A new record high is expected for EU inflation

Markets in Asia and Europe started the week with a positive outlook yesterday after reports that covid restrictions in Shanghai and Beijing are on their way to being loosened. But as inflation worries weighed on investors, European equity futures fell Tuesday, and Asian shares steadied, capping off another volatile month for markets.

With inflation in Germany reaching another all-time high, the ECB is under increasing pressure to end its stimulus policy from the crisis era. Numbers from Spain also surpassed economists' expectations.

Added to the soaring cost of energy and food, data released on Monday showed that consumer prices jumped 8.7% over a year ago in Europe's largest economy in May. 

ECB officials will meet 10 days from now to announce the completion of large-scale asset purchases and confirm plans to raise interest rates for the first time in more than a decade in July. Several policymakers have even suggested a half-point hike instead of the quarter-point.

ECB decisions in June will be guided by the latest economic projections. In 2023 and 2024, price pressures in the euro area will likely remain above the 2% target. 

Even though markets expect an aggressive 115 basis point hike in the last six months of 2022, the inflation is unlikely to be tamed anytime soon, as the European Union is working towards cutting 90% of Russian oil imports by the end of the year.

The announcement on Monday that EU leaders had agreed in principle to cut most oil imports from Russia by the end of the year sent oil prices higher and boosted commodity currencies.

Events of today

On Tuesday, the 19-nation currency bloc is scheduled to release its May price indexes. EU CPI figure is among the most notable highlights of the day. Preliminary inflation is forecast to hit 7.7% in May, a multi-decade record high. 

Gabriel Makhlouf will deliver remarks at Irish Funds' annual global conference, while Ignazio Visco will deliver remarks at the Bank of Italy's annual report presentation. Sweden's inflation targeting policy is discussed by Riksbank Governor Stefan Ingves. We'll have retail sales from the Netherlands, Switzerland, and Germany and  GDP growth rates from France and Canada.