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UniCredit Macro & Markets Weekly - Eurozone inflation and US payrolls to set the scene for ECB and Fed meetings

  • Macro: Eurozone headline inflation likely accelerated further in May, to 2.0% yoy from 1.6%, with core inflation rising by 0.3pp to 1.0% yoy (Tuesday). Following the latest disappointing data, US non-farm payrolls probably regained traction in May, increasing by around 600k (Friday).
  • FI: We do not expect strong euro area inflation data to push market-based inflation compensation much higher next week. Unless we see a huge positive surprise in the US labor market release (more than 1mn new jobs), UST yields are unlikely to recover ahead of the FOMC meeting.
  • FX: The USD remains weak, but prudence by major central banks concerning their exit strategies is preventing more adjustments in long-term yields and thus more directionality on FX. In EM, PLN and HUF are overstretched on rate-hike expectations. The TRY is set to lose further ground amid renewed political pressure on the CBRT.
  • Equities: With equity indices at historical highs, relative-value opportunities across sectors are set to gain increased attention. We see the most upside for Automobiles & Parts and for Banks and Insurance, while Technology and Retail seem to have already priced in positive developments to a large extent.
  • Credit: Amid improving rating momentum, we see fewer fallen angels in 2021 than we originally forecast. In high-yield indices fallen angels have tended to outperform non-fallen angels, a pattern we expect to continue.

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