U.S. CPI, Eurozone Bond Trouble, Shanghai Back in Lockdown - What's Moving Markets

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By Geoffrey Smith

Investing.com -- The U.S. releases consumer inflation data for May, amid expectations that the headline annual rate will stay stuck at 8.3%. Eurozone bond markets are in a mess as they try to come to terms with the European Central Bank's plans to raise interest rates. Oil prices rise after U.S. lawmakers introduce a bill expanding the range of sanctions against Russia. Amazon ducks out of an expensive race for cricket broadcasting rights in India, and half of Shanghai is back under restrictive measures after authorities discovered a fresh outbreak of COVID-19. Here's what you need to know in financial markets on Friday, June 10.

1. U.S. CPI set to stick at 8.3%

It’s a big day for inflation. The U.S. will report its consumer price index for May at 8:30 AM ET (1230 GMT). While it’s not the Fed’s preferred price measure (the personal consumption expenditures basket better reflects the spending patterns of a broader segment) of the population, it’s still going to grab headlines on Capitol Hill and around the country.

Analysts expect prices to have risen 0.7% on the month, an acceleration from April due to gasoline prices resuming an upward trend that is still intact in the middle of June. The year-on-year rate is however expected to stay at 8.3%, as more of last year’s price surge passes out of the calculations.

The ‘Core CPI’ measure, which strips out more volatile food and energy elements, is expected to have moderated, by contrast. So – all’s good if you don’t eat or drive.

2. Eurozone bonds in a mess as ECB details rate hike plans

The euro fell, as did bond prices around the Eurozone periphery, on the prospect of the European Central Bank raising interest rates in a slowing economic environment.

At her press conference on Thursday, ECB President Christine Lagarde declined to give any concrete detail as to how the ECB intends to keep bond yield spreads within an acceptable range as it embarks on its first monetary tightening in 11 years. By contrast, she gave unusually detailed guidance with regard to the path of interest rates, which may be 75 basis points higher by the end of September.

By 6:10 AM ET, the euro was down 0.2% at $1.0596, having lost over 1.5c on Thursday. The spread between the 10-year German and Italian yields, a barometer of financial stress in the Eurozone, widened another 3 basis points to 233 bps, after rocketing higher on Thursday.

3. Stocks set to open mixed after Thursday selloff; Amazon reportedly ducks cricket challenge

U.S. stock markets are set to open mixed as participants adopt a cautious wait-and-see posture ahead of the key CPI release. The number comes a week after a labor market report that still pointed to a good degree of momentum in the economy.

By 6:10 AM ET, Dow Jones futures were down 70 points, or 0.2%, while S&P 500 futures were down 0.1% and Nasdaq 100 futures, which had underperformed sharply in Thursday’s selloff, bouncing a little, up 0.2%.

Stocks likely to be in focus later include Walt Disney (NYSE:DIS), which fired its head of television on Thursday and which also features in another of the day’s big corporate stories. It’s still engaged in a $7.7 billion bidding war for broadcasting rights to the Indian Premier League cricket tournament, in contrast to Amazon (NASDAQ:AMZN), which has decided to keep its cash in its pocket, according to Bloomberg’s sources.

DocuSign (NASDAQ:DOCU) will also be on the radar, down 25% in premarket after a bad earnings miss late on Thursday.

4. Shanghai reintroduces some lockdown measures after finding more COVID-19 cases

The city of Shanghai put over half of its inhabitants under COVID-19 measures again, only a couple of weeks after ending a two-month lockdown that had led to considerable social unrest and a sharp drop-off in economic activity.

The authorities have ordered PCR testing for all residents in 14 of Shanghai's 16 districts over the weekend, Reuters reported.

The news came too late to disturb a continued rally in Chinese stocks, which have responded enthusiastically to signs of the government easing up on its campaign against technology giants this week. They were further encouraged by a drop in producer and consumer price inflation in May, prompting hopes that the central bank will be a little bolder with its monetary easing next week.

5. Oil up as GOP lawmakers introduce secondary sanctions bill on Russian energy sector

Crude oil prices rose again on Friday after the threat of ‘secondary sanctions' by the U.S. on the Russian energy industry ramped up a notch.

U.S. Republican Congressmen introduced a bill that would bar federal agencies from dealing with anyone who still has business ties to sanctioned Russian entities, in an echo of the measures that have crippled Iran’s and Venezuela’s oil industries in recent years.

Figures from the United Arab Emirates to India have warned the U.S. against going down the same path with Russia, arguing that it would have a much more profound impact on global markets due to Russia’s status as the world’s second-largest exporter.

By 6:20 AM ET, U.S. crude prices were up 0.7% at $122.38 a barrel, while Brent was up 0.8% at $124.09 a barrel.