- With US markets closed for Independence Day yesterday there have been only modest market movements since market close in Europe. The sentiment in the stock market is moderately negative ahead of today’s ECB meeting and the important labour market report in the US tomorrow. Asian stock markets are slightly lower this morning with Nikkei and Hang Seng both down 0.3%.
- The FX market has been largely range trading since market close in Europe yesterday. Both EUR/USD and USD/JPY are this morning trading largely unchanged at 1.253 and 79.81 respectively. In the commodity market Brent crude oil is also trading largely unchanged, slightly below USD 100 after the recent surge.
- There has been no major market-moving news overnight. According to a press report in today’s Wall Street Journal it will be very difficult to create a common euro bank supervisor by the end of the year as targeted by the EU-leaders at the summit last week, see Wall Street Journal.
- The main event today is the ECB-meeting, where we expect ECB to cut the refi rate by 25bp to 0.75%, see ECB preview: Time for ECB to deliver rate cut, 3 July. We also expect it to lower the deposit rate by 10bp to 0.15% but here there is a broad range of possible outcomes, which could leave the deposit rate anywhere between unchanged and a 25bp cut. We do not expect ECB to announce non-standard easing measures in connection with today’s meeting, albeit another long LTRO is still possible in the coming months. In line with the consensus view we expect Bank of England (BoE) to keep the base rate unchanged at 0.5% but to expand the target for its asset purchases by GBP50bn to GBP375bn in connection with today’s BoE meeting. However, in BoE there has been some frustration about the effectiveness of its asset purchases, so new non-standard easing measures cannot be ruled out.
- In the data calendar focus will mainly be on the ADP report in the US that will give us an early indication of tomorrow’s very important nonfarm payrolls. In the US ISM non-manufacturing will also be released today. In Europe both Spain and France will attempt to tap the bond market. Ireland will today sell Treasury bills in its first attempt to tap the market since September 2010.
In Denmark the central bank’s certificate of deposit rate (CD rate) could end up in negative territory if the ECB cuts its deposit rate today, see DKK strategy: Central Bank Preview. After recent independent interest rate cuts to stem the FX inflow the CD rate is only 0.05%. With continued FX inflow there will be pressure on the Danish central bank to maintain the spread to the eurozone and for that reason we expect the CD rate to be cut by 10bp to -0.05% if the ECB cuts the deposit rate by 10bp. However, a 5bp cut in the CD rate or even unchanged CD rate cannot be ruled out. If ECB cuts the deposit rate by 25bp the CD rate could be cut by more than 10bp. 
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