Asian stock markets ready for higher inflation in US, while the euro surged on ECB bets

Asian stocks opened flat on Monday as investors remained cautious ahead of a vital reading on US inflation, while the euro rose against the yen amid expectations that the ECB will take a significant step toward tightening policy this week.

Asian stock markets

MSCI’s broadest Asia-Pacific share index (.MIAPJ0000PUS) was down 0.1 percent, whereas Japan’s Nikkei (.N225) was down 0.3 percent. Both the S&P 500 and Nasdaq futures increased by 0.1 percent.

Markets will be on pins and needles waiting for the U.S. consumer price report on Friday, especially after EU inflation hit a new high last week, shocking many.

Expectations are for a 0.7 percent increase in May, with the annual rate remaining at 8.3 percent and core inflation dropping slightly to 5.9 percent.

A large number would further add to market expectations of fast Fed tightening, with markets already pricing in half-point hikes in June and July, and over 200 basis points by the end of the year.

Euro surges on ECB expectations 

ECB

President Christine Lagarde is anticipated to confirm the conclusion of asset purchases this month and the first rate increase in July at the European Central Bank’s meeting on Thursday, but whether it will be 25 or 50 basis points is still ready to fly.

Money markets are pricing in 125 basis points of rate hikes by the end of the year, and 100 basis points as early as October.

The euro has held steady at $1.0722, a long way from its previous low of $1.0348, though it has struggled to break through support at $1.0786.

The euro reached a seven-year high against the yen at 140.35 yen after gaining 2.9 percent last week, while the dollar rose to 130.84 yen after gaining 2.9 percent last week.

The dollar was trading at 102.110 against a basket of currencies, up 0.4 percent from the previous week.

Gold was stuck around $1,852 an ounce in commodity markets, having been mired in a tight range for the preceding few weeks.

Oil surged after Saudi Arabia raised crude prices

U.S. crude oil and inflation

Oil prices jumped more than $2 in early trading on Monday as Saudi Arabia raised pricing for its oil sales in July, indicating how tight supply remains despite OPEC+ agreeing to boost productivity in the following two months

According to Saudi Arabia’s national oil corporation Aramco, the official selling price (OSP) for its flagship Arab Light crude to Asia has grown to a $6.50 premium above the combination of the Oman and Dubai averages, up from $4.40 in June.

The move occurred despite OPEC+ and its partners, agreeing last week to increase output by 648,000 barrels per day in July and August, or 50% more than previously planned.

Saudi Arabia has also raised the Arab Light OSP to Northwest Europe to $4.30 over ICE Brent in July, up from $2.10 in June. However, the premium for barrels bound for the United States remained unchanged at $5.65 over the Argus Sour Crude Index (ASCI).

The OPEC+ decision to accelerate supply increases is largely considered unlikely to fulfill demand, as several member nations, notably Russia, are unable to increase output, while demand in the United States is increasing during peak driving season, and China is loosening COVID restrictions.

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