Market movers today
Today, we get only second tier data (manufacturing and industrial product ion data from France will be watched), so market focus is set to be on developments around the G7 meeting, which starts in Canada today and runs until tomorrow.
In addition, aft er yesterday’s t ones from P rime Minister Theresa May on backing down and including a time limit to the backstop option, further developments on UK Brexit talks will be followed even more closely as the backstop option is another point of disagreement with the EU.
We published our ECB and FOMC previews ahead of next week’s meetings. For the ECB, we expect only a formal change to forward guidance in July, while we expect the Fed to take its next step towards the neutral rate by another 25bp hike
We also published FX Strategy – EUR/USD lower for longer – but not forever, 8 June. We opt to revise down our forecast profile for EUR/USD and now see the cross at 1.17 in 1M, 1.17 in 3M (previously 1.19), 1.20 in 6M (1.23) and 1.25 in 12M (1.28).
Selected market news
Global risk sentiment remained sour this morning amid open political tensions between the US and other G7 countries ahead of today’s G7 meeting and pressure in key emerging market countries such as Brazil. Asian stock markets are retreating and the JPY is advancing. Overnight the White House announced that president Donald Trump will leave the G7 meetings in Canada early tomorrow morning to go t o Singapore ahead of next week’s summit with North Korea’s leader Kim Jong-Un. The decision comes as president Trump yesterday accused French president Emmanuel Macron and Canadian Prime Minister Just in Trudeau of imposing ‘massive’ tariffs on the US and other non-monetary obstacles to sales of its products. Trump’s reaction came in response to signals from the French and German G7 delegations that they would be prepared to sign a communique without the US given disagreement on trade, Iran and climate change.
Meanwhile, Brazilian assets came under significant pressure yesterday . Political uncertainty ahead of the presidential election, including whether the well-respected central bank governor Ilan Goldfajn in the autumn coupled with general sour emerging market sentiment is putting Brazil under pressure. This prompted the central bank governor to stress yesterday that the Brazilian central bank has ample reserves and the fundamentals of the Brazilian economy are good but , at this stage, it would not consider an emergency meeting. At the same time, the IMF announced a USD50bn package for Argentina to strengthen investor sentiment .
