European stocks have reversed earlier losses and US futures are pushing higher as investors shrug off last week’s concerns over a more hawkish Fed.
Bond yields are mixed across the curve with the 10-year Treasury drifting lower on speculation that Fed tightening monetary policy will bring inflationary pressures back under control. This is helping risk appetite, which is once again returning to the market.
After the Fed’s hawkish turn last week, central banks and their next moves will remain in focus this week. The ECB’s Christine Lagarde is due to speak today before the European Parliament Economic and Monetary Affairs Committee. Jerome Powell will testify before Congress tomorrow and the BoE will announce its rate decision on Thursday. This hat trick of central banker appearances should provide the market with further clues as to the direction of monetary policy from here. There is a good chance that we will see some choppiness in the markets as the debates surrounding the next moves are priced in.
European bourses moved higher with the exception of the French CAC 40 which trades on the back foot amid growing signs of political turmoil. The first-round results of France’s elections are more than disappointing for French President Macron’s party, which performed significantly worse than expected. The abstention rate of around 70% perhaps highlighted just how uninspired and untrusting French voters are. The fact that the euro is rising and the CAC is falling indicates that this is just a domestic risk at the moment. It is still far too early to draw conclusions about the 2022 presidential elections on the back of these results.
A quiet economic calendar in both Europe and the US is giving trades little to really sink their teeth into, some drifting across both sessions could be expected.
FX -USD slips, GBP rallies with BoE in focus later this week
The US dollar is slipping away from the 2-month high hit in the previous week as risk appetite rebounds. Last week the Fed revealed that it expects two interest rate hikes in 2023. The FOMC meeting was then followed by St Louis Fed President James Bullard suggesting that the Fed could look to hike rates as soon as 2022. However, the US dollar has been unable to maintain its gains at the start of the week. Federal Reserve William’s speech later today could provide fresh impetus.
The pound is a notable outperformer versus the greenback at the start of the week trading 0.4% higher. Some of those gains are due to the softer tone surrounding the greenback, whilst others stem from expectations of a slightly more hawkish tilt from the BoE later this week following last week’s jump in inflation. Unlike the Fed, the fact that the BoE is not aiming to overshoot its 2% inflation target could help lift the pound at a faster clip off recent lows.
For a look at all of today’s economic events, please check out our economic calendar at www.marketpulse.com/economic-events/
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