ECB policymakers remain 'apart' on strategic review

Market movers today

Today's key releases are the preliminary PMIs for the euro area, the UK and the US. We will look for signs whether we have seen a peak in manufacturing and whether activity is picking up in services amid the gradual easing of restrictions. We discussed the global manufacturing cycle with a lot of focus on the US in more detail in Research Global: Manufacturing cycle to peak in Q3, 21 June. We discussed the euro area manufacturing cycle in more detail in Research Euro Area - Tide is slowly turning for European manufacturing, 22 June.

Besides that we have some Fed and ECB speeches including from ECB President Lagarde.

Senate Majority Leader Charles Schumer and House Speaker Nancy Pelosi (both Democrats) are meeting with White House officials today discussing the way forward on an infrastructure package.

This morning, we have published our quarterly Nordic Outlook with updated forecasts and in-depth descriptions of the Nordic economies. The Nordics are experiencing strong recoveries as economies open up and goods exports are strong, and overheating risks are already appearing as producers lack supplies and house prices have accelerated. We expect these risks to be mostly transitory and expect the recovery to continue. 

The 60 second overview

ECB strategic review: According to a Reuters story yesterday, ECB policymakers are still apart on a new inflation strategy in connection with the ECB's strategic review. Especially, Reuters writes that they have yet to agree on a specific strategy on inflation overshoot. The hope is for a deal before a September decision on PEPP. The policymakers agree to include climate and owner-occupied housing in their decisions. As we argued in ECB Research Strategy Review: 'leaving no stone unturned', 18 June, we expect the market reaction to the final outcome to be rather muted.

Fine tuning from the Fed? The Fed was more hawkish than anticipated at its June meeting last week but based on comments yesterday, the Fed also wants to make sure that market participants are not expecting the Fed to hike prematurely. Yesterday, NY Fed President John Williams said that rate hikes are still quite a ways off. Fed Chair Jerome Powell repeated that he expects a strong labour market recovery in the fall but that the Fed will not hike rates prematurely. Both Federal Reserve Bank of Cleveland President Loretta Mester and Federal Reserve Bank of San Francisco President Mary Daly said they expect more clarity on tapering "in the fall" (Mester mentioned September) but hinted that rate hikes are still far away.

Brexit: The EU and the UK have discussed the implementation of the Northern Ireland protocol a lot but the UK has now officially asked for an extension of the grade period (set to expire on 30 June), which is likely granted, see Bloomberg. During the Brexit negotiations, we learned that the two will eventually reach a deal so neither we nor market participants seem overly concerned at this point. Brexit has definitely moved in the background.

Equities: The positive sentiment in equity market continued yesterday led DM, cyclicals and growth stocks. US heavy Nasdaq index posted a new all-time high. Materials best performing sector while defensive utilities the only sector lower. In US, Dow +0.2%, S&P 500 +0.5%, Nasdaq +0.8%, Russell 2000 +0.4%.

Optimism continuing this morning broad based gains in Asia and slightly higher European and US futures.

FI: The comments from Fed Chairman Powell and other Federal Reserve Official again showed that the debate on the QE is on the cards, but the Federal Reserve is nowhere near changing policy rates and still expect the inflation to be transitory according to Powell. The reaction in the US Treasury market was muted at 10Y US Treasuries continues to range-trade around 1.45% to 1.5%.

FX: Scandies and commodity currencies had another strong day vis-à-vis USD and JPY yesterday. USD/NOK briefly touched 8.50 and USD/SEK dropped below the 8.50 level. EUR/USD recovered firmly above 1.19. 

Credit: Credit indices remained in good shape yesterday with iTraxx Xover tightening almost 3bp (to 234½bp) and Main ½bp (to 47bp). HY closed unchanged and IG widened marginally.

Nordic macro

This morning, we have published our quarterly Nordic Outlook with updated forecasts and in-depth descriptions of the Nordic economies. The Nordics are experiencing strong recoveries as economies open up and goods exports are strong, and overheating risks are already appearing as producers lack supplies and house prices have accelerated. We expect these risks to be mostly transitory and expect the recovery to continue. See Nordic Outlook: We have lift off, 23 June.