In Times Of Hawkish ECB, This Week's Eurozone Inflation Plays A Vital Role, As Euro (EUR) May Need Some Boosting, So Does Hungarian Forint (HUF)... On Tuesday We Meet HP Earnings, So Better Let's Watch HP Stock Price Closely!

What is going on

US core PCE prices.

US core PCE data was out on Friday, and it came in as expected at 4.9% y/y and 0.3% m/m. This was slower than last month's 5.2% y/y and may prompt more talk of inflation peaking out. While PCE is the preferred Fed metric, what cannot be ignored right now is that food and energy prices still have more room to run on the upside suggesting that inflation will remain higher for longer. The May CPI print is due on June 10, so that will be the next one on the radar for further cues in terms of Fed's rate hike trajectory but for this week, the focus will be on the jobs report due on Friday

Goldman predicts end of battery metal bull market

– saying that the prices for key battery metals cobalt, lithium and nickel will fall over the next two years after an over-eager speculation phase. Goldman predicts that lithium prices could drop slightly this year to $54k from recent spot prices near $60k and fall to near $16k in 2023 before rising again further down the road. There’s been “a surge in investor capital into supply investment tied to the long-term EV demand story, essentially trading a spot driven commodity as a forward-looking equity,” the analysts said. “That fundamental mispricing has in turn generated an outsized supply response well ahead of the demand trend.”

Oil prices are becoming an important cross-asset driver.

Brent crude oil closed last week just shy of the $120/barrel level (see above) and also just shy of the highest weekly close for the front month contract since the outbreak of war in Ukraine. As the $120 area was often a resistance area during the high oil price period during 2011-14 (although at that time, the US dollar was far weaker), any further significant advance from here will likely dominate market attention and work against further strong improvements in risk sentiment as high energy prices cloud the growth outlook and would erode corporate profit margins.

Benchmark Capital and Sequoia Capital put out a dim outlook for technology.

Both venture capital firms were around during the dot-com bubble run-up and burst, and they have both put out perspective and action plans for the companies they have invested in. Those presentations talk about a much dimmer outlook and investors are shifting focus from revenue growth and revenue multiples to that of free cash flow here and now. Cost-cutting and focus on profitable unit metrics are now paramount to survive the coming years.

What are we watching next?

US Memorial Day Holiday today.

This is a major national holiday, so all US markets are closed today.

Eurozone inflation prints out this week.

The energy price shock has been bigger for Europe, and May prints are due for Spain, Germany, France, Italy and the Euro-area in the week ahead. Food price pressures continue to build up amid the supply shortages and protectionist measures, and further gains in May will add more weight to the ECB’s resolve to exit negative rates from Q3 with more aggressive tightening.

Special meeting of the European Council today and tomorrow.

Talks will focus on the implementation of a proposed embargo on oil imports from Russia (from 2024 onwards according to the latest draft). Hungary is the only EU country against it. The problem is that any new sanctions against Russia require the unanimous agreement of the 27 member states in order to pass. Expect tough negotiations. Hungary’s Prime minister Viktor Orban has recently passed on a “wish list” of demands he wants met to support oil sanctions. This includes a swap line with the European Central Bank and end to the rule of law Article 7 and “conditionality mechanism” procedures, amongst other things.

Australian GPD and balance of trade on watch and could disappoint.

Australian GPD data due Wednesday is expected to show economic growth fell from 4.2% YoY to 3% YoY in Q1. Quarterly GPD is expected to grow just 0.7%, following the 3.4% rise in Q4. If data is stronger than what consensus expects, the RBA has more ammunition to rise rates more than forecast, so the AUDUSD might rally. If GPD is weaker, then, the AUD will likely fall. For equities, Australian financials could rally if data is stronger than expected. Secondly, Australian Export and Import data is released Thursday. The market expects Australia’s surplus income (Export income minus imports payments) to rise from $9.4b to $9.5b in April. But given the iron ore price fell 13% in April, the trade data could miss expectations.

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Several central banks in focus this week.

Tomorrow, the National Bank of Hungary (NBH) will likely deliver a hike of 50 basis points to 5.9 %. The NBH has recently flagged a slowdown in the pace of rate hikes which had a detrimental impact on the Hungarian currency. What the central bank needs to do now is to define more explicitly the risks to growth, the effect that it would have on inflation this year but especially in 2023, the pace of rate hike and how financing conditions could evolve in the next 12-18 months. On Wednesday, the Bank of Canada is expected to increase interest rates by 50 basis points, from 1% to 1.5% (it has downplayed the possibility of a 75-basis-point hike in the short term). The move has already been priced in the market. Further interest hikes will come in the coming months in order to fight inflation which is running at a 31-year high of 6.8% YoY in April. Last week, former Bank of Canada governor Stephen Poloz mentioned the risk that the country will fall into stagflation this year.

Earnings Watch.

This week’s earnings releases are weak in terms of impact expect from earnings from Salesforce, Lululemon and Meituan. Analysts are expecting Salesforce to report FY23 Q1 revenue (ending 30 April) growth of 24% y/y on top of a significant operating margin expansion expected to boost free cash flow generation substantially.

Monday: Sino Biopharmaceutical, Huazhu Group
Tuesday: DiDi Global, Salesforce, HP, KE Holdings
Wednesday: Acciona Energias Renovables, China Resources Power, Veeva Systems, HP Enterprise, MongoDB, NetApp, Chewy, GameStop, UiPath, SentinelOne, Elastic, Weibo
Thursday: Trip.com, Pagseguro Digital, Remy Cointreau, Toro, Cooper Cos, Meituan, Crowdstrike, Lululemon, Okta, RH, Asana, Hormel Foods