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UniCredit Macro & Markets Weekly - Inflation fears push volatility higher

  • Macro: In the eurozone, the composite PMI will probably increase due to an improvement in services activity, while UK PMIs are likely to remain elevated (both data releases are due next Friday).
  • FI: We expect EGB net supply to slow down in 2H21, with ECB purchases likely to absorb it even under a conservative scenario in which PEPP purchases are scaled back to 1Q levels after June. Debt management offices have increased their share of funding at the extra-long end; we expect a lower maturity of supply in 2H.
  • FX: Currency majors were hit by stronger US CPI inflation data, which offered the USD some relief. Yet, there is no sign that markets are on the verge of a trend reversal in favor of the USD. The EUR and GBP might also benefit from new data at home in the coming days, such as firm PMI surveys for May in the eurozone and the UK.
  • Equities: We recommend focusing on less-yield-sensitive parts of the equity market such as value or cyclical sectors as intensified discussion about higher inflation pushes risk-off trades.
  • Credit: The coming weeks might offer an interesting window of opportunity for new issuance ahead of lower summer volumes and considering the looming risk of a repricing of long-term risk-free yields.

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