- ECB is on the hot seat – Will they deliver?
- China Manufacturing PMI out over the weekend
- US non-farm payrolls rounds off an eventful week
Another month comes and goes, completing five months of tight forex range trading. Next week should be crucial in determining capital markets direction for the summer. The ECB had better show an aggressive hand or otherwise they will loose credibility very quickly and the market will be cornered into duplicating the first 150 days of 2014.
Draghi and company at the ECB on June 5th will have to perform some real magic to get this market truly engaged. Market majority agrees that action is required to subdue the EUR’s strength and boost lending, euro-zone exports and growth. It’s the reason why expectations run high for next week. A refi-rate cut alone is not enough for growth, but outstanding support for the SME’s would have a much bigger and far reaching impact on the euro-economy. Draghi has dropped many hints about next weeks meeting and investors have not been adhering to one particular outcome just yet. Many expect the ECB is going to cut its policy interest rate and/or announce targeted liquidity measures, with a view to supporting bank lending.
Along with the ECB, next week the market gets a heady mix of data, cumulating in US non-farm payrolls. It’s not a week for the faint hearted (G7, Aussie, CAD and UK rate decisions). If Draghi is unable to move the needle then hopefully one of event risks will provide some intraday volatility.
In the US this past week, a horrid second reading of GDP has been largely ignored, either because of the weather effect or the fact that if Q1’s downtrend trickles into Q2 the Fed will open the taps on accommodative measures once again. Global equity markets remain atop of record highs, driven there mostly by central banks ultralow rate policy. US Treasury yields continue to be pushed lower especially in the 10’s basket, which managed to trade to a one year low at +2.40%.
The “selling in May and go away” never materialized. Directional trends continued throughout the various asset classes with volatility again reined in. Investor’s focus will turn to China and its manufacturing PMI print over the weekend before officially waving in the new month. If Draghi and company happen to fail the market in the first week of June, the asset classes will be entertained at least by four-weeks of real football from Brazil starting on June 12th.
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