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[Quick Facts]

1. Inflation persists at high levels and consumer spending stalls.

2. EU countries fail to strike a deal on power market reform.

3. Canada's economy seems to have recovered in May.

4. Saudi Arabia will extend its production cuts for at least one month.

[News Details]

Inflation persists at high levels and consumer spending stalls

The PCE index released last Friday increased by 0.1% in May from a month earlier and 3.8% year-on-year, falling below 4% for the first time since April 2021; core PCE increased by 0.3% from a month earlier and 4.6% year-on-year. From last December to date, the annual core PCE rate has been "stuck" between 4.6-4.7% for more than six months, and signs of more stubborn core inflation are starting to become more apparent.

Income and disposable income in the U.S. both rose 0.4% month-on-month in May; against the backdrop of rising income, consumer spending increased only 0.1% from a month earlier, not only slightly less than expected but also significantly slower than the 0.6% increase last month. This is evidence that restrictive monetary policy is working. The weakness of consumer spending contrasts sharply with a series of recent data showing the "resilience" of the U.S. economy.

For the Federal Reserve, the slowdown in consumption and inflation is welcome. But this is unlikely to change the recent policy path, especially in the case of more stubborn core inflation, as policymakers insist that interest rates need to rise further and a more hawkish stance will be taken.

EU countries fail to strike a deal on power market reform

EU countries failed to strike a deal on the European power market reform again last Friday. Some countries, including Germany and France, remained divided over a potential new type of state-aided power plant.

The planned power market reform is aimed at making European power prices more stable and avoiding a repeat of last year's energy crisis when soaring gas prices led to high bills for consumers. Whether these countries could subsidize existing power plants by signing new fixed-price power contracts with governments sparked a huge controversy.

Canada's economy seems to have recovered in May

Canada's latest monthly GDP figures were mixed. April's GDP was flat from a month earlier, missing expectations for 0.2% growth, while March's figure was revised from flat to a 0.1% increase. With the end of the federal workers' strike, some of the weaknesses that weighed on economic activity in April proved short-lived. Wholesale trade continued to weaken during the month. A decline in manufacturing may suggest that demand was subdued. But construction activity increased and the real estate and rental sectors kept strengthening. In addition, preliminary data showed GDP grew 0.4% in May. The economy regained momentum in the second quarter, strengthening the case for a rate hike in July.

Saudi Arabia will extend its production cuts for at least one month

Saudi Arabia is expected to extend its unilateral 1 million barrels per day oil production cut agreement for at least one month, as global crude markets remain under pressure from economic concerns, according to a survey by analysts, meaning the country will continue to cut oil output in August.

Several OPEC+ representatives said that while the Saudi decision may be unpredictable, an extension of the production cut seems possible. Considering the fragility of market popularity, the cancellation of production cuts at this time would hurt oil prices too much.

[Focus of the Day]

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