Carney in for a Grilling as Referendum Nears

European equity markets are expected to open a little lower on Tuesday, tracking similar losses in Asia overnight but remaining firmly within this month’s relatively tight trading range.

Investors are very much in wait-and-see mode right now with the next month bringing two very notable risk events, the E.U. referendum in the U.K. and a possible rate hike from the Federal Reserve. Investors have been in denial about the potential for a summer rate hike for most of this year but appear to be coming around to the idea now that the Fed has firmed up its stance on the matter, insisting that June is very much live and a hike is warranted if the data continues to perform as it has. I think the market still has some way to go to completely buy into the idea though, something Janet Yellen could have a big say on this Friday.

One of the things that could interfere with a June hike from the Fed and something that the markets clearly think will, is the U.K. referendum on E.U. membership which takes place just over a week after the FOMC meeting. As it stands, the polls suggest the “Remain” camp is in the lead but the size of the gap varies significantly dependent on the poll or implied odds you choose to follow. With just under a month to go, this is also likely to change a number of times before the vote takes place on 23 June, with both camps stepping up efforts to convince the still-large number of undecided voters.

EU Referendum Poll of Polls

Source – WhatUKThinks EU Referendum Poll of Polls

Bank of England Governor Mark Carney could have another say in this today, when he and other policy makers appear before the Treasury Select Committee to discuss the inflation report. The event is likely to focus primarily around the referendum, with the BoEs forecasts being based on the assumption that we remain in the E.U.. Carney has come in for some heavy criticism over his views on the economic impact of a Brexit in recent months which may make today’s appearance a little feisty and uncomfortable for him. That said, I don’t expect him to back down on this and instead reinforce his views on the near to medium term impact.

The eurogroup will also meet today, with Greece once again being top of the agenda. Greek lawmakers passed the latest demands through parliament over the weekend which included tax hikes in an attempt to satisfy its lenders and secure the next tranche of its bailout which is needs to repay IMF loans and ECB bonds maturing in July. The controversial topic of debt relief still hangs over these talks and makes an agreement all the more difficult, especially one that continues to involve the IMF.

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Craig Erlam

Craig Erlam

Former Senior Market Analyst, UK & EMEA at OANDA
Based in London, Craig Erlam joined OANDA in 2015 as a market analyst. With many years of experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while producing macroeconomic commentary.

His views have been published in the Financial Times, Reuters, The Telegraph and the International Business Times, and he also appears as a regular guest commentator on the BBC, Bloomberg TV, FOX Business and SKY News.

Craig holds a full membership to the Society of Technical Analysts and is recognised as a Certified Financial Technician by the International Federation of Technical Analysts.