Quiet enough start to the week

It was quiet enough in markets yesterday with the US and UK on public holidays. The euro and sterling both gained ground against the dollar though, with the single currency trading close to the top of its recent range this morning at around $1.0870 and the pound trading at around a two-month high of $1.2770. This in turn leaves EURGBP still hovering just above £0.85.

In government bond markets, German yields reversed some of last week’s increase, with 2-and 10-year yields increasing by around 5bps, as the market priced back in a bit more in the way of ECB policy easing this year. In equity markets, European stocks advanced  by 0.7%, more than reversing last week’s modest decline.

ECB Chief Economist Philip Lane says the central bank is likely to cut interest rates at next month’s meeting (which is not news at this stage!), while his colleague Villeroy – one of the dovish members of the Governing Council – says a rate cut at the following meeting in July shouldn’t be ruled out.

Business sentiment in Germany was little changed this month according to the last ifo survey, with  companies assessment of current business conditions slightly more downbeat than in April but  expectations regarding future conditions improving. The German economy returned to growth in the first quarter of this year, after weakening over the second half of 2023, and the country’s central bank says GDP is likely to have expanded again in Q2.

Economic data due today include the ECB’s survey of consumers 1- and 3-year ahead inflation expectations; the CBI’s retail sales survey in the UK; and consumer confidence and house prices in the US. A number of ECB and Fed members are scheduled to speak as well.