the central bank leaned on the country's commercial banks to do more to support an economy suffering from COVID-19 lockdowns and a grinding real estate crisis. The People's Bank of China said Total Social Financing, grew by 2.79 trillion yuan after slumping to only 910 billion yuan a month earlier, when the key financial hub of Shanghai joined the list of regions and cities under COVID-19 lockdown measures.

Japanese imports likely jumped in May at the fastest pace in six months, buoyed by surging raw material prices and the yen's decline to two-decade lows, a Reuters poll showed on Friday. Rising import costs are inflicting increasing pain on Japanese households and domestic-oriented firms, raising questions about the central bank's stance that the weak yen is beneficial to the economy overall.

USD/INR movement

The USDINR pair made a gap up opening at 77.7900 and traded within the range of 77.7850-77.8700. The pair closed the day at 77.8325 levels. The USDINR pair rose and touched its life time high levels today amid broad dollar strength. Elevated crude oil prices, FII outflows and surging US yields too kept the Indian rupee under pressure. The domestic Industrial output grew by 7.1% in April on better performance by power and mining sectors, as per government data released today.

Global currency updates

The annual pace of inflation in the US rose to 8.6% in May according to the latest Consumer Price Index data released by the US Bureau of Labour Statistics. The inflation print was above the expected reading of 8.3%. The Dollar index remained strong and rose above 104 levels after the release of higher than expected inflation print. The effect of broad dollar strengthening was seen in both the currencies as the Euro and Pound weakened and traded at 1.0524 and 1.2385 levels respectively.

Bond market

Short-term U.S. Treasury yields popped today, after the release of hotter-than-expected inflation data. The 2-year rate jumped more than 8 basis points to trade above 2.9%. The benchmark 10-year Treasury yield briefly rose and traded at 3.05%. Short-term rates moved more due to their higher sensitivity to Federal Reserve rate hikes. India 10-year benchmark bond yield too closed the day higher at 7.519%.

Equity market

Indian equity benchmarks Sensex and Nifty 50 suffered sharp losses following a gap-down start, as rate hike guidance from the ECB and upcoming US inflation data unnerved investors globally. Losses across sectors pulled the headline indices lower, with financial, IT and metal shares being the biggest drags. Broader markets also bore the brunt of overall weakness on the Street. The Nifty Midcap 100 and Nifty Smallcap 100 indices fell around one percent each.

Evening sunshine

“Focus to be on the ECB President Lagarde Speech due later today.”

European stocks fell further as investors reacted to the European Central Bank’s latest policy decisions and a hotter-than-expected U.S. inflation print. U.S. stock futures turned lower after fresh data showed that inflation accelerated in May. Heightened inflation is likely to put pressure on the Fed to lift interest rates quickly in an effort to temper rising prices. Fed officials are largely expected to raise the central bank’s key interest rate by half a percentage point next week and replicate that in July. Focus to be on the ECB President Lagarde Speech due later today.