Market movers today

We do not expect the Federal Reserve to make any significant changes to its policy stance tonight despite the very positive jobs report surprise on Friday, although markets have priced out negative rates.

However, we are looking for two things: whether the Fed changes its forward guidance and whether it puts a number on its monthly QE buying.

We think it is too early for the Fed to change its forward guidance at this point just because of one economic data release although we cannot completely rule out the Fed will make it more clear what the conditions for rate hikes are (i.e. announcing a temporary asymmetric operational inflation targeting as discussed in January and February or a revival of the old Evans rule (linking rates to unemployment)).

We think the Fed is satisfied with its unlimited, open-ended and flexible QE programme and does not think it will gain much by announcing a monthly purchasing target. We do not expect the Fed to implement yield curve control.

OECD releases its economic outlook today with its twice-yearly analysis of the economic prospects of its member countries.

In the Scandies, we have CPI figures ticking in for Denmark and Norway and Prospera inflation expectations for Sweden. We expect that Denmark went into deflation in May but much depends on the registration of clothing prices. Inflation is much higher in Norway and we expect it remained that way in May (see more on next page).

Selected market news

Global equity markets seem be taking a breather after the almost continuous and forceful rebound since March. Asian stock markets are mixed following the retrenchment in both European and US sessions yesterday. It may also be that investors see a small tail risk that the Fed does not confirm its very dovish stance tonight, especially after last week’s strong non-farm payroll number. However, we think it is too early for the Fed to dare to signal any change from its dovish stance and change its forward guidance. Looking back to last week, this is quite similar to Thursday’s ECB meeting, when ahead of the meeting there was a retracement in risk sentiment but upon announcement of continued monetary support, risk propelled higher.

In Europe, a lot of focus is on the upcoming negotiations of the recovery fund. In recent days, Denmark (one of the ‘frugal four’, the other three are the Netherlands, Sweden, and Austria) signalled a softer position on the issue, suggesting it may be willing to compromise on the issue of giving grants to the hardest-hit countries in Southern Europe. Yesterday, though, officials in Brussels suggested that EU leaders hold a recovery fund in-person summit on 9-10 July to allow for backroom negotiations in order to reach an accord.

Focus in Europe is also again turning to Brexit ahead of the looming deadline on 1 July, by which the UK has to ask for an extension of the transition period, which expires end-2020 if the deadline for reaching a permanent deal is too tight. Yesterday Conservative MP Penny Mordaunt told the House of Commons that Mr Johnson will not use the meeting to ask for an extension, which is in line with our view laid out in our Brexit monitor published this morning: No major breakthrough expected before 1 July.