Eurozone deflates despite ECB efforts

The UK has seen a relatively choppy start to the day, as the index attempts to play catch up with its European counterparts following yesterday's bank holiday. This is the first chance UK markets have had to respond to Friday's hawkish comments from Janet Yellen who continued the ‘summer hike' theme. As we approach June, traders will have to be very aware of the event risks ahead, with OPEC, BoJ, Fed and the EU referendum combining to create a tinder box which could go off at any moment.

It is clear that stock markets are focusing on the positive of late, with the threat of a rate hike being brushed off despite the widespread selling that followed the Fed's first hike in December. The US dollar has been the main rate hike play, with the dollar index rising over 4% in this month alone. With the release of the Fed's preferred inflation gauge, the core PCE index, today could be a big day for not only the chances of a June rate hike, but also the direction of the US dollar.

Eurozone inflation remains within the doldrums, with todays -0.1% reading representing the fourth consecutive negative reading despite continued gains in energy prices. Despite the ECB embarking on a substantial round of easing, the fact that the Eurozone remains within deflation is a clear heads up that monetary policy alone cannot fix the problem of stagnant price growth.

Ahead of the open we expect the Dow Jones to start 5 points higher, at 17,878.