Italy will be the first euro country to release HICP inflat ion for June
|Market movers today
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Data on euro area credit and M3 growth are due out today. While we estimate M3 cont inued to show around 5% yearly growth, we believe loan growth continued its upward trend. In particular, adjusted loans to NFCs increased from 1.9% in February to 2.4% in April. We estimate this increased further in May, as credit demand continued to increase.
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ECB president Mario Draghi is due to participate in a Policy Panel at 15:30 CET at the ECB Forum on central banking in Portugal. The Fed's Williams is due to speak at 9:30 CET but the speech will be a reprise of the speech held yesterday.
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Italy will be the first euro country to release HICP inflation for June. Consensus estimates a decline to 1.4% y/y from 1.6% y/y in May. Tomorrow, Germany and Spain are due to release inflation data, followed by the flash estimate for the euro area on Friday.
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Data on the US trade balance and pending home sales are due for release.
Selected market news
Yesterday, EUR crosses soared and the German 10-year government benchmark bond sold off. The yield climbed some 5bp initially, following some hawkish comments from ECB President Mario Draghi. In a speech in Portugal, Draghi said, ‘as the economy continues to recover, a constant policy stance will become more accommodative and the central bank can accompany the recovery by adjusting parameters of its policy instrument – not in order to tighten the policy stance, but to keep it broadly unchanged' . Additionally, he said that ‘all the signs now point to a strengthening and broadening recovery in the euro area – deflationary forces have been replaced by reflationary ones'. Despite the hawkish comments, Draghi concluded that ‘a considerable degree of monetary accommodation is still needed for inflation dynamics to become durable and self-sustaining' (for more see Bloomberg, 27 June 2017). As the ECB, in our view, is currently too optimistic on wages and core inflation, we stick to our view that it will extend its QE purchases and continue its monthly purchases at EUR40bn per month in H1 18.
In the UK, the Bank of England (BoE) is set to ‘reduce' some of its stimuli by raising the countercyclical capital buffer to 0.5% and plans to increase the level to 1% in November 2018. According to the BoE's Financial Stability Report , each 0.5pp increase will swell the bank's cushion of common equity Tier 1 by GBP 5.7bn .
In the US, the Senate Republicans postponed a vote on the healthcare bill yesterday after resistance from members of their own party. According to conservative Republicans, the Senate bill does not do enough to erase Obamacare, whereas moderate Republicans are worried that millions of people will lose their insurance. The House of Representatives has passed its own version of the healthcare bill last month .
Yesterday in London, Fed Chair Janet Yellen reiterated that the Fed's balance sheet is set to be shrunk ‘gradually and predictably' and that the Fed intends to raise interest rates only gradually
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