European Open – CPI and ZEW Readings Eyed

European futures are pointing to a higher start on Tuesday although given the choppiness in the markets recently, that could soon change depending on the kind of bond market moves we see after the open along with any developments in Greece.

We were expecting a similarly positive start to trading on Monday but further selling in bond markets soon hit equities again. Bonds did pare losses late in the session which, along with the weaker euro, allowed equities to catch some late bids and even end the session higher in some cases and it may be this strong end that’s supporting it ahead of the open.

As long as bond markets continue to see this kind of volatility and remain prone to large intra-day sell-off’s, I think we’ll continue to see these big intra-day swings in equities. Of course, a lot of this may be impacted by Greece as the country walks blindly towards default.

Negotiations don’t appear to have progressed any further and despite being only two weeks from default, Greek Prime Minister Alexis Tsipras is standing by his red lines. Pension and labour market reforms are the key sticking points although the bizarre decision to rehire around 4,000 public sector staff against the wishes of its creditors doesn’t really help matters either.

This morning there’ll be plenty of other key talking points though with inflation data being released for both the U.K. and the eurozone. Both are currently experiencing no annual inflation largely driven by lower oil and food prices. This is seen as less of a problem in the U.K. as it is still seeing inflation in non-essential purchases and therefore inflation expectations are not being affected, yet. Both April readings are expected to remain at 0% before picking up later in the year.

A dip in the latest ZEW economic sentiment figures for Germany and the eurozone is unlikely to come as a surprise to anyone. The threat of a Greek default or even exit from the eurozone combined with a fragile recovery is more than enough to knock the confidence of consumers and businesses. Equally, if a deal can be reached in the coming weeks, I would expect confidence to bounce back fairly quickly as the weaker euro and stimulus efforts of the European Central Bank continue to provide a supportive environment.

The FTSE is expected to open 12 points higher, the CAC 21 points higher and the DAX 56 points higher.

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Craig Erlam
Based in London, England, Craig Erlam joined OANDA in 2015 as a Market Analyst. With more than five years' experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while conducting macroeconomic commentary. He has been published by The Financial Times, Reuters, the BBC and The Telegraph, and he also appears regularly as a guest commentator on Bloomberg TV, CNBC, FOX Business and BNN. Craig holds a full membership to the Society of Technical Analysts and he is recognized as a Certified Financial Technician by the International Federation of Technical Analysts.