US futures are expected to open a little higher on Tuesday, tracking similar gains in Europe where markets have been buoyed by impressive numbers from the eurozone.
The euro is on the rise again this morning, boosted by the sentiment data from the eurozone this morning, most of which pointed to continued progress in the region. Germany in particular continues to be the main engine of growth for the region with improvements being seen across the different sectors of the economy in the first quarter, while the May sentiment figures suggest its continued into Q2.
The manufacturing sector has performed particularly well in Germany, as seen again by this morning’s survey data, with exports appearing to contribute. Today’s data will likely reignite the discussion on the role that the weaker euro is playing in the strength of the export sector, following Angela Merkel’s claims yesterday that it’s only weak due to the ECBs monetary policy. Regardless, I don’t expect it to influence the central bank’s decision making process as the region as a whole is not nearly as strong as its largest member.
That said, we are seeing clear improvements elsewhere which is what has triggered the belief that the ECB will likely lay out plans to further reduce is asset purchases at the end of the year and/or take steps to move end its negative interest rate policy. The PMIs from the eurozone and France this morning show that the region is going from strength to strength, although there is still plenty of other data that highlights why the ECB must proceed carefully and gradually. The euro may have rallied in response to Merkel’s comments on Monday but under the circumstances I don’t think the views of the German leader or Donald Trump previously will have any impact.
There’s still plenty of economic data to come today, including US new home sales and PMIs, and oil inventory data from API. We’ll also hear from two voting members of the FOMC, Neel Kashkari and Patrick Harker. Markets remain rather convinced that we’ll see a rate hike in June, with it currently 78% priced in according to Fed Funds futures, although traders appear less so that we’ll see a second by the end of the year, with it currently only priced at 42%.
