Those people looking for a repeat of June’s European Central Bank meeting this week will be sadly denied that volatility, we believe. The European Central Bank’s decision to take deposit rates into negative territory has, in the grand scheme of things, only had a marginal effect on the euro in the past month. Investors, and the continent’s exporters, were looking for a lot more.
Euro could have come a lot lower on June 6th had the European Central Bank decided to commence a series of outright purchases of assets, something that continues to be hinted at by Executive Council members. At the moment, the market is exhibiting a hint of patience with the European Central Bank and its most recent measures, but will look poorly on any signal that the ECB is any way finished adding to its new policy framework. That would come from near-term increases in inflation or growth.
While no changes to monetary policy are expected on Thursday, we can expect to see Mario Draghi quizzed harder by the assembled media during the post-interview press conference on where the European Central Bank goes from here. We are expecting a lot of repetition of last month’s language to ensure the acknowledgement and understanding of forward guidance. Today’s Eurozone preliminary inflation numbers for June are expected to remain at 0.5% despite the 1% rise in the German measure seen on Friday.
Given this Friday is Independence Day in the United States, we will receive the latest round of payrolls figures this Thursday, the cap to what is amounting to be an increasingly important week of data. Everything has been going in favour of the US jobs market of late. Last week’s preliminary PMI surveys showed a sizeable increase in employment sub-components and initial jobless claims readouts remain at close to Pre-Global Financial Crisis levels.
Both of last week’s consumer confidence releases showed significantly higher sentiment readings with the official conference board measure touching a 6 year high. At least some of this we can apportion to the increased prospects for job seekers, with those who are already in employment also looking forward to increased wage settlements.
We normally like to look through the ISM survey employment sub-components before making an assessment of where we believe payrolls to be. They are released tomorrow and Thursday however, so we’ll pencil in a holding improvement of 240,000 jobs for now.
Last week was a difficult one for Bank of England Governor Mark Carney. His testimony in front of the Treasury Select Committee was painted as an exercise in flip-flopping on forward guidance while the initial policy recommendations of the Financial Policy Committee on the UK’s housing market were lacklustre. Sterling managed to keep its end up last week and seems committed to trying another leg higher against USD at least, especially in the event of US data disappointment. This week’s run of UK data is focused on PMIs naturally with a slight moderation in both manufacturing and services growth expected.
Elsewhere this week we have a probable interest rate cut by the Riksbank – the Swedish central bank – in an attempt to head off deflationary pressures. This seems to be fully priced into SEK crosses with a snap back in SEK likely should the central bank not hint at additional cuts in the future as well.
The Reserve Bank of Australia are unlikely to move rates however this month and we are expecting that we will continue to see a broad trend of language that hints at stable rates and slight discomfort with the level of the Aussie dollar and the effect it could be having on the export sector. China’s manufacturing PMI – also released on Tuesday – will also govern AUD movement this week.
Yen continues to strengthen as the markets look for a haven away from geo-political issues. The Japanese Tankan Survey later this week should also call into question bets on further policy stimulus by the Japanese authorities and further allow for JPY strength.
