It’s been a relatively calm start to the week so far, with Asian markets overnight trading relatively mixed and offering little direction for stocks in Europe ahead of the open.
Equity markets appear to be in a state of complete indecision right now and as a result have been left range-bound for the last few weeks. Perhaps this suggests that the impressive rebound following the disastrous start to the year has run its course and the central bank’s goal of stabilising the markets has been achieved.
That said, as we saw towards the end of last week, the markets are not in paralysis mode by any stretch of the imagination and with some big risks events to come over the next month, I would be surprised to see this continue for much longer.
The Federal Reserve’s decision to convey a much firmer hawkish tone has certainly woken people up to the possibility that rates could rise over the summer and with that, the markets have perked up as well. Investors had become very complacent on U.S. interest rates and there was almost a sense of what the Fed says is irrelevant, the markets will lead and eventually the Fed will follow. The Fed made it perfectly clear last week that this is absolutely not the case.
With market sensitivity to anything U.S. interest rate-related now picking up, today’s speeches from three Fed officials could be important. James Bullard, John Wiliams and Patrick Harker are all due to speak this afternoon and if the message is consistent with those towards the end of last week and the April minutes, investors would be foolish to ignore them. That said, there’s one person’s view that will stand out above all others this week and that is Fed Chair Janet Yellen, who’s opinion we should get this Friday. Should Yellen hint at a June or July hike then I think markets will reluctantly accept defeat.
This morning we’ll get the preliminary manufacturing and services PMI data from the eurozone, France and Germany which may provide a spark early in the session. We’re expecting very marginal improvements here, with the cooling global economic environment this year allowing only gradual advances.
For a look at all of today’s economic events, check out our economic calendar.