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With recession risks linked to the inflation outlook, Global investors did not take kindly to the fact that peak inflation is not behind us after the Eurozone headline CPI came far above expectations, driving global yields higher with the post-EU Russian Oil embargo oil bounce initially fanning those inflation fires.

But fortunately for risk sentiment, there could be some OPEC oil supply relief coming down the pipe.

US equities were weaker Tuesday, S&P down 0.6% to end the month more or less where it started. While there was a lot of recession noise, even stocks are returning to trend, just like the economic data with the Chicago PMI surprising to the upside.

Meanwhile, public transportation will resume in Shanghai, and people can move freely starting from today, which should hopefully keep risk trading on an even keel. 

The dollar is a touch higher against most G10 and EM currencies but off its intraday tops after US yields dipped due to worse than expected US house price data which may negatively affect consumer spending. Given the slowdown in home sales data and the rise in the mortgage rate, home prices are likely to fall further.

OIL 

Oil prices have remained highly resilient lately in any market environment. But much good news is out there, especially now with the EU partial ban announcement behind us and China reopening (at least for now) as known knowns. 

And after a lengthy pre-embargo buying spree, given stretched positioning, oil was primed for a lower correction as traders would eventually pivot to the economic consequences of higher oil. Still, there was a rush to profit-taking after the bearish OPEC news hit the wires. 

Reports are circulating that OPEC is weighing suspending Russia from the Oil production deal. And some members in the Persian Gulf are expected to ramp up output increases if the above suspension is carried out -the anticipation of more supply hitting the market, even after cutting Russia out, could be fueling some of this sell-off as oil gave up its post-EU embargo bounce.

The OPEC olive branch comes ahead of a potential Middle East leaders' meeting in late June that is expected to be headed by Biden and would signal US leadership and commitment in the Middle East when the US is seen as withdrawing from the region.

Meanwhile, EU members have divisions on the next step after implementing this latest embargo. Belgian PM said it was time to pause as measures targeting Russian gas would be more complicated, but others said they should go for a total energy embargo.

FOREX

Month-end rebalancing flows generally take the market beyond expected so we could see a slight reversal in the US dollar moves from yesterday. Still, economic data and central bank rhetoric will likely be the keen drivers this week.

It is a packed data week that will inform the Fed's near-term growth and labor market outlook heading into the June 15 FOMC meeting. The main event will be Friday's May employment report. Typically, but not always, the currency markets will reduce the previous week's dominant price skew into a significant data point, especially if it can have an important implication on the FOMC rate hike path.

The focus is on Europe. 

European government bonds plunged following Eurozone and Italy CPI readings on Tuesday, with markedly hawkish remarks from the ECB's Kazimir, who is not usually a notable hawk. But look for more hawks to emerge to reinforce their case for a 50bp hike in July. The ECB blackout begins on Thursday.

Higher for longer energy prices are a concern for Europe, and with inflation running rampant, overtightening in peripheral financial conditions might be unavoidable. Hence the less bouncy Euro overnight. 

The EU's Russian energy embargo will weigh on European growth – and with the ECB bound to hike interest rates to stave off inflation, they would be doing so into a perfect storm that can leave ECB hawks with egg on their face due to the economic drag from higher oil and higher interest rates.

The ECB wants to raise rates to avoid a EURO melt, but rate hikes alone may not be enough to drive the EURO higher, especially with France on the precipice of a recession.

GOLD

Gold is lower due to higher global yields as central banks around the globe don their inflation-fighting hats with 50 bp hikes, the new normal for the near future.