The EU on Tuesday stepped up sanctions against Russia

Market movers today

• Main event will be the FOMC statement tonight (no press conference or new projections at this meeting). We expect a slightly more positive tone on the labour market in line with Fed chairman Janet Yellen's recent comments at her semi-annual testimony to Congress. FOMC may also make the inflation language a bit less dovish as inflation has turned higher over the past three to four months - see FOMC preview, 29 July.

• Before the Fed meeting a number of interesting releases are due. At 14:30 CET US GDP data for Q2 are expected to show growth of around 3% in Q2 following the big decline in Q1. It will leave the first half at a very low level. However, forwardlooking indicators point to growth in H2 of 3-3.5% and job growth has picked up, so the Fed is likely to feel confident about the outlook. The US also releases ADP employment this afternoon expected to show a job gain of 225k in July.

• In Europe focus will be on preliminary CPI data out of Spain and Germany, Spanish GDP for Q2 and the EU confidence indicators for July. Spanish CPI is expected to decline into negative territory to -0.2% y/y, while German inflation is projected to drop to 0.7% y/y from 1.0% y/y in June. We expect tomorrow’s euro flash CPI to print a new cycle low at 0.4% y/y in July from 0.5% in the previous two months.

• In Sweden we expect Q2 GDP to have improved to 1.0% q/q. For more on the Scandi markets see page 2.

Selected market news

The EU on Tuesday stepped up sanctions against Russia and pro-Moscow separatists in Ukraine, following the United States in imposing broad economic punitive measures. These ‘phase three’ sanctions include an embargo on arms sales to Russia, a ban on exports of so-called dual-use goods such as computers or equipment that have both either civilian or military uses and efforts designed to cut off Russian banks from European capital markets. The latter include a measure that would prevent Russia’s largest stateowned banks from issuing stock or bonds in European markets, according to FT. Among the sanctions just announced, the capital restrictions are expected to have the most damaging effect on Russia. Last week, the Russian central bank raised interest rates from 7.5% to 8%—the third hike this year—in its efforts to try to stem capital outflows. With Russian banks and private companies already suffering from capital flight, the restrictions on Western capital will squeeze them even harder.

Focus in the bond markets continues to be on the large drop in yields across countries and maturities. The 10Y German benchmark yield dropped to a new low (1.11%) yesterday and all-time lows were hit in most 10Y peripheries and semi-cores. The decrease was most pronounced in the 30Y (-4bp) with semi-cores also reaching new alltime lows in this part of the curve.