After a well-filled eco calendar last week, the economic calendar is thin today with only the Italian industrial production data left, after this morning’s French data. Germany will auction Bubills and ECB’s Coeure and Fed’s Bullard are scheduled to speak.
After two consecutive monthly declines, Italian industrial production is forecast to have stabilized in April. As Italian business confidence improved somewhat recently and also exports are picking up, we believe that after the German reading on Friday, also for the Italian reading, the risks might be for a stronger outcome.
On Friday eve, two famous Fed watchers, Hilsenrath (WSJ) and Beckner (Market news) supported the idea that the Fed is closing in on a decision to start tapering the bond purchases. Beckner said, citing sources, that “substantial” job growth, the criterion for tapering purchases, could mean for the Fed job growth somewhat below 200 000. According to such criterion, the condition is fulfilled (6 month average is 194 000). Hilsenrath said that Fed officials are likely to signal at their June policy meeting that they are on track to begin pulling back their $85B bond buying programme later this year, as long as the economy doesn’t disappoint. The mixed May payrolls report, the article said, ensured officials wouldn’t want to act right away and would instead want to see more data.
Looking forward, the eco calendar is rather thin and back-loaded. In the US, the main releases are for Thursday and Friday. Retail sales and initial claims on day one. Production and Michigan consumer sentiment on day two. We will fine-tune our expectations later this week. In EMU, only the industrial production on Tuesday and the final CPI (Friday) are for release, but these shouldn’t impact markets much. More important is the hearing on the OMT before the German Constitutional Court on Tuesday/Wednesday. A final ruling is only expected after the German elections in September. However, markets will try to get an idea about the direction in which the Court is going via the nature of the questions asked. So, it might impact markets. There is also some speculation the ECB would unveil some details, which are as of yet unknown, of the programme. The FAS said the maximum amount the ECB would spend was €524B, but an ECB spokesman denied the information. It is important that there is no ex ante amount fixed, as Draghi said the ECB would do whatever it takes. A lot of ECB members will speak this week and after the “wait and see” attitude Draghi signalled last Thursday, we are looking for different “shades” in the comments of ECB members.
This week’s EMU bond supply is thin. Tomorrow, the Netherlands kick off with a tap of the on the run 3-yr DSL (€2.5-3.5B 0% Apr2016). On Wednesday, the German Finanzagentur taps the on the run 2-yr Schatz (€5B 0% Jun2015). On Thursday, the Italian treasury concludes. This week’s auctions will be supported by a €17B German redemption.
In the US, the treasury starts its mid-month refinancing operation tomorrow with a $32B 3-yr Note auction. The treasury continues on Wednesday with a $21B 10-yr Note auction and concludes on Thursday with a $13B 30-yr Bond auction.