Week ahead: the ECB to deliver?
After this week’s heavyweight US economic data, the spotlight is even stronger in the Euro zone again next week. More specifically, the ECB meeting on Wednesday will receive a lot of attention, as expectations of further easing measures have increased.
It will be a close call, and the ECB may already be ready to deliver a 25bp rate cut at next week’s meeting, while at the minimum, we expect the central bank to signal readiness to ease going forward.
Still, there will be action in theUSas well, as Fed Chairman Bernanke will testify before the Joint Economic Committee on Thursday. Bernanke will likely want to keep his options open, but we expect to hear a dovish tone, helping to shape expectations ahead of the June 19-20 FOMC meeting.
InChina, a further slowdown in inflation and more weakness in the industrial sector will strengthen the case for further stimulus. Another easing of bank reserve requirements is thus likely in the pipeline.
Especially in light of the recent data on the waning government bond purchases of Spanish and Italian banks and the jump in also short Spanish and Italian yields, auctions of these countries’ debt will again receive plenty of attention. We do not expect to see failed auctions, but the demand is likely to come in on the weak side, only exacerbating the worries. The highlight of the issuance calendar will thus be the Spanish bond auction on Thursday.Germanywill sell 5-year bonds on Wednesday andFrance7-50-year bonds on Thursday.
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