Market movers today
In the euro area, the ECB minutes from the June meeting are set to be released today. At the press conference, Draghi stressed that the governing council (GC) discussed several options at the meeting including a rate cut and a restart of QE. Draghi in his Sintra speech sent a strong signal to markets that more stimulus is coming. Hence, markets will look out for clues in the minutes on how ready the GC stands in announcing immediate steps already at the 25 July meeting. We still lean towards an announcement of an easing package coming in September (see New ECB call – rate cut and restart of QE, 18 June). Earlier in the day, ECB’s Coeuré will be speaking about ‘Inflation expectations and the conduct of monetary policy’.
In the US, CPI inflation figures are in focus. We expect CPI core rose 0.2% m/m in June, which translates into an unchanged annual inflation rate at 2.0%. A range of Fed speakers will be on the wires later in the evening and Fed Chairman Powell’s testimony continues today before the Senate Banking Committee.
After Norwegian and Danish inflation data surprised on the downside yesterday, markets will ponder whether Swedish figures show a similar move today. We expect CPIF inflation to slow down to 1.6% in June (from 2.1% in May) driven largely by energy prices (see Inflation Preview Sweden: June CPIF to be in line with Riksbank, 5 July).
Selected market news
Minutes from the June meeting revealed that the Fed was already leaning towards easing, as many FOMC members saw a stronger case for a cut. The testimony from Fed Chairman Powell all but confirmed that the next move from the Fed is an easing of monetary policy. During his hearing, Powell stressed that uncertainty since the June meeting continued to dim the outlook for the US economy and that trade war risks overshadow the healthy labour market. On the back of the dovish language, markets started to reprice the probability of a 50bp cut at the end of the month (now back up at 15%). After topping at 2.11% 10Y Treasuries edged lower to 2.04%. We stick to our view of a 25bp cut at the July meeting.
In Europe, markets took courage from better than feared industrial production data out of Italy and France. 10Y Bund yields climbed to -0.31%, while 5Y5Y inflation expectations bounced back to 1.23% after reaching a post-Sintra slump of 1.15% last week. The mood still got a small damper, after the European Commission cut its euro area growth outlook and stressed increasing downside risks in its summer forecast update. This chimes in with our view that investors should brace for more negative economic surprises in the euro area in the coming weeks (see Euro Area Research: Catching up with reality , 28 June).
Wall Street closed near record highs, but despite the easing pledge from the Fed, European equities fell for a fourth straight session. The mood is more upbeat this morning in Asia. Brent oil rose to a seven-week high at USD67/bbl on US-Iran headlines, a weaker USD and shrinking US crude inventories.
