Quiet but data ahead
As befits a session wherein the only data releases were 2nd tier and in and around the consensus estimate, markets have been fairly quiet since yesterday morning. Today’s publication of the latest round of services sector PMIs from Europe, the UK and the US should get things going again with the US measure combining with the ADP report on employment to shape investor expectations ahead of Friday’s US jobs report.
News that Jeffrey Lacker, a member of the Federal Reserve’s Open Markets Committee and President of the Richmond Fed, would resign following the disclosure of his role in a leak of confidential information on the policy options open to the Fed back in 2012 to a hedge fund has not moved markets. Whether this is (wrongly) seized upon as an example of Obama administration conniving we will have to wait and see. We hope not.
Candidates gang up on Le Pen’s Frexit plans
‘The Big Debate’ in France last night that saw 11 candidates debate for 4hrs with leftist candidate Jean-Luc Melanchon seen to be the most convincing according to a snap opinion poll taken afterwards. Marine Le Pen had a bad night by all accounts as candidate by candidate lined up to barrage her on her plans to pull France out of the European Union and the euro. Le Pen has promised a Brexit style referendum to the French people should she be elected as President however polling suggests that nearly 2/3rds of French voters want to keep the euro.
This could all be a plan to make sure that her support turns up to both votes and hope that cross-party support for centrist candidate Macron melts away. There is a feeling however that this is predicated on hope more than expectation.
Euro weakness more a function of rates than politics
The euro rallied slightly against the USD as the debate went on but has since drifted back. While focus on the politics of France is crucial given we will have a new President in a little over a month’s time we have also seen a slackening of rate hike expectations in Europe. A month or so ago all anyone could talk about was Eurozone inflation and when the ECB could start tightening policy via deposit rate hikes or a tapering of their QE program.
Contracts that allow investors to bet on where interest rates will be at a given time in the future had pushed expectations to a place where by December of next year that rates would be back at 0%. The deposit rate in the Eurozone is currently -0.40%. Expectations have now drifted back to -0.13% in 21 months’ time.
The Day Ahead
In Brexit news, all eyes will be on the European Parliament today with a vote scheduled on a resolution setting out their terms for any EU-UK agreement. This is where we will see just how much the UK is expected to contribute in the time it remains a member of the European Union as well as its adherence to policies on free movement of people and a future need to abide by EU standards on things such as food safety, climate change or tax policy.
In Asia, North Korea has tested another ballistic missile on the eve of the meeting between Presidents Trump and Xi in Washington. News from Washington also suggests that the juiciest report on currency manipulation and its effect on trade will not be published until June 29th; this reduces some of the risk from the US-China summit later this week.