Market movers today
In the euro area, the main event today is the release of the ECB minutes from the April meeting. The statement and press conference were more downbeat on growth than in March on the back of the moderation in data. Mario Draghi said during the April press conference that the ECB did not discuss monetary policy ‘perse’, so we see limited scope for further guidance on the next policy move in the minutes.
On the political front, German chancellor Merkel will visit China for talks with leaders including President Xi Jinping and the Eurogroup starts its two-day meeting in Brussels.
In Scandinavia, we will get Danish retail sales for April.
Selected market news
In the US yesterday, government bond yields fell amid political uncertainty in Italy and the Fed signalling that a temporary modest overshooting of the 2% inflation target would be welcomed as it ‘would be consistent with the Committee s symmetric inflation objective and 1could be helpful in anchoring longer-run inflation expectations’.
The FOMC minutes released yesterday also showed that the Fed discussed the recent flattening of the US yield curve. A few said that factors such as expectations of gradual Fed hikes, downward pressure on term premiums from the Fed’s still large balance sheet and other central banks’ asset purchases and investors’ lowered estimates of the long-run neutral rate could make the slope of the yield curve ‘ a less reliable signal of future economic activity . However, several said that it would be important to continually monitor the slope as historically, ‘ an inverted yield curve has indicated and increased risk of recession . We expect the US yield curve flattening to remain a market theme and although we do not foresee an actual inversion of the US yield curve on a 12 month horizon, we expect the US yield curve flattening to continue.
In Italy, President Sergio Mattarella approved Giuseppe Conte’s nomination as premier yesterday (see Bloomberg ). Going forward, there will be continued focus on the choice of the new finance minister, who is responsible for setting the budget policy.
In addition to political uncertainty in Italy and soft FOMC minutes, euro area PMIs surprised on the downside yesterday. This further induced safe haven flows supporting, e.g. Germany government bonds.
