FOMC Minutes: Fed view on Q2 rebound eyed

Market Movers

• Today’s main event is the publication of minutes from the FOMC-meeting on 28-29 April. In the statement from the meeting the Fed said that the slowdown in Q1 was partly transitory, so it will be interesting to see to what degree the FOMC-members have confidence in a rebound in growth in Q2. With the timing of the first rate hike largely data dependent, there is unlikely to be any clear indication on the timing of the first rate hike in the minutes.

• Chicago Fed President Charles Evans (voter, dove) will speak about monetary policy at 09:00 CET in Munich. Evans has recently been arguing that the Fed should refrain from raising interest rates until 2016 but as one of the biggest doves on the FOMC Evans is not a swing-voter on a decision to raise interest rates.

• Bank of England (BoE) will release minutes from its May MPC meeting. However, the minutes may prove to be a non-event as the Inflation Report released last week covers in great detail the conclusions from the MPC meeting.

• The main focus in the Scandi markets will be on the release of Q1 GDP in Norway . For more on Scandi markets see page 2.

Selected Market News

In a speech held on Monday and released yesterday morning ECB executive board member Benoit Coeure surprised the markets by saying that the ECB intends to increase its asset purchases in May and June, so it can purchase less in July and August when market liquidity is usually lower. He further said that, if needed, the frontloading of purchases could be complemented by backloading of purchases in September.

The fine-tuning of ECB’s asset purchases does not change the total size of the current programme but it does underline that the ECB is taking into account the overall functioning of the euro-area bond market. The news was welcomed by the markets – it sent EUR/USD below 1.12 and pushed yields on European government bonds down.

Danmarks Nationalbank (DN) yesterday announced it will resume switch operations of government bonds, see press release, indicating that DN is also trying to come up with measures to support a well functioning market for Danish government bonds amid the current suspension of bond issuance. The statement emphasised that ‘the decision to suspend the issuance of government bonds remains in effect’, i.e. the switch operations do not change the amount of outstanding bonds but merely the composition.

Japan’s Q1 GDP grew 2.4% q/q ann. beating the consensus expectation of 1.6% q/q ann. growth. The Japanese economy thereby expanded for the second straight quarter. The rise in economic activity supported higher consumption and investments but also a build up of inventories.