German industrial production is expected to increase in June

Market movers today

• The main event is the ECB Governing Council meeting where we expect the ECB to remain on hold. The meeting follows after the ECB announced a significant easing package followed by further details about these measures. In light of this, we expect limited market impact from today’s meeting but Draghi should continue to have a dovish stance, as inflation has declined to a new cycle-low and as the latest activity data have been weak. Expect Draghi to repeat that the ECB is committed to unconventional instruments but to also stress that it takes time before the impact of the June easing measures is seen.

• In the UK the Bank of England is expected to keep rates unchanged. The inflation report due to be released next week will be more interesting, as it will give more information about future monetary policy decisions.

• German industrial production is expected to increase in June but after the very weak factory orders released yesterday, there is downside risk to the forecast. The figure will give more information about German GDP growth in Q2 but according to the Bundesbank GDP stalled in Q2 as geopolitical concerns, among other factors, weighed on industrial output.

• In Norway, industrial production covering June is published.

Selected market news

The pressure on equity markets, and support to bond markets, faded during US trading after a volatile day in Europe – and the S&P500 index ended the day flat. However, the improved sentiment was not sustained into Asian trading and stock markets are lower across the region this morning.

Earlier yesterday, weak German factory orders, renewed recession in Italian GDP, and an apparent escalation of the conflict in Ukraine had left European equity markets down almost 1% and triggered strong buying in core bond markets. The 10-year German government bond yield even set a new record low at close to 1.09%, while peripheral bond spreads widened.

Following a long period where Europe has been a source of strength in the market, it is apparent that it is increasingly becoming an area of concern. Equity markets have underperformed recently and economic data are indicating a loss of momentum – not least in Germany. While there is not yet evidence that the underlying recovery trend has faulted, price action does indicate that investors are beginning to have doubts about the relative strength of Europe.

In Australia, the unemployment rate increased to 6.4% and while technical factors can explain part of the jump in today’s report, it does not change the fact that Australia is moving against the trend of healing labour markets seen in most other developed economies. As the mining boom has faded, the economy is struggling to rebalance. The AUD weakened about 0.6% on the report.