Market movers today
Following ECB President Mario Draghi’s hint at future easing yesterday, it is today the Fed’s turn to turn more dovish. At the FOMC meeting tonight we look for the Fed to open the door for a rate cut in July and a total of 75bp cuts in H2. Lower inflation expectations, trade war uncertainty and signs of a manufacturing recession point to the need for a lower Fed funds rate. Comparing the current Fed funds rate with measures of the neutral rate also suggests that monetary policy is not too tight. The Fed meeting will include new projections (dot plot).
On the data front we get UK inflation data where consensus looks for a further decline in the core inflation rate to 1.7% y/y in May from 1.8% y/y in April. Core inflation has been trending lower since the peak at 2.7% in early 2018.
In Scandi focus turns to Swedish key figures on economic and consumer confidence as well as unemployment. Sweden’s NIER also publishes new forecasts.
Selected market news
It was a fairly volatile trading session in global bond and stock markets. US treasuries initially rallied from the opening following Draghi’s dovish comments signalling further ECB easing, but erased most of the gains later in the day, as news broke from both U.S. and China administrations that Trump and Xi will meet once again at the upcoming G-20 meeting in Japan next week regarding the ongoing trade war. Thus, 10Y US treasuries ended the day 3.5bp lower covering an 8bp intraday range. US curves flattened 2s10s to 20bp as the short end was held close to unchanged. A total of 63bp worth of cuts is currently priced by the end of this year.
Equities, on the other hand, merely extended gains from earlier in the day following the renewed trade talk optimism. S&P ended the day 0.97% per cent higher, while in Asia Hong Kong shares (Hang Seng) is currently up 2.4%.
Oil prices rose 2% (brent crude up USD 1.3 per bbl.) as OPEC and its allies are nearing on a date for its next meeting regarding oil production cuts (Vienna July 1-2). This ends a one-month dispute regarding time and place for the upcoming meeting and finally some good news for oil, which has seen prices drop USD 10 per bbl. since late May. The oil price is set to remain highly volatile on the back of the current conflict in the Gulf of Oman and volatility indices have surged to the highest level in five months.
Japanese 10y bond yields fell 2bp to -15bp ahead of the BoJ tomorrow and are thus currently trading close to the lower bound of the target range of -20bp. The Yen initially slid on the trade optimism, but quickly erased the deficit. We currently target a stronger JPY.
Finally, Swedish house prices (Valuegard HOX Index) rose 0.7% m/m and 1.8% y/y.
