ECB Changed Its Forward Guidance On Policy Rates

Market movers today

Today at 13:30 CET in the euro area, the ECB minutes from the June meeting are due out, when the ECB changed its forward guidance on policy rates. These accounts have sometimes contained some interesting information but this time it is likely to be a bit outdated due to Mario Draghi’s recent speeches. Jens Weidmann and Ewald Nowotny are due to discuss the future of the euro later in the afternoon.

In Germany, we estimate that factory orders rose 1.7% in May, slightly below consensus of 1.9%.

Ahead of the US jobs report for June tomorrow, the corresponding ADP report is due out at 14:15 CET, which, however, has overestmated actual employment growth in recent months. We estimate non-farm payrolls rose 180,000 in June. See our US Labour Market Monitor. June report likely to be stronger than in recent months, 5 July 2017.

US ISM non-manufacturing index is due out today at 16:00 and will shed light on growth in the service sector. ISM non-manufacturing is relatively high at the moment , suggesting the service sector is continuing to grow.

In Sweden, house prices for June are due out .

Selected market news

As expected, there was not much new in the FOMC minutes from the June meeting. The most interesting part of the minutes was the timing of the balance sheet run-off, as ‘several preferred to announce a start to the process within a couple of months’ while ‘some’ want to wait until later in the year. Overall, it supports our view that the Fed could make an announcement in September and start the actual run-off in Q4. See FOMC minutes: Fed likely to announce start of QT in September, 5 July 2017. With respect to inflation, the minutes say low inflation is likely to be ‘transitory’. The Fed st ill has faith in the Phillips curve, which says that the tighter labour market should push up wage growth eventually. The problem is that tightness of the labour market is not the only factor determining wage growth, as second-round effects of the many years with inflation below 2% have hit wage growth. When employees expect this to remain low, they can live with low wage growth, as real wage growth may st ill be solid. See Strategy: Central banks consider leaving the party, 30 June 2017.

At last night ‘s meeting on North Korea in the US Security Council, the US ambassador Nikki Haley said that China plays a key role in ‘preventing a catastrophe’. She argues that North Korea has escalated the conflict with its missile launch and that the US is prepared to use its ‘considerable military forces’ if necessary, although the US wants to start with trade sanctions initially. She threatened China implicitly, as she said the US will change its attitude on trade with countries trading with North Korea.

The G20 meeting starts tomorrow and there are many things to talk about : North Korea, Paris climate change deal, trade/protectionism, Ukraine and so on. CNN has a long list of T rump’s disagreement with G20 counterparts and EU-Japan is expected to present its free trade deal (removing 99% of tariffs on traded goods) today.