Market Movers

  • Focus today will turn to the Eurogroup meeting where Greece is in focus as the economic data calendar is relatively thin. Sunday evening the Greek parliament approved the ‘first review bill’ including both the contingent mechanism and privatisation fund. According to media reports the Eurogroup is likely to approve the first review today, which would also allow Greece to negotiate the terms of its obligations.

  • A couple of prominent ECB members are scheduled to speak during the week and today markets will look for comments from chief economist Peter Praet. Praet is usually very dovish but at the end of April he said ‘deploying negative rates again in the future would require a distinct worsening of the inflation outlook’ and we expect Praet to stick to the ECB’s current patient view where it waits to see the impact of the measures announced in March.

  • We expect the German ZEW investor expectations to weaken slightly in May as financial sentiment is less optimistic than in April. Looking beyond the UK referendum (our base case is that the UK votes to stay in the EU) we expect uncertainty will fade considerably. This – together with very low costs of borrowing, stronger foreign demand and considerable pent-up demand within investments – should result in a re-acceleration in investment growth.

  • The central banks in Turkey and Hungary will announce rate decisions. Markets generally expect unchanged Turkish rates and a Hungarian cut.

 

Selected Market News

In a light data calendar markets look for Fed communication and guidance on when to expect the next Fed hike. Last week’s minutes from the April meeting were clearly more hawkish-than-expected but also revealed a much divided FOMC committee (see here). In this respect recent hawkish comments from Dudley and Rosengren – who are usually considered to be among the more dovish voting members – have clearly underscored the market re-pricing of Fed monetary policy. Yesterday, Bullard (voter, hawkish) partly countered some of the comments by expressing concerns about US growth but also said that he does not expect the UK/EU referendum to influence the June decision. Markets are now pricing a roughly 50% probability of a June or July hike.

Yesterday, the US PMI manufacturing disappointed market expectations by dropping slightly. Together with the regional surveys, it suggests that we should see a falling ISM manufacturing next week, highlighting that the US manufacturing sectors is still not out of the woods. We expect the US manufacturing sector to gain steam in Q4.

Overnight, Reserve Bank of Australia governor Stevens defended the ‘Aussie’ inflation target but reiterated worries of low inflation. AUD/USD broke lower on his comments.

In Austria, the Green Party backed politician Van der Bellen has won the presidential election in a historically close race against Hofer from the far-right Freedom Party.


 

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