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ECB Meeting Unlikely To Be A Game Changer

Market movers today

Focus in markets remains on US trade talks – with short-term emphasis on Mexico, and speculation of central bank easing for most notably the Fed.

Today’s highlight is the ECB meeting, with a policy statement to be released at 13:45 CEST and a press conference at 14:30 CEST. We expect the ECB to maintain its easing bias, with no new additional stimulus measures announced. The update of the staff projections is unlikely to change much for inflation, but we see a downside risk to the 2020-21 growth forecast from its already low level. We will also get more information on the TLTRO3 terms, which we expect to be favourable in light of the ongoing struggles of the economy. See our full preview here and our ‘cheat sheet’ here .

We will also get euro area GDP details for Q1. We will closely monitor the domestic demand drivers and see how they fared; private consumption and fixed investments were probably strong judging from the German figures already released.

In the US, we get the jobless claims, which will attract attention ahead of tomorrow’s NFP number amid contradicting labour market signals yesterday (see below). We expect initial jobless claims to come in at the low end.

Selected market news

Yesterday’s US ADP report for May fell well short of market expectations with a monthly private job growth of only 24K – the weakest report since March 2010. Over the past years the ADP report has been a less-than-stellar predictor of the nonfarm release even if the moving average version has proven a better fit, see chart . Upon the ADP release, rates markets raised their bets on Fed rate cuts. Meanwhile, the subsequent ISM non-manufacturing was strong, with a rise to 56.9 beating both market expectations of a modest drop and the gloomy signals from the Markit Service PMI. Also, the employment index of the ISM non-manufacturing – which has historically correlated well with nonfarm payrolls, see chart – showed a strong rise to 58.1, spreading doubt as to the reliability of the weak ADP signal. Rates markets subsequently reversed most of the US fixed income rally.

Brent crude temporarily dropped below USD60/bbl yesterday as the EIA’s weekly inventory report showed a historically large increase in total US petroleum stocks. This raises concerns about waning US demand at a time when trade concerns have resurfaced. On the other hand, the latest price drop increases the likelihood of OPEC+ extending its output curbs.

The general election in Denmark gave a majority to the parties that support a new government under Social Democratic leadership. There still need to be negotiations and the shape of a new government is not a done deal. We do not expect any market impact. A new government does not mean a fundamental shift in economic policy, Denmark’s EU membership is not in question, and any thoughts of joining the euro are far away.

Real Estate Norway house prices showed a monthly rise in national house prices in May of 0.5% s.a. This was a little stronger than expected and shows that rising disposable income growth is more than countering the housing headwinds from rising supplies, higher nominal rates, tight regulation, lower migration and lower population growth. We expect continued moderate house price growth in the coming months.

Danske Bank
Danske Bankhttp://www.danskebank.com/danskeresearch
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