Eurozone inflation data starts to raise questions for June rate cut

• European inflation data starts to raise questions over ECB June easing
• Chinese real estate sector lifts sentiment in the region
• Japanese yen surges on likely BoJ intervention

The FTSE 100 leads the pack once again this morning, with the UK bourse finding itself in fresh territory once again. A day devoid of major data in the US instead sees the focus lie on European inflation data out of Spain and Germany. Unfortunately, the recent inflationary theme seen throughout much of the developed world looks likely to come into play once again, with the Spanish monthly figure of 0.7% meaning that we have seen a sum total of 1.5% price growth over March and April alone. While we await the German reading, the greater than expected figures from North Rhine-Westphalia and Bavaria (the top two economic regions) do signal a potential higher than expected figure for Germany later in the day. Unfortunately, the data we have seen over recent months does call into question the legitimacy of calls for a June rate cut from the ECB, with tomorrows wider eurozone CPI figure likely to be a major driver of volatility if it dampens easing expectations that have reached a somewhat lofty 72%.

The upbeat open in Europe comes off the back of a similarly positive start in Asia, with Chinese real estate stocks moving sharply higher on the news that Chengdu have removed homebuying qualifications, highlighting a growing confidence in the sector. Following a protracted and painful period that has seen the Chinese focus on regaining stability in the housing market, this news brings hope that we are entering a phase that will see confidence return for Chinese real estate and the economy as a whole.

The Japanese yen saw sharp gains this morning, with the dollar collapsing from 160 to 155 over the course of the morning. Speculation remains rife over the cause of this reversal, but it seems highly likely that the Bank of Japan will have deemed it necessary to intervene once again after Friday’s post-BoJ rally that saw the yen fall into multi-year lows across the board. While markets continue to price 20-basis points worth of rate hikes from the BoJ this year, the yen remains the easy target for traders as inflation falls back below target. Nonetheless, today’s sharp reversal will have provided a stark reminder of the risks involved in trading against the yen.