US futures are trading flat as we approach the open on Tuesday, following a largely mixed session in Europe where traders already have one eye on the ECB meeting on Thursday in the absence of any notable economic events today.
It’s been a very busy period for financial markets, with the Presidential election in the US, Italian referendum and oil output negotiations keeping investors very much on their toes. This month has no shortage of events, with the ECB due to meet on Thursday and the Fed next week. Neither, it would appear, has plans to simply ease its way into the festive period, with the former providing an update on its QE program and the latter likely to raise interest rates for only the second time in a decade.
With the Italian saga continuing in the background after Matteo Renzi agreed to delay his resignation until the 2017 budget has passed, and the country's financial institutions likely to remain in the headlines, we’re not exactly heading for a period of peace and calm for the market. However, today may offer a little respite. Italy’s FTSE MIB and Spain’s IBEX are currently the biggest beneficiaries of this, trading up more than 1% on the day having been the most exposed to the referendum result and the negative knock on effects of a “no” victory.
Yields on European debt are also seeing some reprieve today having risen in the immediate aftermath of the referendum. I think the combination of the report that the ECB may be willing to step in and buy Italian debt to prevent yields rising sharply and the expectation that the central bank will extend its bond purchases by at least six months on Thursday, is keeping yields down for now.
The willingness to hold these bonds will be tested next year though, with a number of elections testing just how stable the political environment is in the euro area at a time when the central bank is clearly struggling to maintain its bond buying at the current rate.
As the Fed has entered into its blackout period, there will be no appearances from officials today, but there are a few pieces of economic data due out which may be of interest. Non-farm productivity, trade balance and factory orders data for the US will be released throughout the afternoon today which may ensure markets remain volatile, even in what is one of the quieter periods of late.