Europe Cautiously Recovering 

European stock markets rose in early trading on Monday after a mixed session in Asia and a huge week of central bank action that might keep many on the sidelines. The FTSE 100 ticked up around a third of a percent, touching 7,600, whilst the DAX rose around 0.6% to clear 16,000 again as European equities tried to recover some ground lost last week. Wall Street had finished the week higher amid modest gains on Friday, whilst the Vix ticked up a bit from very low levels.   

All Eyez on CB 

Everybody's at war with different things. However, the market is turning focus on the big central bank meetings this week – Fed, ECB and BoJ. Markets price a roughly one-in-four chance the Fed goes with a 25bps hike. I make it more likely than that. The Fed can hike by 25bps and either signal more to come (strong hawkish) or that this is the end for now (dovish hike); it can pause, signalling it will wait on incoming data (soft dovish); or it skips – holds but signals it may raise rates in July (hawkish hold). The messaging around a skip is going to be tricky – markets would see any pause as the precursor to a pivot towards cuts, which is not what the Fed wants to say. Powell would have to bear down very hard with his language to counter a pause. The financial stability questions around the banks seems to be very less of a worry than it was a couple of months ago – for now. Core inflation remains way too high and despite those nascent signs of cracks in the labour market from last week’s unemployment claims data, I still think the Fed is going towards 6% and not halting yet. The RBA and BoC both had to raise rates again last week.  

Central Bank Expectations 

The Bank of Japan is expected to sit on its hands and do nothing – though we will expect some commentary around inflation and wages to help steer the yen a bit. The European Central Bank is set to raise rates this week and in July – the path beyond that is a lot less certain and new staff projections are unlikely to show any real change.    

The Bank of England meets next week. Ahead of this we have a couple of MPC members speaking. We hear from the very hawkish Mann today, and the very dovish Dhingra on Tuesday before the MPC meeting on Thursday June 22nd.   

Inflation Still Stubborn? 

Inflation data from the US tomorrow is key. Headline CPI declined to 4.9% in April, but core inflation remained stubborn at 5.5%. The Cleveland Fed’s nowcast of inflation points to month-on-month inflation of 0.19% and core inflation of 0.45%, which would result in annualised inflation rate of 4.1% and 5.3% respectively. A 10yr bond auction slated for today in the US may help us with demand for Treasuries with all this issuance coming down the pipe in the wake of the debt ceiling – 10yr yield at 3.765% this morning. 

Oil - Slick 

Oil slipped as Iran touted a potential nuclear deal with the West and GS lowered its price target for the year. It comes after a week in which some pretty soft China data prints had nudged the market lower. WTI (July) tested last week’s low at $69, with bears targeting immediate support at $67. What can OPEC do?  

Sterling moved up, with GBPUSD testing resistance at 1.2580 – long term trend resistance around 1.26.