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European FX Outlook: German inflation is set to rise on fuel prices

What you need to know before markets open

  • The Italian political uncertainty sparkled a major move on Italian debt securities sending the Euro and global stocks lower.
  • The envoy of top North Korean diplomats are to hold crucial talks in the US about the summit.
  • The Italian political woes promote risk-off market mood with safe havens being the winners while emerging markets and the equity markets suffer.
  • German inflation headlines the European agenda.
  • The US private employment report and the first revision of Q1 GDP headline.
  • The Bank of Canada is expected to keep the rates unchanged at 1.25% in May.

Wednesday’s market moving events

  • The Bank of Japan Governor Haruhiko Kuroda opened the Bank of Japan-Institute for Monetary and Economic Studies annual conference in Tokyo with no remarks regarding the economy or monetary policy.
  • The Reserve Bank of New Zealand Governor Philip Orr said during the parliamentary testimony in Wellington that the RBNZ is in a more solid place to deal with unexpected market events, but can't predict them.
  • German retail sales are expected to rise 0.6% m/m in April.
  • German harmonized CPI is set to rise 1.9% y/y in May up from 1.4% in April driven by fuel costs.
  • German unemployment is expected to fall 10K while remaining unchanged at 5.3% in May.
  • The Eurozone business climate is projected to rise to 1.40 in May.
  • The US ADP private employment report is expected to add 190K new jobs in May. For more detail read my Preview here.
  • The first revision of the first quarter US GDP is expected to see 2.4% quarterly annualized rise. For more detail read my Preview here.
  • The core personal consumption expenditures price index is expected to decelerate from 2.5% y/y originally estimated to 2.3% y/y, but still firmly anchored above Fed’s 2% inflation target.
  • The Bank of Canada runs the monetary policy meeting with no interest rate changes expected. For detail read Yohay’s Preview here.
  • The Swiss National Bank Governor Thomas Jordan is scheduled to deliver a speech titled "Innovation and Entrepreneurship: Success Factors in a Changing Economic World" at the De Vigier Foundation Awards Ceremony, in Switzerland at 14:45 GMT.
  • The US Federal Reserve publishes the Beige books of the regional districts economic development.

Major market movers

  • Euro fell as much as 0.8% to 1.1500 level as the Italian bond market selloff spurred massive market move lower.
  • Sterling was under pressure in tandem with Euro over the political uncertainty that roiled the Italian markets.
  • The risk-off mood favored the Japanese Yen that rose to 108.10 against the US Dollar.
  • Watch the US Dollar factoring in the set of employment and growth data. For more detail read my ADP Preview here and  my GDP Preview here.

Tuesday’s macro summary

  • St. Louis Federal Reserve President James Bullard said the US monetary policy is possibly at neutral levels and Fed should be cautious with further rate increases, especially in regards with the Bank of Japan and ECB remaining stalled.
  • Italian PPI fell -0.4% m/m while rising 1.3% y/y in April.
  • Japan’s unemployment remained stable at 2.5% in April.
  • Italy's central bank Governor Visco said Italy must be a respected voice in the debate on redesigning EU regulatory & institution set-up while warning that “'we are only ever a few short steps away” from serious risk of losing trust. 
  • Swiss trade balance reached a surplus of 2.8billion CHF in April with exports falling 0.2% y/y while imports fell -3.4% y/y.
  • Loans to households increased 2.9% y/y in April, unchanged from the previous month while loans to non-financial corporations rose at 3.3% y/y in April, the ECB said. 

Author

Mario Blascak, PhD

Mario Blascak, PhD

Independent Analyst

Dr. Mário Blaščák worked in professional finance and banking for 15 years before moving to journalism. While working for Austrian and German banks, he specialized in covering markets and macroeconomics.

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