Market movers today
We have another interesting day ahead of us with the FOMC rate announcement at 20:00 CEST as the most important event (press conference at 20:30). We expect the Fed to hike the target range to 1.75-2.00%, without making big changes to the dot plot. The statement may change to ‘monetary policy is modestly accommodative’ (modestly being a new word), which is not a change in policy strategy; it just reflects that the hiking cycle has come a long way. See FOMC preview: A step closer to neutral, 8 June.
In the UK , we expect CPI core inflation to be unchanged at 2.1% y/y. CPI core inflation is still on a downward trend in the short term, as the impact of the GBP depreciation is fading. Also, the discussions on the EU withdrawal bill continues in the House of Commons today.
In Sweden , inflation expectations from Prospera are due out today, for details see page 2.
Selected market news
The Trump-Un summit is now behind us, with the news value higher than the market impact, as the markets generally did not react to it, despite the historic intentions of a complete denuclearisation of the Korean peninsula. With the summit behind us, all eyes turn to central bank meetings this week. Tonight, the FOMC will meet (see above) and tomorrow the ECB.
Yesterday, the German Zew was yet another data point in a string of disappointing data. The expectations part of the Zew was the lowest reading since September 2012. The strong decrease was registered in expectations in the metal/steel/car industries likely due to the US decision to impose recent tariffs and growing concerns about a trade conflict escalation. Combined with the already weak German factory orders and industrial production surprising on the downside in April, both hard and soft data so far point to downside risks to our expectation of a rebound in German GDP growth in Q2 to 0.5% q/q from 0.3%. Therefore, on the economic data front, clearly no support for the ECB to speed up QE exit nor to announce a QE end-date already at Thursday’s meeting.
US core CPI was +0.2% m/m in May as expected (2.2% y/y from 2.1% y/y which was in line with expectations). Core goods continue to be weak (-0.1% m/m). Recall that the PCE core usually runs below the CPI core, but that the Fed is not going to tighten monetary policy more aggressively even if PCE core inflation also moves above 2% at some point as it can tolerate this after many years misses.
In The UK, PM Theresa May avoided a humiliating defeat, as she and her government accepted giving the House of Commons more power over the Brexit negotiations . Hence, the Lords’ amendment to have a ‘meaningful vote’ on Brexit, which basically would have made it impossible for the government to leave the negotiation table, was voted down by 324 votes to 298. Still, it seems like the soft Brexit camp won a victory today, leading to a rally in GBP.
