Market movers today
Today brings the busiest day of the week in terms of key economic and political events. Market focus will not least be on the ECB meeting today and potential changes to its forward guidance. However, we do not expect the ECB to make any changes to avoid the risk of unwarranted tightening of financial conditions and instead just introduce a more hawkish tone in the post-meeting statement.
In the UK, all eyes will be on the general election with exit polls released at 23:00 CET. The Conservatives’ lead in the polls over Labour has narrowed significantly over the past couple of weeks, increasing the risk of a hung parliament. Our main scenario remains that Theresa May wins; however, her margin of victory will be decisive in determining her vulnerability to hardline Brexiters and hence her flexibility in the upcoming Brexit negotiations.
In the US, former FBI director James Comey will testify before the Senate Intelligence Committee at 16:00 CET, where focus will be on any new revelations about his sudden dismissal on 9 May following disagreements with President Donald Trump about the FBI’s Russian probe.
In Scandinavia, manufacturing production data in Norway is due to be released, which we estimate will show a solid rebound of 2.0% m/m in April, after the weak reading in March.
Selected market news
Markets are in wai t-and-see mode ahead of the ECB meeting and UK election with no significant moves overnight.
Oil prices dropped sharply yesterday following a report that showed the biggest weekly rise in US stockpiles since 2008. Brent oil prices declined more than USD1 to USD48.4 per barrel. It is the lowest level since November last year and with China showing clear signs of slowdown , risk is mainly on the downside.
Yesterday, an ECB leak suggested that the ECB staff projection at today’s meeting will show a downward revision of the projection for inflation to 1.5% for 2017, 2018 and 2019. This is still clearly below the ECB’s target in the medium term. The news led to a drop in German yields and lower EUR/USD. Both yields and the EUR have recovered since yesterday though.
North Korea did another missile test this morning, apparently testing short-range missiles designed to at tack ships. This was the 10th missile test by North Korea this year and another provocat ion of the US. However, we still believe that the ‘red line’ for the US will be whet her North Korea carries out another nuclear test. They did the last one in September last year and have done five since 2006 with the last three under the current leader Kim Jong-un. The US administration has signalled that a nuclear test would lead to ‘actions’ without being specific as to what kind.
